Taking on a first employee

Since 2000 the UK has had quite a good rate of new business formation, in excess of the death rate for businesses save during the 2009-10 slump. London has led the way, with  1544 businesses per 10,000 residents, with Scotland and Northern Ireland at the bottom end of the table  with 739 and 834 businesses per 10,000 respectively. Over the last 19 years the UK has added 2.4 m new businesses.

The bulk of these businesses are self employed people.  Out of 5.9 million businesses, 4.5 million have no employees. 1.1 million businesses with employees have fewer than 9. Just 8000 businesses employ more than 250 people. The regions that have the highest number of businesses per 10,000 people also tend to be the ones with the highest incomes.

We need to ask what would it take to encourage more self employed people to take on their first employee?  It does mark a large step up, with the employer having to accept a wide range of risks and responsibilities.  We both need to create decent conditions for employment, and sensible conditions for employers so they find it worthwhile to take people on.

I would be interested in your thoughts on whether there are  changes to be made to current rules to provide  incentives to employers to create new jobs without damaging employee rights.


  1. Shirley
    January 5, 2020

    I’ve seen businesses brought to their knees by employees with hidden disabilities, who should never have accepted that particular job. The recruitment process requires extensive knowledge regarding what you can ask, and what you can’t. You can’t ask if a person has a disability, but once in the job they can demand the job and environment be changed to suit their disability (which may be beyond the financial reach of a small business) and they have greater rights than employees that are not disabled regarding dismissal for being unable to do the job for which they were engaged.

    Likewise with these ‘religious’ rights, where they accept jobs they have no intention of carrying out, like (people ed) refusing to sell alcohol and (others ed) refusing to sell meat, etc. The power is with the employee over the employer.

    You cannot ask these questions before offering a job, and I have seen the damage done by compensation chasers who rip off naive small employers. They know full well it is cheaper to just pay them off with a few thousand than fight them in court. It is soul destroying for the employer. It is a very expensive and distressing situation that can bankrupt a small employer or destroy their desire to employ anyone at all.

    1. Shirley
      January 5, 2020

      I see my post is in perpetual ‘moderation’. Do you doubt the authenticity of what I say? Please check with ACAS, They will confirm that all I have said is true, and will no doubt have cases of their own to confirm my experiences.

      It truly is a minefield for naive and inexperienced employers.

    2. Bob
      January 11, 2020

      I can confirm from my own bitter experience that all you say is true.
      This highlights very clearly why businesses need to think twice before taking on permanent staff. It is indeed a minefield.

      I know of one particular case where it took 15 years to finally dismiss one particularly disruptive and recalcitrant employee after many attempts, with verbal and written warnings having expired before they got to the actual dismissal stage.

      How many small businesses have the time, money or resources to deal with this nonsense?

  2. Mark B
    January 5, 2020

    Good morning.

    I think a stable market with good long term growth creates enough business confidence that people will look to expand. Now the GE is out of the way and we have a majority government there can be no excuses.

    1. Martin in Cardiff
      January 5, 2020

      It will require an awful lot of small businesses taking on a first employee, to make up for the losses in steel, car manufacture, farming etc. which are likely under the kind of exit from the European Union that John proposes.

      And what sort of small enterprises would have a use for often middle-aged people from those spheres anyway?

      And how would a hammered local economy in the affected areas sustain them?

      1. Anonymous
        January 5, 2020

        And those losses which happened whilst in the EU too.

      2. Edward2
        January 5, 2020

        Yet the historical employment data shows that the decline in mass employment in traditional industries over many years, has been replaced by extra employment in small companies, start ups and self employment.
        That is why unemployment is at a low level and we have record numbers in work.
        There is no reason why that trend cannot continue.

    2. Ian @Barkham
      January 5, 2020

      So true, the EU killed off so many jobs over the years the damage is incalculable.

      Just think our steel workers could not receive government support as it was EU policy to move more manufacturing to other areas of the EU.

      Jaguar Land Rover now foreign owned has received grants from the EU (which the UK taxpayer picks up the tab for) on condition it move production from the UK to mainland Europe. More manufacturing lost. The List is endless.

      Now at last with have a Government that gives the impression of putting the UK first

      1. Martin in Cardiff
        January 5, 2020

        The Government would not have given such support for its own doctrinaire reasons anyway, would it?

        Your claim is a silly red herring.

  3. margaret
    January 5, 2020

    To be specific is difficult due to it’s complexity.The considerations which need to be made are the type of business,the clientele, the consistency of product and customer. the demand, the competition,the sales ability.Some think that a good product sells itself, however this is not always true.
    I visited the local tap bars in my locality for comparison and I wanted to know what was going on.They are all small businesses and there are a few of them.The quality of most was abysmal , some being pseudo trendy, others bare and unwelcoming , another with sky high prices for bad service but reasonable products.. One was OK : they had nearly got it right and had employees.The difference was the premises and the welcoming of the employed staff.
    New staff cannot be taken on if the business owner doesn’t get it right in the first place.Perhaps more advice for small businesses could be made available .

    1. jerry
      January 5, 2020

      As @margaret said (before she got distracted) it is difficult to be specific due to the complexity of different businesses in our economy, often doing similar but not the same types of work, no ‘one size fits all’ solution can exist, what might be good for one building company will be no use to a jobbing builder wanting to, quite literally, simply take on an extra pair of hands.

