IEA report links UK productivity decline to labour market regulation

A new paper from the Institute of Economic Affairs (IEA) suggests that increasing labour market regulation since the 2008 financial crisis is a primary driver of low productivity in Britain. Professor Len Shackleton argues that successive governments have burdened employers with legislation, tribunal judgments, and occupational licensing.

Key findings include the rising impact of the minimum wage, which by April 2025 affected 2.02 million workers. In some areas, such as Wigan, the National Living Wage exceeds 80% of the local median wage, compressing pay differentials and complicating recruitment for management roles. Additionally, the proportion of the workforce in licensed professions has risen to approximately 22%, up from 13-14% fifteen years ago.

The report warns that the Employment Rights Act, enacted in late 2025, may further hinder productivity. Specifically, reducing the qualifying period for unfair dismissal from two years to six months could lead to 'labour hoarding' as employers become more hesitant to hire new staff. The paper also notes that the tax system, particularly the £100,000 income tax threshold, creates high marginal rates that discourage work.