David Cameron may overrule Vince Cable by diluting controversial new EU employment laws to be introduced next month, The Daily Telegraph can disclose.
By Robert Winnett, and Christopher Hope
The Prime Minister’s office secretly commissioned its own legal advice on the Agency Workers Directive, which concluded that the impact of the new laws could be moderated.
The directive, to be introduced under EU law, will give temporary agency workers the same rights as full-time workers to pay, holiday and maternity leave after 12 weeks of employment. The laws are expected to cost British businesses almost £2 billion a year.
But Downing Street has been told by lawyers that the Business Secretary’s department has “gold-plated” the legislation with additional rules that need not have been included, despite a pledge by the Coalition not to introduce unnecessary regulation that undermines business.
Mr Cameron’s advisers are weighing up whether to strip out some of these provisions.
One option suggested is the “Armageddon” tactic of simply refusing to introduce the new laws, a move that could result in multi-million pound EU fines for the Government.
Business groups have warned that the measures will force some companies to lay off workers.
With the changes looming, Steve Hilton, Mr Cameron’s director of policy, is understood to have hired Martin Howe QC to provide confidential legal advice on the Government’s options regarding the directive.
Mr Howe is an expert in EU law who serves on the recently established Human Rights Commission to consider a British Bill of Rights.
It is extremely unusual for Downing Street to commission its own external legal advice rather than rely on Whitehall recommendations and it indicates the distrust towards Mr Cable.
The Agency Workers Directive was introduced by Labour but it was re-analysed by the Department for Business, Innovation and Skills after the election, after which Liberal Democrat ministers announced it would be implemented as planned.
It is understood that Mr Howe suggested that the Government effectively had three choices if it did not wish to adopt the directive in its entirety: to water down and delay the planned laws; to seek to introduce new legislation in Parliament that could overrule the EU diktat; or to simply ignore the EU directive.
A well-placed source said: “The advice showed that there are elements of gold-plating of the EU directive that could easily be stripped out. For example, people who set up their own firms and then contract their services to other companies need not be covered. These changes could be done relatively easily through regulations.
“The more radical options which were set out would require new legislation and therefore Liberal Democrat support. It would also risk a confrontation with the trade unions.”
Another Downing Street source said that the advice had not provided the “golden bullet” that Mr Cameron had hoped for. “These are very difficult issues, both politically and legally,” the source added.
The issue of boosting economic growth is now central to policy development in Downing Street. Economic growth fell to just 0.2 per cent during the second quarter of the year and there are fears that the country may fall back into recession during the autumn.
There is growing frustration with Treasury and business department officials among some Downing Street aides.
The Conservatives are expected to use their annual conference, which starts next month, to set out a wide array of new policies to boost economic growth.
However, there are also growing concerns that the Liberal Democrats will use their conference, later this month, to propose new taxes on wealth and other measures that may deter entrepreneurs.
Next week, new proposals from an independent government-appointed commission to rein in the banks will be outlined. Mr Cameron is also seeking to delay and water down these proposals but is facing opposition from Mr Cable.
Mr Hilton, one of the Prime Minister’s most senior aides, is an increasingly controversial figure in Whitehall. He is thought to be keen to “take on” the EU on a major issue to put an end to unnecessary and costly regulation. Over the summer, it was disclosed that he had even floated the idea of scrapping maternity rights.
However, it may now be too late for a major confrontation over the Agency Workers Directive.
One source said: “The French are very clever about these things – an act of defiance is a big political decision.”
An analysis of the new employment laws by the Department for Business concluded that it would cost firms more than £1.8 billion a year. The laws will give more than one million workers the right to holidays, pay, maternity leave and other perks they do not currently receive. The typical small business will have to pay an extra £2,493 a year, increasing to £73,188 for large firms.
A Downing Street spokesman said: “We are now looking at every part of employment law as part of the red tape challenge. We want to do everything we can to help employers and drive growth.”