      1. margaret
        January 5, 2020

        I didn’t get distracted Jerry (; this time).I have been on hundreds of interviews and rather than coming out with the spiel , I like to give examples. Life and work is application (, although those who interview cannot cope if it is outside the tick box), So rather than distraction it was illumination.
        A little high road path:and deviation- Through approx 10 years of university it always annoyed with me as I was told to focus , focus, focus. My opinion was that focusing usually meant that many things were omitted. Omission can be a disaster and ethically incompatible with good sense.

        1. margaret
          January 5, 2020

          sorry ..there again . “with ” crept in .

      2. margaret
        January 5, 2020

        ….and again the problem of specification is difficult due to it’s complexity Don’t be a sentence despot. I trained in Philosophy which equates to thinking and solving problems. I also write in short medicalese daily and find it difficult to get back to good English with conjunctions and correct grammar.

    2. Sir Joe Soap
      January 5, 2020

      Plenty of do-gooder device available. Most would-be employers need employees to grow, but can’t face the costs and aggro of staff. The government hinders, not helps, in this respect.

    3. Stephen Refern
      January 5, 2020

      Maybe they thought you were snooping and from the council or HMRC Margaret or they just didn’t like you and thought you would put off other customers.

  4. Kenneth
    January 5, 2020

    I think this is very simple. A contract to work for a company should be a private matter between the parties.

    The government should not be imposing any conditions, whether that is the minimum wage or anything else.

    1. Andy
      January 5, 2020

      Except if there are no conditions at all then you end up with lots of vulnerable people being completely exploited.

    2. margaret
      January 5, 2020

      That is the problem Kenneth . Many trying to simplify and make a contract suitable for a diversity to suit all .If this direction is taken , you will find many employers saying , but in my business this or that is not applicable.Tar brush contracts do not work , although I see what you are saying in that there should be minimum standards for that aimed at simplicity.

      1. margaret
        January 5, 2020

        Unfortunately it is what is not said that makes slaves out of employees and some will work at £4.00 / hr just to survive.Thankfully a minimum £9,000 has been added to the minimum.

    3. jerry
      January 5, 2020

      @Kenneth; How Dickensian…

    4. Sir Joe Soap
      January 5, 2020

      Precisely, and per my post yesterday.
      -Pensions should be no more a matter for the employer than the the employees’ weekly food shop, so NEST becomes redundant.
      -GDPR shouldn’t be required below 50 employees
      -Think about providing employers with a learning incentive when an employee makes the grade, and in some cases pay the employer as if they were a university prof.
      -employee rights amount to being paid per contract, employer rights amount to the employee carrying out their duties per contract
      -employment tribunals working on a 50 50 basis – both employee and employer pay an equal amount to taking a case to tribunal, with compulsory mediation at cost to the protagonist

    5. Martin in Cardiff
      January 5, 2020

      So you think that an airline should be able contractually to require a pilot, say, to fly for eighteen hours a day, for weeks on end without a break then, for instance?

      Do you ever think through anything?

      1. Reaction Harry
        January 5, 2020

        Is it perhaps you who hasn’t thought it through?

        Your comment about airline pilots’ hours is about airline safety, not employee rights.

        1. Martin in Cardiff
          January 5, 2020

          And it is an established legal principle that a term in a contract must not require a party to break any law, on air safety or on anything else.

          So the Government through its laws will always limit what may be asked contractually, and quite rightly so.

      2. Edward2
        January 5, 2020

        That is controlled by natiinal laws concerning aircraft safety Martin.
        Try and think of another example.

        1. Martin in Cardiff
          January 5, 2020

          It means that the Government controls what may be put in a contract, then.

          1. Edward2
            January 6, 2020

            Well yes in that national laws affect what you are able to put in an employee employer contract.
            You cannot ask employees to do illegal acts.
            Or force them to breach health and safety laws.
            Did you not know?

          2. Martin in Cardiff
            January 6, 2020

            You do, only now that I have explained it to you.

          3. Edward2
            January 6, 2020

            Having actually employed many people over decades, unlike you, I am very well informed on this subject.

        2. Fred H
          January 5, 2020

          Marty thinking ! an oxymoron. Or maybe just …

    6. Lifelogic
      January 5, 2020

      Exactly, easy hire and fire and a free contracts between two individuals. That is best for jobs and best for both employees and employers. The availability of alternative jobs is the best protection for employees and this is what produces that.

      It also results far fewer essentially parasitic jobs for lawyers, HR people and similar.

      If you must take someone on do it through a limited company with no assets so you can close it down if things go wrong without risking large employee liabilities.

    7. Peter Parsons
      January 5, 2020

      When the minimum wage was first being proposed, I remember listening to a phone in on Radio 5 about it, and there was a man from Scunthorpe who phoned in completely opposed to its introduction because he saw no problem working as a delivery driver for a takeaway for, at the time, £10 per shift, and claiming social security for the rest of the money he and his family needed to live on. The taxes I pay are not there to subsidise cheapskate employers who want to line their own pockets in a race to the bottom paying poverty wages at my expense.

      It takes two years of service before an employee in the UK first receives unfair dismissal and redundancy payment rights and in that time an employer can get rid of an employee with just a week’s notice and no payoff unless their contract explicitly states something else.

