Britain’s economic recovery is at risk of being “blown off course” by the Eurozone crisis and gloomy forecasts for growth at home, business leaders have warned.
The CBI called on ministers to overhaul new European Union laws giving “gold plated” employment rights to temporary workers, arguing that the rules were hampering the recovery by making firms reluctant to hire agency staff.
The warnings came amid signs of growing tension inside the Coalition over how to tackle the flagging economy, as the Bank of England prepares to cut its forecasts for growth.
The CBI report suggested that businesses are reducing the number of temporary staff they employ and are imposing pay freezes on existing employees, in light of the new EU Agency Workers Directive.
A survey of over 460 firms found that only one in six planned to increased recruitment of temporary workers, while one in five expected to cut back.
The CBI’s deputy director general, Neil Bentley, said the directive was having a negative impact on recruitment, which should set “alarm bells” ringing in Whitehall.
“We want a review next year to make sure it does not cause any more damage,” he said. It is in everyone's interest to help as many people as possible to get into the labour market.
“Employers are making hiring plans on shifting sands and there is a risk the tentative private sector jobs recovery could be blown off course by fast-moving economic events at home and abroad.”
The warnings come ahead of fresh unemployment figures, to be published this week. Ministers are braced for the number of under-25s year-olds out of work to exceed one million for the first time since records began 20 years ago.
The Bank of England is expected to cut its forecasts for economic growth on Tuesday. Analysts suggest that the Bank’s prediction will be for a rise in GDP of just 1% this year, down from an earlier forecast of 1.5%.
However, senior Liberal Democrats and Conservatives appear to be split on how to respond to the slowdown in the British recovery.
On Sunday, Vince Cable, the Business Secretary, claimed he was “right” to have warned before last year’s election that cutting public spending too fast would undermine growth.
In a further sign of friction, the Deputy Prime Minister, Nick Clegg, postponed a speech on the economy, which he was due to give today, partly because key policies were not yet agreed between the two governing parties.
The Chancellor, George Osborne, is due to publish his plan for stimulating growth in his annual autumn budget statement at the end of the month.
But proposals must first be signed off by the “Quad” of key decision makers in the Cabinet: Mr Osborne, the Prime Minister, Mr Clegg and the Lib Dem Treasury chief secretary, Danny Alexander.
The Chancellor is drawing up plans for a £50 billion pound infrastructure development programme, including road and house building schemes, to create jobs and stimulate private sector investment.
While Lib Dems are believed to support the infrastructure projects, other key areas of economic policy are yet to be agreed.
Senior party figures have rejected moves to reform employment law to allow firms to “fire at will” staff who are underperforming.
Lib Dem ministers also object to suggestions that the Treasury should abandon a promise to increase benefits in line with inflation, which is higher than had been expected.
Party sources said the proposal was being fought on the grounds that the poorest families need more disposable income to spend on the high street to help the economy to grow.
Mr Cable told the BBC Politics Show that there was “no doubt” that benefits should be increased in line with inflation, although he conceded that there were “issues” and “detail” still to be decided ahead of the Chancellor’s autumn budget statement.