Squeezing out your generation

This article was first published in The Critic.

Britain’s war on young people continues. Youth unemployment continues to go through the roof, and it now stands higher than both Spain and Greece. These countries used to be infamous as nations which had failed their young people. Now, post-pandemic Britain has taken that mantle.

Why is this the case? It is partly a matter of unintended consequences. Laws and policies which were introduced for compassionate or kind reasons turned out to have far more downsides than upside. Often, in politics and economics, the medicine turns out to be worse than the disease, and in Britain’s case over the last few years that has certainly been true. 

It was recently reported that Britain’s young people are falling out of the labour market because of an epidemic of poor mental health. This is a misdiagnosis of the issue. In fact it is backwards. There is certainly a problem in young British peoples’ wellbeing, but it is downstream of deliberate policy choices which have driven them out of jobs which used to be easy to attain only a few years ago. 

This author has written about the problems facing young people in these pages before. This is not intended to be a retread of previous pieces about unsustainable rises in the minimum wage or the student debt scam which have immiserated British people in their 20s. However, two recent pieces of legislation have kicked in recently which are making life especially difficult for Britain’s young people, whether they know it or not. 

The first is the Employment Rights Act. Designed to protect workers’ rights, and supposedly rid the workplace of allegedly exploitative practices like unfair dismissal and zero hours contracts, in reality this law puts billions of pounds worth of sand in the gears of the labour market, grinding it to a halt. Payrolled employment in Britain is falling, as employers become much more hesitant to take on new employees. This is the problem with laws which make it harder to let staff go who underperform or who may not be right for any business. If it is expensive to dismiss someone, that increases the costs and risks associated with hiring anyone at all. While public sector organisations, which do not need to turn a profit, may be accustomed to these sorts of procedures, people trying to grow a business from scratch are not. Added regulation and legal risk, combined with hikes to the minimum wage and to National Insurance have all but switched off the British labour market. 

A flexible labour market was once one of Britain’s traditional economic strengths. It allowed people into the jobs market on varying levels of experience, and — with the right incentives — offered quick promotion, particularly in competitive parts of the country like London. Thanks to high marginal tax rates, some of the highest minimum wages in the world, and regulatory risk from the Employment Rights Act and the wave of equal pay claims smashing through the retail sector, job creation has ground to a halt. Young people are not sitting on benefits because they are mentally unwell. No, they are on benefits because they cannot find work, and the declining prospects of achieving gainful employment are creating a palpable culture of depression and dependency. 

The second law which is contributing to this malaise is the Renters Rights Act. Designed to protect renters from unfair evictions, limit rent increases, and to extend the length of tenancies in the private rented sector to offer greater security, this law is going to make renting so costly for private landlords that they will leave the market en masse. This is already happening. There are reports of hundreds of former rental properties arriving on the market as well as tenants receiving eviction notices, in advance of the Act’s provisions biting. The consequences of this are potentially dire: law-abiding, small landlords will leave the market or increase rents for new tenants significantly to reduce the risk of renting to the wrong people. 

What will happen to the remaining tenancies in the private sector? They will likely be bought by larger companies or unscrupulous landlords reminiscent of slumlord Peter Rachman, infamous for his dealings in Notting Hill in the 1950s and 60s, renting to the vulnerable sleeping four to a room who are less likely to complain that they are living in illegal conditions. 

That is the sad reality of an overregulated economy: small and medium-sized businesses are squeezed out of existence, many unable to shoulder the burden of complying with new laws. Those who do remain in the market have to take a number of steps to reduce their risk. For example, if a landlord is unable to terminate a tenancy or increase the rent at the end of a contract, it is likely that the overall rate of rent will increase to mitigate this. There are already reports of prospective tenants being vetted for their character and financial circumstances before securing a room to rent. These are undoubtedly unpleasant things to go through, especially for young people at the start of their working lives. But if the law imposes huge new risks and costs on landlords, it should be expected that these costs are eventually passed onto tenants. 

A flexible labour market and a flexible rental market are two fundamental components of a market economy. They are also vital for young people who want to start working and start building independent lives of their own. A meme has swept X called “Londonmaxxing” recently. In some respects, this is a charming online tribute to London as a place to live, to eat and drink, to innovate and to work. It has become especially popular among those who are bullish on London’s future AI economy. It is a nice idea. But if the people who make Londonmaxxing a reality cannot either find a job in the city or a room to rent, there will be nobody to max out what the city has to offer. The Employment Rights Act and the Renters Rights Act will erode the flexibility which makes economic activity and prosperity possible, and we will all pay the price. For some, the bill is arriving in their letterbox already.