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UK – Curbing employment rights creates two-tier labour market, says CIPD

09 October 2012

The Chartered Institute of Personnel and Development (CIPD) said the government is creating a two-tier labour market, after Tory Chancellor George Osborne yesterday announced plans allowing workers to give up employment rights in exchange for financial gains.

At a party conference in Birmingham, Mr Osborne announced a scheme that would cut back on employees’ basic labour protection including unfair dismissal, redundancy and training entitlements, as well as the right to ask for flexible working.

The new owner-employee contract will enable firms to award shares between £2,000 and £50,000 to their workers if they are willing to give up such labour rights. Any gains in those shares would be exempt from capital gains tax, Mr Osborne said.

Mr Osborne said “Workers: replace your old rights of unfair dismissal and redundancy with new rights of ownership. And what will the government do? We will charge no capital gains tax at all on the profit you make on your shares.

“Zero percent capital gains tax for these new employee-owners. Get shares and become owners of the company you work for. Owners, workers and the taxman, all in it together. Workers of the world unite.”

But the CIPD has been critical of the proposals, which employers argue will reduce labour market regulations in the country.  

“The UK has one of the least regulated labour markets in the world and there is little evidence to suggest that employment regulation is preventing small businesses from taking people on,” said Mike Emmott, employee relations adviser at the CIPD.

“Employees have little to gain by substituting their fundamental rights for uncertain financial gain and employers have little to gain by creating a two tier labour market,” he said.

The CIPD said that it is unclear how attractive the offer to give up employment rights in return for shares will be to prospective employees of small firms. It also said that the proposals are likely to impact employee motivation at small firms.

“Employee ownership works best where it is accompanied by great management, rather than enhanced job insecurity,” Mr Emmott warned.

Critics have argued that small firms would use the scheme to avoid labour laws in return for giving their staff an initial bonus of £2,000. Employers have welcomed the announcement. 

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