      1. Shirley
        January 5, 2020

        Not if they are in a protected minority. They have those rights from day one and don’t need to have been employed for 2 years.

        1. Peter Parsons
          January 6, 2020

          Not true. You seem to be confused by protected characteristics, which is not the same thing. Everyone has protected characteristics and protection from discrimination on the grounds of those characteristics.

    8. Ian @Barkham
      January 5, 2020

      Its a case of well meaning intension screwing with the system, causing costs for no gain. The Consumer/Taxpayer carries the burden.

      While those they meant to bring into line still work around it.

  5. Nig l
    January 5, 2020

    The vast majority of single employees businesses are lifestyle. Why would anyone take on a new employee if they are not needed?

    In my experience], politicians, and you have confirmed this, always mistakenly believe that all owner managers want to grow their businesses whereas the reality is they don’t, they want a good living without all the hassle.

    What’s the point of having to find new business to pay an employee when your income is oK on your own. Apart from the the nightmare of employees rights, maternity leave, taking time out to train them etc just the worry of whether they will turn up or not, decide to jack it in , turn out to be a snowflake etc makes it not worth the trouble.

  6. agricola
    January 5, 2020

    First I do not know what the current problems are when employing people, I have been out of the loop for twenty years. I managed a £20m turnover with one secretary and saw to it that she benefitted from our success with transport, pension and a good salary. As all income came from overseas we benefitted from a zero VAT rating which meant that anything bought in the UK had its VAT reimbursed. It was an odd position that does not allow me to give specific advice.

    Until regulation concerning employing other people is fully understood in the current climate I would suggest contracting with other self employed on a job by job basis. That way you are just buying a service, but this is very dependant on the nature of your business where in some cases this might not be possible.

    The final point I would make is get an accountant who has credibility with HMRC, it can save a lot of problems in the long term.

  7. Roger Phillips
    January 5, 2020

    Off subject John but I have to ask why we as a country have not stepped in to help our Australian friends out in the unfolding disaster? Surely we should be providing assistance when we are always doing something in other disaster zones.

  8. Everhopeful
    January 5, 2020

    Butt out!
    Stop meddling.
    A bonfire of ALL red tape.
    Accept that regulation is only a form of churn.
    What is the balance between businesses failed because of interference and “compliance” businesses getting fat on those failures?
    ( And btw….”box ticking” is far more dangerous than actual free enterprise).

  9. Dave Andrews
    January 5, 2020

    The State is poised ready to attack any business owner who has the audacity to employ someone, with pension law, employment law and health and safety legislation. Ignorance is no defence, even though the business owner might not have employed anyone previously and has no experience with these laws.
    Employ just one person, and the business owner has to set up a pension scheme. Pensions are good, so why not relieve the business owner of this administrative responsibility until he has say 5 employees? In the meantime, the State can pay and still be quids in with employer’s national insurance liability.

    1. Lifelogic
      January 5, 2020

      Why on earth can people not save for and be responsible for their own pensions if appropriate. It should not be up to the employer better to keep the savings under the control of the individual directly. Pensions investment for many people does not make sense anyway. Far better to clear any (expensive) debts they have first as so many people do have or to save to buy a home. Why save into a pension giving a trivial return far less than the 20% you might be paying on you credit card debts. Even with the tax deferral/breaks.

      1. Dave Andrews
        January 5, 2020

        One good thing about a workplace pension scheme is that it avoids NI contributions – employer’s and employee’s, saving a pile of cash. Were it not for that, it would be worth just as much as any other investment.
        At our place, we let employees opt to put their bonuses into their pension scheme if they want, and add the employer’s NI value to make it revenue neutral for the company.

    2. Caterpillar
      January 5, 2020

      Dave Andrews,

      Could the UK learn from NZ’s KiwiSaver scheme?

  10. Caterpillar
    January 5, 2020

    Obviously some tinkering may help but two more fundamental steps are

    1) Get Birmingham and Manchester to scale as well as London. This will hopefully lead to more startups as partnerhips not sole trader to spread risk, and spinoffs from unis/existing firms. Routes and reasons for new firms to start with more than one person need to be identified.
    2) Introducing national dividend/universal basic income would allow difficulties of minimum wage and mandatory pensions to be dropped.

  11. Al
    January 5, 2020

    In the case of a small tech business I started last year as a side concern, they would have to be able to earn £20 for the company per hour simply to cover the costs of their employment (not including allowing for sick pay etc.). As it is a startup there is no chance of that – I’m not earning that yet. Yes this does mean I work with freelancers, to get necessary skills as it is far more effective to pay for results rather than time spent.

    When you have to pay the employee more than the entrepeneur who is funding the thing, taking the risks, and working longer hours, there’s a problem.

    1. Alan Jutson
      January 5, 2020


      Agreed, see my post below, although the main posting 10.29am is still in moderation.

      Most of those starting up need to put up the family home to gain finance, a huge personal risk to take at the outset, this risk in my view needs to be nullified or reduced before you speculate on taking on others.

      I chose to expand out of profits rather than borrowing, you grow much more slowly, but with less financial risk, and possible family upset.

  12. Everhopeful
    January 5, 2020

    Wasn’t VAT a prerequisite for us to join the EEC.
    What was wrong with Purchase Tax??

    1. Shirley
      January 5, 2020

      Agreed, VAT is a fraudsters paradise. What other tax gives you a refund before you have even paid the tax in the first place?

