Blair Institute Calls for Labour Market Flexibility to Reverse UK Growth Stagnation
Think tank warns government's Employment Rights Act risks undermining competitive advantage as productivity lags Europe by widest margin in decades.
The Tony Blair Institute for Global Change has recommended preserving UK labour market flexibility by limiting worker protections, aligning immigration with growth targets, and restricting non-compete clauses—positioning the proposals as essential to reversing the country’s 15-year productivity crisis.
The November 2025 report, titled UK Budget 2025: A Growth Bargain for Government and Business, argues that recent policy changes threaten to erode Britain’s competitive edge at precisely the moment when technological diffusion and flexible hiring are critical to catching rivals. According to the institute, sluggish technology adoption has contributed to weak Productivity growth compared not just to the United States, but to France and Germany.
The recommendations arrive as Prime Minister Keir Starmer’s government implements the Employment Rights Act 2025, which reduces unfair dismissal protection waiting periods from two years to six months, mandates guaranteed hours for zero-contract workers, and strengthens sexual harassment protections. The act affects over 15 million workers and represents the most significant labour law overhaul in a generation.
The Flexibility Argument
The Blair Institute contends that Britain’s flexible labour market has historically underpinned growth by giving firms ready access to skills and encouraging resource allocation to productive sectors. The report warns that the Employment Rights Bill risks increasing the cost of starting and growing businesses, while tightened visa rules in the government’s immigration white paper could leave the UK behind in the global race for talent.
The institute proposes three specific labour market interventions. First, align Immigration Policy with national economic strategy by maintaining access to workers at all skill levels. Second, limit non-compete agreements to a maximum of three months and restrict them to high earners only. Currently, according to the report, around 5 million UK employees are subject to non-compete clauses averaging six months, which the institute argues suppress Wages and slow innovation based on US data.
The OECD’s employment protection indicators show the UK has historically maintained looser dismissal regulations than Continental Europe. English-speaking countries combine low dismissal costs for firms with fewer protective measures for workers, while dismissal costs and job security for regular workers are comparatively high in many EU countries, according to OECD analysis. France, Portugal, Italy and the Netherlands rank among the strictest on employment protection.
Third, the institute recommends California-style limits on non-competes, citing Silicon Valley’s culture of rapid talent circulation and spinouts as evidence that restrictions on worker mobility hamper innovation. The proposal would cut non-compete duration by half for the majority of affected employees.
Post-Brexit Productivity Collapse
The recommendations emerge against a backdrop of sustained economic underperformance. Research from Econofact estimates Brexit reduced UK GDP by 6 to 8 percent by 2025, with business investment 18 percent lower than comparable countries. UK employment and labour productivity are estimated 4 percent below peer nations. Analysis from the Resolution Foundation found Britain experienced an 8 percentage-point decline in trade openness since 2019, compared to just 2 percentage points for France.
The UK formally exited EU single market regulations in January 2021. Northern Ireland retained alignment with EU goods rules under the protocol, creating what researchers have termed a natural experiment. Firms located further from the Irish border experienced workforce reductions up to 15.7 percent relative to less exposed firms, according to CEPR analysis.
| Metric | UK/Anglo-Saxon | EU Continental |
|---|---|---|
| Dismissal notification period | Shorter | Extended statutory minimums |
| Severance pay mandates | Lower/flexible | Codified formulas by tenure |
| Collective redundancy thresholds | Higher headcount triggers | Lower triggers, broader consultation |
| Temporary contract regulation | Minimal restrictions | Strict limits on duration/renewal |
The minimum wage context adds complexity. From April 2026, the UK’s National Living Wage will rise to £12.71 per hour for workers 21 and over, a 4.1 percent increase affecting 2.7 million workers. The 18-20 rate will jump 8.5 percent to £10.85. The Low Pay Commission recommended the increases to maintain the wage floor at approximately two-thirds of median hourly earnings. The Blair Institute’s earlier work under Tony Blair’s 1997-2007 government introduced the UK’s first national minimum wage in 1999 at £3.60, which critics at the time warned would cost jobs but which subsequent research found had minimal negative employment effects.
