Treasury ministers are considering the introduction of German-style “mini jobs”, which exempt workers from tax and national insurance, as part of a swathe of labour reforms to reboot the economy.
The flexible contract system introduced in Germany a decade ago allows employees to earn up to €400 (£314) a month tax free, while their employers pay an easy-to administer flat rate of wage taxes, insurance and pension contributions. Designed to bring the long-time unemployed back into the labour force, it has been hailed as part of the country’s “job miracle”, helping to increase employment by 1m in its first four years.
One ally of George Osborne, the chancellor, said the idea was being given serious consideration. “What I can tell you is that this is being looked at in government,” the Conservative MP said. “There are lots of ideas that are being looked at as part of the deregulation drive, and this is one of them.”
A Treasury official added: “As the chancellor and Danny Alexander have said, it’s a relentless focus on the economy, and the consequence of that is we’re looking at lots of things.”
The idea has been long-championed by Tories in the influential Free Enterprise Group, including Elizabeth Truss and Dominic Raab. “We need to learn from the German approach to regulation which has helped drive jobs growth there,” Mr Raab said. “Cutting red tape in Britain is a fiscally neutral way to boost the economy and tackle youth unemployment.”
The idea was also seized on by Boris Johnson, London mayor, who last week called on the Tory leadership to “stop pussyfooting around” and get on with cutting regulation to give the economy a post-Olympics boost.
“Flexible employment, lower taxes and less burdensome regulation are all essential drivers for jobs and growth,” Mr Johnson told the Financial Times. “The German mini [job] system is at least worthy of further investigation.”
Liberal Democrats were deeply critical of radical proposals to overhaul employment law put forward by Adrian Beecroft, a Tory donor, which included allowing employers to fire workers without explanation. But party officials said they were watching the progress of the mini jobs scheme closely. “It’s definitely something the chancellor is keen on,” one official said. “It is not true we are opposing it, we will look at the options. It is something the Treasury is working up.”
However, a statement from Lib Dem business secretary Vince Cable’s department was fairly dismissive. “This proposal is a German solution designed to deal with particular issues in the German labour market, driven by their relatively high taxes on labour,” a spokesman said. “This is quite different to the situation that exists in the UK.”
Although unemployment in Germany is at near record lows, many of those with mini jobs receive very low hourly wages as there is no blanket minimum wage. Labour market experts and trade unionists have criticised the reforms for having entrenched a new class of working poor in the cleaning, hotel and restaurant trades.
“It was sold as a way to bring the long-term unemployed back into the labour market. Employers would get to know an employee and then hire them on a permanent basis. But that hardly ever happens,” said Holger Bonin, labour market expert at Germany’s ZEW think-tank.
“In fact the long-term unemployed find it harder to get a full-time job now as these jobs don’t exist any more. Full-time jobs are being divided up into mini jobs,” he added. “One should be very sceptical about introducing such a system.”
In the UK, Len McCluskey, general secretary of the Unite union, warned the scheme would lead to an “underclass” of workers without real prospects.
“Mini jobs are a sticking plaster, a quick fix, which threatens to create an even more divided society,” he said. “They will do nothing to help Britain out of recession. The Tories should be concentrating on an economic plan B rather than eroding workers rights even further.”