    2. Ian @Barkham
      January 5, 2020

      Yes. It keeps a lot of administrators employed and allows the opt out for the clever ones of not contributing equally to society.

      Purchase Tax simple, Sales tax even simpler. They both reduce overheads and costs and are applied equally to all.

      1. Martin in Cardiff
        January 5, 2020

        Oh no it wasn’t.

        Read up on just what was involved.

    3. forthurst
      January 5, 2020

      Yes, but it only applied to luxury items vacuum cleaners and washing machines.

  13. MikeP
    January 5, 2020

    Perhaps a ready-to-use, step-by-step guide to hiring & looking after your first few employees would be welcome. Sole traders don’t have recruitment partners, HR departments, employment lawyers or a great deal of time, perhaps some Government help could be offered? They lose income on days they are sick or take holidays (reflected a bit in tax breaks) but as your figures show it’s far easier to just not bother expanding at all.
    We need a forum to encourage sole traders to come together and form micro businesses that can harness their collective experience and share the hard work, risks and rewards. While a larger group has a greater challenge to cover its costs every month, from my personal experience it certainly spreads the load and energises the company to go on to bigger things.

    1. Lifelogic
      January 5, 2020

      We should be trying to remover HR people, employment lawyers and other essentially parasitic jobs/people from the system as far as is possible. Easy hire and fire is the way to higher productivity (and indeed to higher pay and better work conditions).

      1. steve
        January 5, 2020


        “We should be trying to remove HR people”

        Hmm….I can’t truly express what I think of HR, If I tried I’m sure Mr Redwood would ban me for life.

        ‘HR’ are not ‘Personnel Officers’ like the used to be. HR are there to assist in victimisation.

        You will also find in most large scale institutions that HR and the Union is one and the same thing……virtually every union convener / shop steward has his or her desk in the HR Dep’t.

        Souls were sold to the devil years ago.

      2. Martin in Cardiff
        January 5, 2020

        Good employment is secure employment.

        That is incompatible with your proposal.

  14. Alan Jutson
    January 5, 2020

    The answer is quite simple, given no amount of work or new orders are guaranteed, you are at first only likely to employ self employed contract staff as and when required, until your turnover and profit has been stable or growing for a reasonable time. That is why it is so important to encourage self employment.

    Given the vast amount of overheads a company has to pay, before the owner actually pays themselves any income at all, it is absolutely vital that the business can afford to pay for yourself properly before you even think of employing another person on PAYE terms.
    Typically your turnover has to increase by 200-300% before you can really afford to properly employ that first extra person, thereon after, it becomes easier as the turnover/profit rises.

    Thus risk verses reward, training and competence of the new employee needs to be factored in.
    Likewise the downside costs if that employee does not prove suitable. Lost business/cost of letting them go etc etc.

    Many businesses in start up or in early expansion mode pay their employees before themselves in order to get over that very real first big hump.

    Only those who have started their own business from absolute scratch will be aware of all of the costs and risks involved, those who have been on PAYE all of their working lives will not really have a clue.
    That is why many MP’s and advisors make poor legislation.

    Yes been there, done it, now retired.

    In many ways It is much, much easier to takeover an established business, even a failing one, than to start up something completely new yourself.
    Reason you can look at the actual historic performance figures, against simply guessing or forecasting what they may be.

    1. Alan Jutson
      January 5, 2020

      Given the above, encouragement of self employment is a must, we need a far more flexible Benefit, taxation, investment, VAT, and employment set of regulations, in order to encourage those who wish to work for themselves, or as self employed contractors for others.
      Business rate reform is also absolutely necessary, as is revision or scrapping of IR35, and the encouragement by tax relief on any investment.

      At the moment many businesses succeed in spite of Government not because of it.
      That is not to say that all regulations are bad, but simply need to be relevant to encouraging expansion, not to try and restrict it by putting so many financial obstacles in the way.

  15. 'None of the above'.
    January 5, 2020

    I believe regulation, training and H & S duties are enough to discourage many employers to take that first step but they are necessary, of course, to safeguard employees.
    A significant reduction in the rate of NI paid by the Employer would help. I think it is time to review this contribution. Health and Safety regulations success in reducing the accident rate at work and the introduction of statutory sick pay and workplace pensions has largely undermined the justification for maintaining this tax on employment.
    Additionally, for many small businesses, a sensible first step might be through apprenticeships. Perhaps government could find a modest means of easing those first steps.

  16. Lifelogic
    January 5, 2020

    There is “overwhelming evidence” that the costs of HS2 are “out of control” and its benefits overstated says Lord Berkeley. It seems it is likely to cost over £108 billion.

    He is quite right, being a good solid Trinity College Engineer. There is no point in throwing good money after bad on this lunacy.

    It seems however that the Boris government is set to go ahead with this huge waste of money. Cancellation and cut taxes by the savings would be a far better use of the money leave it with the sensible people who made it in the first place.

    January 5, 2020

    ‘without damaging employee rights’. And there’s the caveat. When will Tory politicians understand that these so called ‘rights’ are the main reason why a small business won’t employ someone directly? In the real world ’employee rights’ are a cost they refuse to absorb. Therefore less employment.