Political Feasibility Questions
The institute’s recommendations face headwinds from Labour’s political base and trade unions. The government has framed the Employment Rights Act as central to its “Make Work Pay” agenda, with Business Secretary Peter Kyle describing it as creating “stronger protections and the fairness every worker deserves.” Government analysis estimates the act could increase GDP by 0.04 percent while benefiting 60 percent of UK workers.
- Blair Institute argues flexibility underpins growth; government counters that security boosts productivity through reduced turnover and increased worker confidence
- Institute cites US data on non-competes suppressing wages; unions view restrictions as protecting against exploitation in low-wage sectors
- Immigration recommendations clash with government white paper aiming to reduce legal migration in response to electoral pressures
- Proposals echo 1990s New Labour “light-touch” regulation criticized by some economists as contributing to market-generated inequality
Tony Blair himself has maintained influence over current Labour leadership. He has been described as having “made political interventions” and been “an influence on Keir Starmer,” according to reporting. The Tony Blair Institute received £121 million in income in its most recent accounts, a 49 percent increase, though it does not publicly disclose all funding sources. The organization has faced scrutiny over potential conflicts between its advisory work for governments including Kazakhstan and Saudi Arabia and its policy recommendations for Britain.
The institute’s broader economic agenda emphasizes technology diffusion and AI adoption as productivity drivers. A separate November 2025 report proposed a £700 million technology-adoption voucher scheme reaching 100,000 small and medium enterprises, which it estimates could increase firm productivity by 4 percent and yield £2.2 billion in additional output.
European Context and Divergence
The UK’s labour market approach has historically diverged from Continental European models. OECD indicators show Anglo-Saxon countries including the United States, Canada and Australia maintain below-average employment protection strictness, while EU members including Czechia, Netherlands, Portugal and Italy rank among the most protective. European labour law scholar research indicates that partial reforms undertaken in most European countries over the past decade significantly increased institutional complexity, creating dual labour markets with short-tenure, low-protection segments alongside stable, highly-protected jobs.
France provides a comparison point. According to OECD analysis, France ranks second only to Denmark in social-employment benefits generosity, including paid leave, maternity and paternity provisions, sick leave and unemployment benefits. The country maintains stricter dismissal protections than the UK while experiencing comparable productivity challenges in recent years.
The Resolution Foundation’s research found that manufacturing sectors expected to shrink post-Brexit tend to be more productive than growing sectors, with average productivity of £47 per hour in contracting industries versus £37 in expanding ones. The North East is expected to be hit hardest by Brexit due to firms’ reliance on EU exports, while the East of England and Scotland are projected to outperform.
What to Watch
The government faces a February 2027 deadline for implementing guaranteed hours provisions and April 2027 for flexible working reforms under the Employment Rights Act phased rollout. Business groups will lobby for carve-outs and transition periods. Immigration policy remains in flux, with visa application data showing sectors including manufacturing, hospitality and wholesale receiving few work visas under the new system, despite accounting for significant pre-Brexit EU worker inflows.
The minimum wage trajectory will test the Blair Institute’s framework. If the 2026 increase to £12.71 produces minimal employment effects—as 1999 introduction did—it would undermine claims that worker protections necessarily harm competitiveness. Conversely, if youth unemployment rises significantly following the 8.5 percent increase in the 18-20 rate, it could validate concerns about affordability.
Productivity data will provide the ultimate verdict. If technology diffusion and AI adoption can offset any flexibility losses from enhanced worker protections, the government’s bet on “pro-worker, pro-business” policy may prove coherent. If the UK continues losing ground to European peers despite maintaining looser labour regulations, it would suggest productivity challenges stem from investment, skills and infrastructure failures rather than employment law. The 2026-2027 period will clarify which diagnosis better explains Britain’s 15-year growth stagnation.