Labour Market

A review of the election manifestos: the labour market

The UK labour market features in the manifestos of all the major parties, with a range of proposals on offer. Whatever the electoral chances of the parties concerned, these manifestos are worth a look. Even if a party has a zero chance of forming the next government, its ideas tell us something about the mood music for the next few years and the extent to which the new administration may face support for or pushback against its employment policies. And, heck, it’s always possible that a hung Parliament would require one of the smaller parties to get into bed with another party, whose employment agenda may or may not coincide with theirs.

The parties’ proposals have emerged while our labour market may seem to be facing a downturn, with unemployment and inactivity rising, employment and vacancies falling, while productivity continues to flatline. There are also well-known longstanding problems, with real pay growing only very slowly.

But it could be a lot worse. Despite its problems, the UK’s labour market has performed markedly better than those in most continental European countries, where the stranglehold of unions and over-zealous regulators effectively exclude large numbers from employment or keep them in insecure temporary jobs, with young people in particular losing out.

The Labour Party has the most prominent proposals for the labour market. It plans to implement some key features of its ‘New Deal for Working People’ within the first hundred days of office. This involves for example the repeal of the Conservatives’ 2016 Trade Union Act and the 2023 Minimum Service Levels Act. This has been a key demand of the unions, though neither of these Acts has been very effective at reducing strikes. The hurdles necessary for industrial action in the 2016 Act have usually been overcome, while the MSL Act is a dead letter: the only attempt to apply it, by the railway company LNER, failed miserably.

The repeal of these Acts is, however, just one aspect of Labour’s pro-union agenda, which also involves measures to encourage union membership such as enabling recruiters to enter workplaces, the introduction of electronic strike ballots, mandatory time off for diversity coordinators, and easier union recognition. Perhaps the most striking proposal is for unions to be involved in a national ‘Fair Pay Agreement’ for social care workers, which Labour hopes will be the first step in a resuscitation of sectoral collective bargaining. This has virtually died out in the UK, though survives in many continental countries and has recently been revived in Australia.

Centralised bargaining would reduce competition and, by entrenching union influence, could well retard productivity even further. Whether it is likely to achieve very much for workers in social care is debatable; given that a budget-constrained government funds about half of all care, a union-pushed bonanza seems unlikely.

Other Labour manifesto promises include day-one rights to parental leave, sick pay and protection against unfair dismissal, the end of ‘fire and rehire’ and ‘exploitative’ zero-hours contracts (that qualification suggests that ZHC  are not going to be banned outright as many on the Left have demanded). A significant boost to the National Living Wage is proposed, to turn it into a ‘real’ living wage based on the cost of living, applicable to all workers, even 16-year-olds. While there would be real gainers from this, it seems inevitable that many teenage jobs would disappear, making entry into the labour market later on much more difficult for young people.

A new quango, a ‘Single Enforcement Body’ to increase compliance with the law on minimum wages, modern slavery, gangmasters and employment agencies, is proposed.

Another headline promise is to create 650,000 new ‘green’ jobs, a vague commitment which assumes an ability no government, particularly a cash-strapped one, can automatically be assumed to possess. Finally, Labour promises extensions to the 2010 Equality Act to cover such issues as menopause discrimination, to facilitate claims for equal pay for ethnic minorities, and to require ethnic pay gap reporting. All these interventions are likely to impact heavily on employers and, if past experience is anything to go by, could produce unintended negative consequences for many they are intended to help.

The Liberal Democrats also have a long list of proposals, some of which, like their advocacy of a Worker Protection Enforcement Agency, improvement of conditions for zero hours contract workers, day-one parental leave rights, and the implementation of a ‘real’ National Living Wage, echo those of the Labour Party. However, they have a number of other proposals, some of which – like their proposal to scrap the ineffective apprenticeship levy – make a good deal of sense.

Otherwise, they want a new ‘dependent contractor’ status between self-employment and employment, thus giving some gig workers access to a wider range of worker rights. They want to ‘fix’ the Statutory Sick Pay system (by making it more generous) and ‘fix’ the work visa system (including a revived Youth Mobility scheme). They wish to encourage businesses to invest more in training, a motherhood-and-apple-pie proposal which only the bravest would contradict.

A more novel proposal is to ‘encourage’ employers to promote employee ownership by giving staff in listed companies with more than 250 employees a right to request shares ‘to be held in trust for the benefit of employees’. As an aspiration, this seems harmless enough, though quite what it would achieve is unclear. If, however, this ‘right to request’ is turned down, and leads to appeals to tribunals or judicial review, it could be yet another hassle for businesses.

The same could be said for the Liberal Democrat proposal to reform company law to ensure than all companies have to have a formal statement of company purpose, including the welfare of employees.

The Green Party manifesto’s labour market commitments in many ways resemble those of the Labour Party. They include the repeal of ‘anti-union’ legislation and the creation of a Charter of Workers’ Rights. The Greens want more rights for ZHC and gig workers, day-one rights to mandatory benefits, and a £15 minimum wage for all workers. They want companies to face Equal Pay Audits, covering all aspects of their remuneration policies.

All this is a variant of standard leftist material. Their one unique proposal, however, would not be accepted by the Labour Party, the Lib Dems or the Welsh and Scottish Nationalists. This is their wish to ‘introduce a maximum 10:1 pay ratios [sic] for all private and public-sector organisations’. It is difficult to judge whether this is serious policy proposal, or a tongue-in-cheek provocation aimed at its young supporters, but it is certainly different.

