Stephen Hughes argues that ministers are lying about the cost of reforming working practices in Britain

IF YOU are going to tell a lie, make sure it is a big one. That’s the thought that came to mind the other day when I was mid-way through a phone call with a special advisor to John Hutton. The subject was the “breakthrough” as the European Union’s employment ministers put what they thought were the finishing touches to a deal on equal treatment for temporary agency workers and updated regulations governing working time. I say “what they thought”, because the European Parliament has to give a second reading on the proposed texts and, on the subject of working time, we have some fundamental disagreements with the ministers, including Britain’s Secretary of State for Business, Enterprise and Regulatory Reform.

The biggest disagreement is over whether or not it’s a good idea to allow opt-outs from health and safety laws. Half-way through the call, as I explained for the umpteenth time that many MEPs think, as a matter of principle, that it’s not a good idea at all, the special advisor said: “We just think that a cost of £19 billion per year to the British economy is too high a price to pay to end the opt-out from the Working Time Directive.”

At that point, alarm bells started to ring. I said I would like to be told how that figure was arrived at and the subject was promptly changed. But that’s not the end of it – as the European Parliament’s opposition to the British Government’s position continues, that £19 billion figure will be used over and over again to try to make those of us who hold firm look like out-of-touch, gone native zealots.

So how big is the lie? The view that £19 billion is a massive over-estimate stems from the fact that the British Government has been far too simplistic in the past.

In the regulatory impact for the Working Time Regulations (1998), ministers adopted a method of calculating the cost of the regulations where they multiplied the average number of hours worked over the limit by employees who exceed 48 hours a week by mean average earnings.

Applying this methodology to up-to-date figures would give us a total close to £19 billion per year. There are 3.323 million employees who work more than 48 hours per week. The average extra time is 7.9 hours per week. This equals 1.365 billion person hours per year. Multiply by mean hourly earnings of £13.37 an hour and we arrive at the figure of £18.25 billion a year.

The trouble is, this methodology is so simplistic that it’s as close to just plain wrong as you can get. It greatly overestimates the cost of ending the opt-out and makes no attempt to quantify the benefits.

Such a crude methodology takes no account of the exemptions from the Working Time Directive and the 60-hour limit included in the agreement reached last week. Using the same methodology, current data (Labour Force Survey, autumn 2007) suggests that the total volume of unpaid overtime in Britain must be reduced by 278 million person hours in the calculation. So, the Government has already agreed to cut overtime worth more than £3.8 billion – by its own way of calculation. That immediately reduces the £18.2 billion to £14.4 billion. A more detailed criticism of the Government’s methodology, however, indicates that that this is still a very substantial overestimate.

It’s worth noting at this point that the data shows that more than a third of those who exceed the 48-hour week only work a couple of extra hours. It should be easy to absorb such a reduction without impacting on their employer’s productivity.

But there is a more detailed critique of the regulatory impact assessment methodology to make. This methodology assumes that all hours worked are of equal value. This is a false assumption. One hundred years of work study literature demonstrates that the onset of fatigue lowers both the quality and quantity of workers’ output. The hours that would be cut by ending the opt-out are those that are worth least to employers in terms of productivity.

A related point is that some countries which set strict limits on working time have a much better productivity record than Britain. In terms of productivity per hour, the latest report from the Organisation for Economic Cooperation and Development shows that this country scored just 82 in an index where the United States scored 100. In contrast, the Netherlands and Ireland both scored 102. It’s clear that robust regulation of excessive working time is compatible with running a successful, high productivity economy.

It’s also worth considering how Ireland introduced the Working Time Directive because its legal tradition is similar to our own. The Irish Organisation of Working Time Act (1997) set a short phase-in for the 48-hour week, limiting weekly working hours to 60 from March 1998, 55 from March 1999 and 48 from March 2000. Even though Ireland previously had a long hours’ culture, the transition was a smooth one. In terms of outcomes, the OECD reports that compound growth of gross domestic product was 5.5 per cent for Ireland in the period from 1999-2000. In Britain, the comparable figure was 2.3 per cent. The employment rate in Ireland (68.6 per cent) is lower than that in this country (71.5 per cent). However, the employment rate in Ireland has improved by a massive 10.4 per cent during the past decade, compared with a 2.5 per cent increase in Britain. The message is that introducing the 48-hour week did not impede very strong growth in jobs.

The British Government’s estimate of the cost of the Working Time Directive assumes that employers will not reorganise their business ahead of changes in the law. Yet that is exactly what they will do – providing they receive a clear signal from politicians.

This kind of reorganisation improves productivity. In contrast, the persistent use of long hours is often a sign of sloppy management. Refocusing on improving work organisation and productivity is a better business strategy than continuing to use long hours as a sticking plaster for Britain’s manufacturing problems. Perhaps in this respect the Government should have a look at some of its own publications. Managing Change: Practical Ways to reduce long hours and reform working practices, published in 2005, would be a place to good start.

The Government’s approach also makes no attempt to count the health and safety benefits of putting a sensible limit on excessive working time. According to the Health and Safety Executive and its US equivalent, the National Institute of Occupational Safety and Health, long hours are associated with greater risk of heart disease, stress and a range of lesser ailments. The HSE estimates that workplace stress alone costs Britain

£500 million each year, so the sums involved are substantial.

Finally, the Government’s approach makes no attempt to count the benefits to the workforce of limiting excessive working time. These would include a reduction of sickness absence, reduction of turnover and a wider recruitment pool for management jobs as more women apply – many are currently deterred by long hours.

So when it comes to that £19 billion figure, the British Government is Pinocchio and that’s a nose poking you in the chest.

Stephen Hughes is Labour MEP for the North-East of England