Cable falls prey to a Brown trap

The Telegraph carries a story that will enrage the right and unnerve businesses. Business Secretary Vince Cable has agreed to introduce a controversial EU directive to award agency workers the same rights as full time employees. This means that agency workers will be entitled to full holiday pay, maternity leave and so forth, as well as awarding temporary workers equal redundancy rights and basic pay. The Treasury hopes to raise an additional £332 million a year through taxes on higher wages, but that will depend on these regulations having a positive effect on the Labour market. Businesses say that this will dramatically increase their costs and they warn that they will have to cut jobs.

With growth at a meagre 0.2 per cent in the last quarter, the economy desperately needs businesses to expand. But further regulations make it likely that companies will retrench. Even the Department for Business estimates that the directive will cost businesses £1.8bn a year, which undermines the promise to free small businesses from the stranglehold of red tape.    

But there’s more to this story than broken pledges. Equal employment rights have long been an ambition of human rights activists and trade unions. The European Commission alighted on the issue in 2002 and made its final directive in 2008. Back in October 2009, the Labour government postponed enforcing the directive for a further two years. On the one hand, given the economic situation at the time, it was responsible government. But, equally, it was a classic example of Labour leaving carefully placed traps for the expected future Conservative government.

It’s mere chance that a Liberal Democrat happens to be in the relevant department; a Tory would have faced the same problems and might proved similarly powerless before the EU. However, there are indications that Cable could have fought harder for a second delay. The Telegraph reports that business leaders have pressed for another deferral until economic recovery is more certain, but the department has bowed to pressure from unions and potential legal challenges from agency workers under European law.