    A decent sized company is able to absorb the extra costs imposed upon them by pandering politicians desperate to express their faux social concern but this is politics and the private sector must absorb the cost of politicians preening themselves with their desire to appear ever so concerned about our welfare. Why do you indulge in this type of political behaviour? We know it’s bogus. Don’t do it. Be honest.

    Your virtue signaling is costing jobs. The cost of policies concocted in a room in Whitehall by leftist politicians and left wing bureaucrats imposed upon business without a second thought.

    The political class has created a web of laws for the private sector. This equals more cost for small business. Your actions are damaging our economy, you know such laws do damage but you act politically and do deliberate damage to promote your party’s image.

    We need a radical Tory government, badly. We don’t need a New Labour government dressed in blue or a government pretending to be Tory and whose aim is to deceive the electorate

    1. Martin in Cardiff
      January 5, 2020

      So how come that Germany has done so well for a couple of generations, with far stronger employment rights than the UK?

      1. Edward2
        January 6, 2020

        And France with far stronger employment rights has done worse than the UK.

        1. Martin in Cardiff
          January 6, 2020

          France has far better productivity per worker, and most quality of life metrics exceed the UK’s.

          Depends what you mean by “worse”.

          1. Edward2
            January 6, 2020

            Lower growth
            Higher unemployment
            Less in employment
            Higher taxes.
            Greater civil unrest.

          2. Martin in Cardiff
            January 7, 2020

            About half the crime rate generally, if you want to change the subject.

      2. a-tracy
        January 6, 2020

        I thought Germany didn’t have a national minimum wage?

        Does Germany have 28 minimum days holiday for all (pro-rata)?

        Do German employers pay for the sick pay and sick holiday pay at what rate and for how long?

  18. a-tracy
    January 5, 2020

    Government take back sick pay and sick holiday pay and linked sick pay.

    While you’re at it, take back over SMP SPL and all maternity linked benefits including parental holiday pay.

    You administer it, pay it, and insure for it and then provide the Doctors and medical professionals to ensure it’s not abused. Link it to doctors performance, some incentive to them to help keep us fit.

  19. Jim
    January 5, 2020

    I have said for some time there should be two minimum wages, the existing one, plus a second higher one, which has no employment protection at all. But at a rate set considerably higher than the existing minimum wage. Someone could do the calculation as to the value of all the employment protection for the employee and just add that to the cash wage rate. This would only be available to employers with a small number of employees, maybe under 5 say.

    This would have two effects – all those sole traders who don’t fancy taking on an employee because of the hassle of all the rules and regulations and controls over whether they can get rid of employees if it doesn’t work out would feel free to dip their toe into the employer market. And be able to grow their businesses as a result. But also have the freedom to say ‘Its not for me’ without losing out. And people looking for work would have a lot of well paid (if somewhat less secure jobs available). I would guestimate the higher rate minimum wage should be north of £15/hr, maybe closer to £20/hr.

    We need to encourage sole traders to become employers, and making it easier so they can get used to that and grow their businesses to a stage where they might be employing tens or even hundreds of people. If there are 4.5m sole trader businesses and just 10% of those took on one employee, thats 450 thousand new jobs created.

  20. Ex Pyramid Builder
    January 5, 2020

    Not so many Food Bank frauds found. Egs, operatives taking food home or selling it to those not eligible. Is it controlled by political controlled Local Authorities and Charities? I guess that is why everything but everything is above board.Do Local Authorities have influence on police? No wonder it is all above board.
    Parliament is built on sand.

  21. Peter
    January 5, 2020

    A worthy aim – but it would be better to persuade big business to take on youngsters once again.

    One way of doing so would be to limit competition for UK ‘youngsters’ jobs by people from abroad.

    Supply and demand. Interns working for nothing should also become a thing of the past.

  22. Derek Henry
    January 5, 2020

    For the interests of debate. Debating is always good.

    Create transition jobs so they can hire people who are already employed. Instead of paying people to be unemployed and all of the social costs that come with that.

    I would get rid of business rates on small medium size companies. Cut taxes on the middle and working class.

    Increase government spending with one objective to increase productivity. The easiest way to do that is get rid of the current automatic stabilisers that are ineffective and replace it with a job guarentee. A transition job to move people into the private sector.

    How would it work ?

    Business is tight. Employer A hires Labourer B at the minimum wage. Employer A can then pile more and more work and hours on Labourer B because B’s alternative is the dole. So B ends up earning far less than the minimum wage for their hours while Employer A earns super-normal profits, or perhaps even normal profits in a downturn, when they shouldn’t.

    Hardly fair is it. We have a minimum wage for a reason.

    However that scenario only applies in a system that is systemically short of demand and has no alternative employers bidding for Labourer B. There are other scenarios over the business cycle. When you get alternative employers popping up, as you do in an expansion, you get the following:

    Business is good. Employer A hires Labourer B at the minimum wage. Employer A piles on the work. Employer C pops up, but doesn’t like the unemployed because they have no idea if they will turn up. Instead Employer C offers the minimum wage and promises faithfully to be nicer to employees. So Labourer B changes jobs, and Employer A is stuck because the alternative is unemployed people who they have no idea will turn up, let alone work the crazy hours now expected. Then Employer C piles on the work… Rinse and repeat.

    You’ll note the scenario is highly dynamically disruptive, yet this is the scenario that plays out pretty much every day in areas like the construction business. It is partially the reason why getting things completed is so difficult. The cultural dynamic is corrosive and workers walk off the job.

