speri.comment: the political economy blog

The CBI, British business and employment rights after Brexit

Brexit undermines the CBI’s EU engagement strategy. British business now faces a dilemma about how to influence social and employment policy

Scott Lavery, SPERI Research Fellow

Scott LaveryIn the run-up to the EU referendum, both the trade unions and the Labour leadership warned that Brexit could lead to an attack on a range of employment rights underpinned by EU legislation.  This argument was generally made with reference to the potential dangers of giving a Conservative government free rein to roll back important employment protections.  As a result, the views of British business itself on EU social and employment policy received far less attention.

However, the strategic positioning of business on this issue is of crucial importance.  This is particularly the case given that British capital is likely to take a leading role in shaping both the country’s future relationship with the EU and the labour market regime which follows Brexit.

What view, then, has British business generally taken of employment rights underpinned by EU legislation?  And how might British business strategy in this area change after Brexit?

In a paper I wrote for SPERI’s recent workshop on the political economy of Brexit, I reviewed all publically available documents published since 2010 by the Confederation of British Industry (CBI) which dealt with the UK/EU relationship.  The CBI is one of the UK’s largest employer organisations.  It represents 190,000 businesses of different sizes and so they speak for firms employing around a third of the private sector workforce.  As such, the CBI’s position on EU social and employment policy provides us with a useful representation of British capital’s general approach to the issue of EU-derived employment rights.

A number of themes emerge when reviewing the CBI’s position.  Throughout the documents, the CBI is consistently clear that continued EU membership is in the interests of British business.  In particular, it regularly mentions the key importance to British firms of retaining access to the single market, to flows of foreign direct investment and to the free movement of EU citizens.  It also acknowledges the crucial role which regulatory equivalence between EU member states plays in reducing non-tariff barriers.

However, on the issue of EU social and employment policy, the documents show that the CBI has generally taken a far more lukewarm, if not outright hostile approach.

A number of problems with EU social and employment policy are commonly identified.  The EU is regularly accused of attempting to implement ‘one size fits all’ social policies which are ill-suited to the requirements of Britain’s flexible labour market; the agency workers and working time directives are also regularly cited as pieces of EU legislation which impose substantial burdens on firms in terms of compliance costs.  ‘Gold-plating’ – where the British government goes over and above the minimum requirements of EU social directives – is consistently held up as a problem.  A further issue is the perceived danger of ‘mission creep’ by EU institutions.  For example, the documents regularly express concern about ‘expansive interpretations’ of EU law by the European Court of Justice and attempts by sections of the European Parliament to remove Britain’s individual ‘opt-out’ from elements of the working time directive.

Yet, for all the frustrations they cite the CBI’s principal strategy to EU social policy has not been to push for repatriation of these powers to the UK (as suggested by some pro-business voices) or to strike a unique deal for Britain within the EU.  Rather, their approach has been to advocate a policy of strategic engagement with EU institutions in order to place limits on the expansion of the EU’s so-called ‘social dimension’.

Crucially, this strategy involved utilising the power of the British state within the EU to ensure that Europe’s ‘social dimension’ remained as minimalist as possible.

In terms of formal mechanisms, the CBI documents positively cite the influence which British policymakers have enjoyed within EU institutions such as the Council of Ministers and the European Parliament.  As Nicole Lindstrom argued at our workshop, the UK has since 2005 been very successful in striking alliances with Central and Eastern European countries to block the emergence of progressive EU employment legislation. In addition, the CBI encouraged greater informal British engagement with EU institutions.  For example, it advocated increasing the number of British bureaucrats working within the Commission and the Parliament in order to strengthen informal British influence in these policymaking arenas.

The key to the CBI’s European strategy over the past six years, then, has been to advocate engagement with and not withdrawal from the formation of EU social and employment policy.  This strategy worked insofar as the British state could exercise its influence within the EU to act as a brake on any possible levelling-up of labour standards.

However, Brexit clearly undermines this strategic orientation. The vote to leave therefore raises a number of important dilemmas for the CBI, and for British capital more broadly, in the area of social and employment policy.

On the one hand, the CBI has clearly stated that one of its highest post-referendum priorities is to secure tariff free access to the single market in both goods and services.  However, existing arrangements which ensure the closest possible trading arrangements with the EU – such as the European Economic Area (EEA) option – require that states continue to adhere to EU social and employment policy.  If an arrangement of this form were to be put in place, British business would continue to have tariff free access to the single market but would not be able to limit future EU social and employment policy as it has done in the past.

However, the prospect of a ‘soft’ Brexit of this form looks increasingly unlikely. Theresa May’s declaration that Britain will push for full control over immigration and will not accept the authority of the ECJ suggests that Britain is set to exit not only the EU but also the Single Market. This approach undermines the CBI’s ‘number one priority’ which it set-out in the aftermath of the referendum result, which was to retain ‘the ease of UK-EU trade that businesses get from the single market’.

Over the past decade, British business has generally tolerated EU social and employment policy on the condition that mechanisms were in place to tightly limit its scope.  With the loss of British state power within the EU, one of the key mechanisms deployed to secure this objective has now been fatally undermined. The British government’s apparent willingness to sacrifice full Single Market access also creates new dilemmas for large, export-oriented firms. In the face of these challenges, the key question for British business going forward will be how to balance, in the CBI’s terms, close trading links with the EU whilst establishing ‘flexibility and influence over the domestic environment’.

If the referendum result was about ‘taking back control’, from the perspective of British capital this process has only just begun.

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