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The Government has U-turned twice. We need a few more
It’s not too late to shelve the Employment Rights Act’s most damaging clauses
Dynamic alignment with EU regulations would be a costly mistake
Governments rarely earn applause for changing their minds, but sometimes it is well-deserved. In the past few weeks, ministers have killed two policies that would have made Britain poorer, a one-year freeze on private rents and a statutory power to direct where pension funds invest.
The rent freeze, briefed on a Sunday and definitively buried by No. 10 and the Housing Secretary by Wednesday last week, would have repeated an experiment whose outcome is among the most settled in applied economics. Berlin’s first generation 2020 cap collapsed listings almost overnight. Scotland tried a second-generation rent control in 2022, capping increases only within existing tenancies, with Glasgow rents rising by nearly a third in the first year of the policy. Whichever flavour ministers chose, the policy would have made the housing crisis worse.
The pensions retreat is in a similar shape. The Pension Schemes Bill originally let ministers force defined-contribution schemes to allocate up to 10% of their assets to private markets, with 5% earmarked specifically for British ones, with personal liability for trustees who refused. In effect, the Treasury wanted to redirect savers’ money out of liquid public equities and into illiquid domestic investments of the Government’s choosing. After the Lords rejected the clause three times, the Government accepted that this is not a fight worth fighting, and watered down its plans significantly.
Encouraged by these reversals, ministers should consider a few more.
The first candidate is the Employment Rights Act 2025. Its central reforms come into force in stages between this April and January 2027, and they arrive into a labour market already in distress. The unemployment rate for 16–24-year-olds is the highest since the pandemic. Into this slowdown, the Government is dropping the qualifying period for unfair dismissal claims from two years to six months, introducing day-one statutory sick pay and doubling tribunal time limits.
Three quarters of small firms surveyed by the ICAEW expect higher employment costs as a result of the new Act. Over half say they will hire fewer permanent staff. The Government’s own impact assessment estimates the package will impact GDP by a rounding error, while concentrating costs on hospitality, retail and other low-paying sectors that disproportionately employ the young.
Pair this with the 17% rise in the 18–20 minimum wage and the increase in employer national insurance contributions – both announced in the October 2024 Budget – and the surprise is that youth unemployment is not higher still. Instead of inventing fresh subsidies and youth hubs to offset the damage, the Government could achieve more by postponing, or better yet shelving, the Act’s most damaging clauses.
The second candidate is the partial reversal of the winter fuel allowance cut. In June 2025, after losing Runcorn and a string of council seats, the Chancellor restored the payment to roughly nine million pensioners, at a cost of £1.25 billion to the Exchequer. The original means test would have saved £1.3bn in 2024–25. The Chancellor was right the first time. Britain needs to take fiscal consolidation seriously, and modest, durable savings are exactly the sort of signal that gilt markets might reward. Reverting to the £35,000 income threshold, ideally with the floor lowered further, would re-bank a saving the country still needs. It is never too late to U-turn on a U-turn.
The third candidate is dynamic alignment with EU regulations, currently being floated as part of a wider reset of UK-EU relations. British tech firms raised $17.3bn in 2025, more than France, Germany and Switzerland combined, and the country is home to 149 unicorns, more than any other in Europe. That gap rests on a regulatory environment that is still meaningfully lighter than Brussels’.
These benefits extend to science. Under the Genetic Technology (Precision Breeding) Act 2023, British scientists can now develop crops that are more nutritious and more resistant to disease and pests, such as vitamin D-enriched tomatoes, with gene-edited products expected on supermarket shelves by late 2026. Dynamic alignment would forfeit this advantage for marginal gains on trade frictions that could be handled by less binding arrangements.
If ministers can drop rent controls and water down pension mandates in the same week, they can look again at any number of mistakes. The list is long, and U-turns alone won’t fix everything overnight. But small, deliberate steps can improve the state of the economy and public finances. All it takes is a few more U-turns.
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Columns are the author’s own opinion and do not necessarily reflect the views of CapX.