    Now let’s look at boom time:

    Business is really good. Employer A hires Labourer B at the minimum wage. Employer C pops up, doesn’t like the look of the unemployed and starts touting round their alternative offer at a higher rate. Labourer B asks for more money, or they’ll move. Employer A doesn’t like the look of the unemployed, because they have no idea if they’ll turn up, so agrees to pay more money because there’s loads of work coming in and charges accordingly.

    The unemployed buffer has little effect on the behaviour of business because it is a one way trap designed to frighten labour.

    Now lets replay those interactions with a job guarentee in place.

    Business is tight. Employer A hires Labourer B at the market determined minimum wage. Employer A can no longer pile on the work onto Labourer B because there is a guaranteed decent employer who Labourer B will move to if ill-treated. So Employer A has to keep the work at a reasonable level. Employer A now earns normal profits, and may move into a loss, while the worker earns the minimum wage.

    Surely that is how it should be?

    Let’s do the expansion phase:

    Business is good. Employer A hires Labourer B at the minimum wage. Employer C pops up offering the minimum wage and has the choice of Labourer B or new Labourer D currently with a track record of reliability on the Job Guarantee. Employer A would be happy to retain Labourer B but knows they have the option of Labourer D. Neither Employer A, nor Employer C can pile on the work, because the Job Guarantee is known to be decent. So both Employer A and Employer C get the labour they require at a fair deal and stuff finally gets done.

    And the boom phase.

    Business is really good. Employer A hires Labourer B at the minimum wage. Employer C pops up offering the minimum wage because they have the choice of Labourer B or new Labourer D currently with a track record of reliability on the Job Guarantee. Labourer B asks for more money. Employer A would be happy to retain Labourer B but knows they have the option of Labourer D so they turn the wage rise down. Labourer B can’t get any more money out of Employer C either for the same reason. Yet still neither Employer A, nor Employer C can pile on the work, because the Job Guarantee is known to be decent. So both Employer A and Employer C get the labour they require at a fair deal and stuff finally gets done.

    Importantly Employer Z will tend not to pop up and stay around because policy has been set sufficiently tight that the Job Guarantee buffer will not exhaust. But even if it did the Job Guarantee remains a credible threat to labour services in the private firms. Nobody can become a parasite business. Competition for labour would ultimately eliminate one of the other players, force their profits down to the new normal, or drive an innovation cycle (doing more with less). All of which leads to of which leads to cheaper prices, not more expensive ones.

    1. Derek Henry
      January 5, 2020

      The transition job wage is only paid to people working in Job Guarantee jobs. The more people on the scheme the more government spending. When they move to private sector jobs that payment stops — which automatically reduces government spending.

      A living wage with decent benefits to encourage innovation and competition – Productivity !

      It is an ‘auto-stabiliser’. Spending goes up when the economy is down, and spending goes down when the economy is up.

      So because it is carefully targeted at only the people that need it, and it automatically self-adjusts based upon need, there is no requirement to correct any over spend via taxation on the other side.

      The result of that is straightforward. The current low tax rates can stay.

      Not only is it a brilliant automatic stabiliser it is a fantastic price anchor also.

      A crucial point is that the transition job does not rely on the government spending at market prices and then exploiting multipliers to achieve full employment which characterises traditional Keynesian pump-priming. Labour’s roads to nowhere employment policy.

      It works like any Monopoly price setter you set the price and let it float. See Saudis in the oil market for an example.

      Full employment in good times and bad, brilliant automatic stabiliser and a fantastic price anchor. Allowing Entrepreneurs to plan long term instead of short term.

      What’s not to like ?

      Seriously what’s

      1. Edward2
        January 7, 2020

        You keep saying the employers won’t hire unemployed people.
        But that isn’t what is happening.
        Unemployment has fallen by hundreds of thousands.
        Numbers in work are the highest for decades.

        Your also imply that those looking for employment have little choice.
        Yet there are over 700,000 unfilled vacancies.
        In industries I am well experienced in, the employees in demand are being head hunted and are able to choose between several job offers and set their own good wage rate.

        1. Derek Henry
          January 7, 2020

          Thanks Edward.

          And recession ?

          The transition job will keep aggregate demand high. Help business cope in a down turn.

          When business innovates and creates job losses via higher productivity they will be absorbed into the job guarentee.

          Full employment in good times and bad.

          So much better than the auto stabilizers we currently use paying £75 a week unemployment benefit. With no hope of getting a job in the down turn.

          1. Edward2
            January 8, 2020

            Sounds like the State telling people where they must go and work.
            The State forcing people to do a job they haven’t chosen.

  23. BJC
    January 5, 2020

    The country, as a whole, needs to understand from government where it’s going in the future so that our entrepreneurs can see where and how they fit in and discover new ways to get there. We will, hopefully, set out on our Brexit journey on 31 Jan, but if we don’t have a new and appealing destination the same old routes will be followed in the same old jalopy by the same old drivers.

    Once government has set the framework, it can and should invest heavily to promote and support the innovative “bright young things” who want to create something different. Please, though, change the policy that allows the “same olds” to hoover up the competition with impunity, because it’s the cheapest option for them.

    This would be our (the peoples’) investment, so it’s not unreasonable to expect that we (the country) should be reaping the long-term rewards for future generations through quality employment and prosperity, rather than some hostile corporate seeking a quick profit.

