What does the new government agenda mean

for business and HR?

Mark BeatsonChief EconomistSeptember 2015

Contents

• Political context• Economy and labour market• Public finances• Europe• New government policies• What’s missing?

Political context

The government has a working Commons majority

Conserva-tives 331

Labour 232

SNP 56Lib Dems 8 DUP 8

The government lacks a majority in the Lords

Conservative; 224

Labour; 213Liberal Democrat;

101

Plaid Cymru; 2Green; 3UKIP; 3

Other; 9

Crossbench; 178

Non-affiliated; 22Bishops; 26

Economy and labour market

A more stable economic outlook?

2010

Q1

2010

Q3

2011

Q1

2011

Q3

2012

Q1

2012

Q3

2013

Q1

2013

Q3

2014

Q1

2014

Q3

2015

Q1

2015

Q3

2016

Q1

2016

Q3

2017

Q1

2017

Q3

2018

Q1

2018

Q3

2019

Q1

2019

Q3

2020

Q1

2020

Q3

2021

Q10.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

GDP growth (% p.a.)

Forecast

Source: Office for Budget Responsibility

Interest rates are not expected to rise quickly or steeply

Jan 13

Apr 13Ju

l 13

Oct 13

Jan 14

Apr 14Ju

l 14

Oct 14

Jan 15

Apr 15Ju

l 15

Oct 15

Jan 16

Apr 16Ju

l 16

Oct 16

Jan 17

Apr 17Ju

l 17

Oct 17

Jan 18

Apr 18Ju

l 18

0

0.5

1

1.5

2

Market expectations of UK Bank Rate

Source: Bank of England

Labour market expansion continues … although at a slower rate

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 202027

28

29

30

31

32

33

0

1

2

3

4

5

6

7

8

9

Employment (LHS, millions) Unemployment rate (RHS, %)

Source: Office for Budget Responsibility.

Forecast

The OBR expect wage growth and productivity to increase in the coming year

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020-4

-3

-2

-1

0

1

2

3

Output per hour Real average earnings

Ann

ual %

cha

nge

Source: Office for Budget Responsibility

Forecast

Public finances

Fiscal consolidation - more to come

1985

-86

1987

-88

1989

-90

1991

-92

1993

-94

1995

-96

1997

-98

1999

-00

2001

-02

2003

-04

2005

-06

2007

-08

2009

-10

2011

-12

2013

-14

2015

-16

2017

-18

2019

-20

-10

0

10

20

30

40

50

Expediture minus receipts (deficit) Current receiptsTotal managed expenditure

% o

f GD

P

Source: Office for Budget Responsibility

Forecast

Shrinking public sector – more to come

2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-210

1

2

3

4

5

6

General government employment (millions)

Source: Office for Budget Responsibility

Forecast

Public sector employers think staff morale has fallen since 2010

All public sector Education Healthcare Public admin etc.0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

10%

24%

38%

25%

‘Compared with 2010, how would you describe employee morale at your organisation?’

Much higher Higher About same Lower Much lower

Source: CIPD Labour Market Outlook, winter 2014/15.

Europe

The Euro Zone is growing … slowly

EuroZone Germany France Italy Spain-1

0

1

2

3

4

IMF forecasts of GDP growth2014 2015 2016

% c

hang

e p.

a.

Source: IMF World Economic Outlook, July 2015

Slow growth in Europe affects the UK because of trade links

USA

German

y

Nether

lands

France

Irelan

d

Benelux

China

Italy

Spain UAE

13.2

108.5

6.9 6.14.6 4.3

2.9 2.9 2

UK top ten goods export markets, 2013 (% of total exports)

Source: Office for National Statistics

USA

Switzer

land

German

y

Irelan

d

Nether

lands

Saudi A

rabia

France Ita

ly

Japa

n

Canad

a

22.7

6.6 6.4 5.7 4.8 4.5 4.12.1 1.8 1.6

UK top ten service export markets, 2013 (% of total exports)

Labour market conditions in Europe are likely to continue to affect migration patterns

YE Jun 0

5

YE Dec

05

YE Jun 0

6

YE Dec

06

YE Jun 0

7

YE Dec

07

YE Jun 0

8

YE Dec

08

YE Jun 0

9

YE Dec

09

YE Jun 1

0

YE Dec

10

YE Jun 1

1

YE Dec

11

YE Jun 1

2

YE Dec

12

YE Jun 1

3

YE Dec

13

YE Jun 1

4

YE Dec

140~

20

40

60

80

100

120

140

160

180

Work-related migrants into UK (‘000s)EU15 EU8 EU2

Source: Office for National Statistics

New government policies

Impact of the National Living Wage?

4.2 4.6 5 5.4 5.8 6.2 6.6 7 7.4 7.8 8.2 8.6 9 9.4 9.8 10.2

10.6 11 11

.411

.80

5

10

15

20

25

30

35

40

Cumulative frequency distribution of hourly earnings in 2020Excluding NLW Including NLW

£ per hour

% o

f wor

kfor

ce

Source: Office for Budget Responsibility

Trade Union Bill 2015• 50% turnout requirement for industrial action

ballots• Additional requirement for 40% of eligible

voters to approve industrial action in “important public services”

• Extension of notice period for industrial action to 14 days; 4 month “use by” requirement

• Lift prohibition on employment of agency workers to replace strikers

• Political funds – opt-out to opt-in• End check-off in public sector; possibly restrict

facility time

Also in the pipeline …

• Gender pay gap reporting (organisations with 250+ employees)

• 3 million Apprenticeships target• Apprenticeship Levy• Skills Levy for non-EU skilled migrants• Tighter rules on migration• Integration of Income Tax and NICs• New entitlement to volunteering leave for three

days a year on full pay (public sector and large companies)

What’s missing?

What’s missing?

• Joining up skills and industrial policy• Building culture and infrastructure for lifelong

learning• Productivity in the workplace • Beecroft?

To find out more and comment

http://www.cipd.co.uk/publicpolicy/consultation-responses/default.aspx

http://www.cipd.co.uk/publicpolicy/consultations/

Mark BeatsonChief Economist, CIPDm.Beatson@cipd.co.uk0208 612 636407813923477@MarkBeatson1