According to a survey published yesterday by the CBI and recruitment specialists Harvey Nash, employers perceive employment regulation to be the biggest threat to labour market competitiveness and find the employment tribunal system the biggest deterrent to hiring staff.

With a 58 per cent increase in employment claims over the past five years, employers fear taking on new staff but are also concerned about employing agency staff, as nearly half the firms surveyed have been affected by the introduction of the Agency Workers Directive in October 2011. And of these, nearly six in ten firms have reduced their use of agency workers, preferring to employ temporary workers on fixed-term contracts or to use other temp models.

Katja Hall, CBI chief policy director said: “Employment law is now seen as a brake on competitiveness by two-thirds of firms, and 52 per cent expect new rules from Brussels to prove damaging in the next five years.

“Employment regulations themselves can be a barrier for firms, particularly smaller ones, but the number one issue for businesses is how the rules are applied in tribunals.

“While reforming collective redundancy and TUPE rules will help, a real game-changer for growth would be a radical reform of employment tribunals. With an ever-growing backlog of claims, it’s clear that change is essential, and the Government’s laudable attempts to make progress on this front are being defeated by the inertia of an overly legalistic system. More radical reform has to come, to make the system quicker, cheaper, and more consistent for its users.”

The report went on to say that there was a case for taking tribunals out of the court system, and re-establishing them as “more informal, swift hearings”, with judges ensuring cases are heard quickly.