  24. glen cullen
    January 5, 2020

    12 years ago I employed 10 people in a small engineering company

    Today I wouldn’t employ another person as the return on cost for a small business is high risk and almost nil due to the extra financial and administrative cost governed by UK/EU governments and the law.

    Employer NI contributions, employer pension contributions and admin, constantly evolving employment law, ridiculous health and safety regulations, opportunities of being sued, cost of insurance.

    And don’t get me started about graduate engineering students that can’t use a lathe, milling machine, and can’t weld and don’t know what a vernier caliper is ? They all expect to be an engineering manager at 22yrs

    No I’d never employ another person

    It is almost impossible today for any small company to be effective without also employing a legal team, training officer, H&S officer, Human Resource officer etc

    Prior to 2006 I could calculate a return on employer circa gross x2 their salary, now it varies between x0.0 – x0.5

    I fully understand why company’s use agencies….and that’s not good for the employee nor the country

    A self-employed wanting to employ someone has the same burdens as a large company

  25. Harold Sharples
    January 5, 2020

    The act of creating new businesses signifies little – except possibly the astuteness of one’s accountant / tax planning.

    It is the creation of businesses that create wealth and employment that really makes a difference to our economy.

    Few people know how to create businesses with “scale-up-ability” built in. Every year, it is the relatively small number (40,000-ish) of “Scale-Up” (or what the EU refers to as “High Growth”) businesses that create more jobs than all the rest of the businesses in the UK put together.

    At the root of every scale-up-able business lies an innovative idea and an innovative business model.

    I started a charity (New Business Hatchery) with the sole purpose of spreading the knowledge of how to build “Scale-up-ables” systematically. In the end, the marketing of the charity proved too challenging. I’ve now closed the charity in favour of starting a “scale-up” myself – and then writing a “how-to” book detailing how it was accomplished.

    At the heart of my scale-up is an innovative “idea” … That any care home can be made safe in 12-24 months. Research shows that ( a high proportion? ed) of UK care homes have residents who’ve been abused by their carers – so you can see that the idea is ground-breaking (not only in the UK, but internationally too). The innovative idea needs to be tested (now 2 years in, the first care home has been rated “outstanding” by the Care Quality Commission – putting it into the top 3% of care homes in the UK. Job 2 is innovating a business model around the idea to make the system nationally available. This is currently underway. Since I taught both Tim Cook and Ginni Rometty how to build lead and operate innovation teams, it won’t surprise you to learn that I am pretty confident of completing phase 2 in the next 6 months.

    It concerns me that no government or local initiatives seek to spread an understanding of how to make make “scale-up-able” businesses. It would hugely affect the overall performance of our economy.

  26. forthurst
    January 5, 2020

    Is this information from companies house? I don’t regard personal service companies as businesses in any meaningful sense. Most of the people using them are incapable of working unsupervised and are offering an identical service to a corresponding employed person.

  27. Iain Gill
    January 5, 2020

    A few realities, most first employees are simply the spouse, in order to take advantage of the tax allowance, and more recently so that both spouses are legally employed so that extra free time in child care is triggered from the state. Really this is all a nonsense, and similar splits should be allowed for families where the main bread winner is paid PAYE.
    Most small businesses needed their first non family workers simply hire another freelancer operating through a personal services company or umbrella company, it’s the only way to avoid the massive employments liabilities.

    The whole selection of employment types could do with radical simplification. Direct via PAYE, via an umbrealla, via a personal services company, etc.

    The way the so called apprenticeship levy works, and big companies have basically been forced to employ a lot of people and label them as supposed apprentices in order to take advantage of a tax break, is a nonsense too. Many of these people are not really apprentices in any real sense.

    Employee rights are minimal before the first 2 years are up anyways.

    I think a lot of so called employment rights should apply to freelancers too, that would balance things up rather than down.

    January 5, 2020

    The more I read the abrasively truthful Conservative Woman the more I begin to realise just how far the Tory party and its MPs have moved towards the interventionist, large state, high state spending, leftist Labour construct in which Tory MPs equate high state spending with the utterly bogus idea of societal compassion and humanitarianism

    The left are political animals. Their aim is to extract the maximum from the private sector and build an embedded and parasitic client state that takes ever greater levels of tax, waste as much of it and then defend its position with all forms of hate, propaganda and slander tactics

    No wonder small business find it hard to expand their staff numbers when the left wing State backed by your party feeds of these wealth creators like the leech it has become

    John, you never make reference to reform of Labour’s public sector. You’re beginning to sound like a Labour politician. I find that a concern. We know that you know there’ s huge waste in the public sector. You choose not to target your attention to that out of political convenience.

    The private sector does not exist to fund the bottomless pit that is the left wing political state

    Your job is reform of this monster, not its promotion

    1. Ian@Barkham
      January 5, 2020

      Well said

  29. ukretired123
    January 5, 2020

    With IR35 on one side and Employees Rights on the other the commitment is too onerous to employ anybody for many folks without guaranteed future prospects.
    The govt needs to allow people to take newcomers on without the fear of litigation on a while spectrum of possibilities.

