Government and Institutions

Labour’s 20-point plan – the good, the bad and the downright ugly

After a false start (when only 18 promises actually made it online), Labour has revealed a 20-point plan to ‘improve workers’ rights’ and fix ‘a rigged economy’. Unfortunately, many of the proposals would hurt the very people they are supposed to protect.

To be fair, some of the points do look good, at least in bullet form. But these are the vague statements of support for principles that few would ever criticise, like ‘motherhood and apple pie’ (quite literally, in the case of the promise to ‘strengthen protections for women against unfair redundancy’). The lack of detail also makes it hard to assess commitments such as strengthening protection against harassment or obliging takeover plans to consider the interests of workers and pensioners. These could be good, or they could be bad. Similarly, it is not obvious whether promises to give equal rights to all workers, whatever kind of contract they have, would add anything to the existing principles already being enforced in the courts (as Uber and Pimlico Plumbers could testify).

Overall, though, the clearer the promise on Labour’s list, the less sense it makes. The very first commitment is a ban on zero-hours contracts, which neatly summarises one of the many things wrong with the Party’s whole approach to labour market regulation. The presumption is always that the employer is a villain and the employee is a victim, and that a few genuine examples of exploitation can therefore be used to justify blanket intervention regardless of the wishes, let alone the interests, of the workers themselves.

In this case, Labour simply fails to acknowledge that both sides can benefit from the flexibility of a zero-hours contract. They are popular among groups that Labour presumably wants to help – including students and working mums. It is true that firms are not obliged to guarantee any minimum hours. However, workers cannot be forced to accept any work offered and they are usually free to spread their risks by signing up with more than one potential employer. And despite their bad press, people on a zero-hours contract work an average of around 25 hours per week and have essentially the same employment rights as a regular worker.

Of course, there are downsides of a zero-hours contract – including the difficulty that some workers face in getting a mortgage. But surveys suggest that most people on these contracts are just as happy as a regular worker and, when offered the chance to switch, few actually choose to do so. However, none of this matters to Labour. Instead, the commitment to ban a form of employment that actually suits many people is bizarrely described as ‘giving you more control over your working life’.

The muddled thinking doesn’t stop there. A further problem with Labour’s approach is that it fails to acknowledge any potential trade-offs. A good example is the commitment to raise the national minimum wage to at least £10 per hour by 2020 (from £7.50 now), which implies an average increase of around 10% in each of the next three years. The unanswered question (perhaps for the Office for Budget Responsibility or the Low Pay Commission?) is what impact such a large and rapid rise in labour costs would have on the level of employment. Similarly, in many circumstances the alternative to a zero-hours contract may be no job at all.

Rather than increased intervention, the aim should surely be to improve labour market flexibility so that more people can get back into work (a better way to reduce poverty) and to deregulate the economy so that rising productivity will pay for the higher wages that everyone would like to see. In contrast, measures such as a cap on the pay ratio between high and low earners are likely to backfire by encouraging firms to relocate overseas, or shed some jobs altogether. And here, Labour’s statement that ‘it cannot be right that wages at the top keep rising while everyone else’s stagnates’ is undermined by the inconvenient fact that, on most measures, inequality has actually been falling.

Indeed, there is plenty of evidence that Labour, at least under Jeremy Corbyn’s leadership, just doesn’t do economics. For example, increasing the number of Bank Holidays may well have valuable social benefits. However, Mr Corbyn has gone further and suggested that we need not worry at all about the economic impact, because increased spending over the holidays would offset any lost production. The reality is that more holidays will only affect the timing of spending, or more likely reduce it because income from employment would be lower.

But if much of the 20-point plan is bad, some of the proposals are downright ugly. In particular, Labour is proposing to repeal legislation that holds trade unions to account and would further undermine flexibility by promoting sectoral collective bargaining. Labour would also use public spending to favour companies with approved union links. Ironically, this risks ‘rigging the economy’ in favour of large vested interests within organised labour – at the cost of everyone else, including the unemployed, users of vital public services, and the taxpayer.

It might be argued that none of this matters because Labour’s chances of forming a government any time soon are vanishingly small. But there are many signs that the Conservatives are also edging towards a more interventionist approach – typified by a growing enthusiasm for interfering in wage setting and even an energy price cap right out of Labour’s playbook. Whichever party says it, the idea that only the government can decide what’s best and ‘make work pay’ is a dangerous fallacy.

Further IEA reading: The Minimum Wage: Silver bullet or poison chalice?;  Flaws and Ceilings

Julian Jessop is an independent economist with over thirty years of experience gained in the public sector, City and consultancy, including senior positions at HM Treasury, HSBC, Standard Chartered Bank and Capital Economics. He was Chief Economist and Head of the Brexit Unit at the IEA until December 2018 and continues to support our work, especially schools outreach, on a pro bono basis.

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