The nationalist parties, which will surely take a fair number of seats between them, address labour market issues, although some of their objectives are outside their formal competence. Again, they largely echo Labour’s proposals. For instance, the Scottish Nationalist Party wants to repeal recent anti-strike laws. increase the minimum wage, scrap zero hours contracts, improve sick pay, and ban fire and rehire.

Plaid Cymru, the Welsh nationalist party, similarly takes a standard leftist line for the most part. They would scrap Tory anti-strike laws, outlaw fire and rehire, and introduce a ‘right to disconnect’ (the right, already established in France, Ireland and a number of other European countries, which would prevent employers or fellow employees contacting you outside working hours). They would introduce new rights to leave for bereavement and miscarriage, although it is unclear that leave for such sad events could not be taken under existing employment law.

Another proposal put forward by Plaid Cymru is for devolution of employment law to Wales (and presumably to the other nations of the UK). While the difficulties this would cause for businesses operating in different jurisdictions, and the confusions for individuals working in different locations, are plain, having different minimum wages when market conditions vary, for example, might have its benefits. Gordon Brown is said to have favoured such an idea at one time.

It is clear, then, that the parties on the political left have a number of policies in common, with a preference for repealing at least part of Conservative policy towards trade unions – though, as yet at least, not repealing core Thatcher/Major reforms such as the ban on the closed shop or secret ballots – and according workers a range of new ‘rights’. It seems unlikely that Labour’s plans would meet any significant opposition from the other current opposition parties.

By contrast, what do the parties of the Right offer? The Conservatives have long complained about the over-regulation of the labour market, despite themselves adding to it at frequent intervals: it was they, for instance, who introduced the National Living Wage and pushed it up to two-thirds of the median hourly wage, and introduced mandatory private sector gender pay gap reporting, the apprenticeship levy, expanded occupational regulation to childcare workers, private detectives and estate agents and extended flexible work rights.

This time round, the Conservative manifesto shows concern about the number of people of working age who have dropped out of the labour force. The Conservatives promise to tighten up capability for work assessments, overhaul the ‘fit note’ system, and get tough with those unemployed people who turn down suitable jobs. There is the usual stuff about boosting apprenticeships, with some extra money promised for loans for those seeking new vocational qualifications. The Office for Students is to clamp down on ‘Mickey Mouse degrees’, with the intention of shifting young people into more vocational pathways which will boost their employability in years to come.

The two novelties are the proposal for some form of compulsory national service for 18-year-olds, and the commitment to abolishing the main rate of national insurance for the self-employed by the end of the next Parliament.

It is difficult to see the national service idea as much other than an election gimmick. It has not been thought through in any detail, with the idea being that it would be fleshed out by a Royal Commission. The two alternatives – on the one hand paid military enrolment, on lines not dissimilar from the old form of national service but operated selectively – and on the other unpaid voluntary work at weekends, seem chalk and cheese. Both would be costly to implement and will involve resources of time and personnel which might be put to better use. They both also have implications for entry into the labour market which need to be planned for.

The other proposal, to reduce national insurance for the self-employed, is not a bad idea. It is a welcome reversal of the Treasury’s long-term animus against the self-employed, a view apparently shared by Rishi Sunak when, as Chancellor, he was considering raising national insurance for this group to bring it in line with those in regular employment. Perhaps Mr Sunak feels guilty about the way in which his support schemes during Covid were less generous for the self-employed than for those in regular employment; as a result, self-employment dropped sharply and has still not recovered its pre-pandemic level.

Finally, the new kid on the block, Reform. Given the circumstances of the suddenly-called general election and the replacement of its leader, Reform has not produced a full manifesto, rather issuing a ‘contract’ which sketches a few bold themes. One appealing headline is the proposal for a £20,000 personal allowance, and for the higher rate of income tax to begin at £70,000, the idea being to increase incentives to work. This proposal is clearly not properly costed. There is also a proposal to impose an employer immigration tax (actually, a rise in national insurance for immigrant workers), and a tight restriction on ‘non-essential’ immigration.

Reform also proposes scrapping the 2010 Equality Act and slashing ‘thousands of laws that hold back British business and damage productivity, including employment laws’. The working-age inactivity problem would be resolved by having all Personal Independence Payment and Work Capability Assessment decisions dealt with in face-to-face meetings. Those with long-term incapacity issues would be checked regularly. There would be a ‘two strike’ rule for jobseekers: turning down two reasonable job offers would lead to a loss of benefits.

At this stage Reform’s ‘contract’ is just pointing to a direction – a direction very different from that which Labour and other left-leaning parties propose to go. At the moment it is not offering a realistic proposal for government, but a modified and costed version might conceivably be the basis for a radical challenge by a Right alliance at some future election.

So, we await the voters’ verdict with interest. If Labour wins, it is likely to entrench significant changes to the UK labour market which will resonate for years to come. It is a more than usually important election, which could produce changes as profound as those which the Thatcher government introduced two generations ago.


Editorial and Research Fellow

Len Shackleton is an Editorial and Research Fellow at the IEA and Professor of Economics at the University of Buckingham. He was previously Dean of the Royal Docks Business School at the University of East London and prior to that was Dean of the Westminster Business School. He has also taught at Queen Mary, University of London and worked as an economist in the Civil Service. His research interests are primarily in the economics of labour markets. He has worked with many think tanks, most closely with the Institute of Economic Affairs, where he is an Economics Fellow. He edits the journal Economic Affairs, which is co-published by the IEA and the University of Buckingham.

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