  30. Sea Warrior
    January 5, 2020

    Perhaps businesses – particularly the smallest ones – should be spared having to pay employer’s NI contributions. After all, the benefits from NI go almost exclusively to the employee – not the employer. Incidentally, I was looking at the NI-equivalent rates for France yesterday. Although the employee’s contributions is similar to that here, the employer’s contribution is substantially more. That goes some way to explaining why France is bad at creating jobs.
    The government, here, should avoid talking about one-man businesses. Instead, it should focus on the number of those with about five employees, and whether that number is growing or declining.

  31. Reaction Harry
    January 5, 2020

    Workers’ rights are the other side to the coin of employers’ responsibilities and costs.

    The state finds it easier to load up businesses (which can’t vote) with its social policies than to discharge them itself.

    Small businesses without any “moats” are generally subject to fierce competition and entrepreneurs tend to be problem solvers because that is how they survive. If employees cost too much, they look to run their businesses with fewer employees; they can turn to IT, outsourcing, and offshoring for example. Some simply get worn down by wave after wave of state imposed regulations and stop or sell their businesses. If you haven’t run a small expanding business, then you really cannot know how depressing it becomes as more and more of your time goes into compliance on behalf of the state instead of the fun side of running the business successfully.

    The state has to find ways of reducing the handicap UK businesses face when competing with the rest of the world or it will lose them. Either the state has to reduce the burdens themselves or it needs to take responsibility for them itself. The hour is later than they think. (BTW, as we leave the EU, we will be exposed to more global competition so it is even more important that our businesses have management time for adapting rather than being burdened with the state’s respobsibilies.)

    The gig economy seems to be an entrepreneurial response to the high costs of employment and I would caution the state from interfering in it or they may throw the baby out with the bathwater.

    Perhaps employees’ rights will be to small businesses what rates have been to shops on our high streets?

  32. Narrow Shoulders
    January 5, 2020

    One of the changes that needs to be made is that the employee taken on can return to the benefits system easily if the employment does not work out.

    That reduces the risk for the employee and makes them more likely to accept a position on a fixed term contract which then reduces the risk for the employer.

  33. BillM
    January 5, 2020

    Hmm. These numbers prove that the EU is not really benefiting either of these “Remainer” Nations. So why are they so keen to stay with the Brussels plan?
    Why would they believe that the unelected cabal of foreigners based in Brussels are preferable to the people they would elect to do the job in their respective countries?

  34. Whichever
    January 5, 2020

    By the looks of things- very soon the army is going to need plenty more recruits, and that should keep lots of people busy for a while with training organising etc

    Secondly since as an island nation we are going solo in the world we are going to have to beef up our Navy and Merchant navy which is going to need thousands of more trainees. We will need a huge ship building programme as well- which means more work for ship builders and boat builders. There will be plenty of work for everyone..plenty to do when the Middle East US vs Iran eventually kicks off

  35. Bob
    January 5, 2020

    I suggest that auto enrollment should be the responsibility of the govt, and should be done by automatically opening a NEST account for everyone with an NI number. The the employer can simply pay the contributions into the NEST account without the headache of the enrollment process. If the employee wishes to open a pension account with a different provider there should be no reason not to do so, the NEST account would simply be a default option for anyone who cannot be bothered to shop around.

    Also, the minimum wage should be decided by the market and the employees skill set, not the govt.

  36. Mike Wilson
    January 6, 2020

    I am retired now. And thank heavens for that. Self employed for much of my life it was always a juggling act to have enough work for me and my partner – but not to have so much work that we needed to employ someone. We took on a couple of employees back in the 90s and, apart from having to administer PAYE, we were soon also in the world of Statutory Sick Pay and Statutory Maternity Pay. I said to my partner ‘never again’. The amount we made was not worth the hassle. And that was then. Now you have to run a workplace pension too! No thanks.

  37. Rule Britannia
    January 8, 2020

    Bullet list:

    – Reduce employment rights. Yes, I’ll dare to say it: including maternity rights.
    – Link employment rights to tax/employment status.
    – Allow bankruptcy to be easier (less financially painful; less time served as a bankrupt).
    – Reduce red tape and uncertainty e.g. repeal IR35.
    – Reduce redundancy rights and requirements.
    – Make it easier to retain profits across all employment types.
    – Allow all employment types to claim expenses (of providing their employment (travel, subsistence, clothing etc).
    – Simplify employment types legislation (they’re all artificial anyway).
    – Make it genuinely possible for small businesses to win government contracts.
    – VAT threshold is a cliff-edge that keeps many businesses “trading below the threshold”.

    The danger for a one-man band company is that of taking on a lazy individual who seems decent while serving a probation period and then has a bucketload of rights once they become a shiftless oaf after 3 months.

    Then if they get laid off, they have rights to redundancy payments which can destroy a small business.

    That’s why many offer zero hours contracts and take on 2 x part timers rather than 1 x full timer.

    There has to be an element of people looking after themselves – if you decide to have kids, you need to look after them, not other people via taxes.

    Most small businesses cannot take on staff because they cannot retain profits in a sensible way.

    They cannot win government contracts (the relatively new bidding mechanism is paying lip service). he tender process means that the criteria set for RFI/RFP will always see the big players win. Frequent criterion “Are they big enough to support the software across {Department X}?”.

    No small business can ever satisfy that, so they are doomed to fail – not to mention that just staying in the process costs time and needs employees dedicated to it.

    I could go on.

    In general – small businesses are too busy surviving and complying with masses of stupid regulations to spend money on a potential liability with rights (aka a permanent employee).

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