It will cost jobs. It will harm the UK’s competitiveness. It will make the labour market less flexible. For those with long enough memories, the push back against Labour’s plans for a new deal for workers has a familiar ring to it. The same arguments were wheeled out before the national minimum wage was introduced a quarter of a century ago. All proved groundless.
Confounding the doomsters and gloomsters of the late 1990s, the minimum wage has raised the pay of millions of Britain’s lowest-paid workers by an average of £6,000 a year without lengthening dole queues. It has been described by one thinktank as the most successful economic policy in a generation.
Labour’s plans would outlaw zero-hour contracts, and give workers certain rights – such as the right to statutory sick pay and protection from unfair dismissal – from day one of employment. It is comfortably the most radical policy the party has on offer.
Voters seem to like the idea of the changes. A poll conducted on behalf of the TUC last year found 67% of those surveyed – including 61% of Conservative voters at the 2019 general election – supported day-one protection from unfair dismissal. Similar majorities supported enhanced rights for gig economy workers, and bans on hire and rehire and zero-hour contracts. There was also strong support for union collective bargaining rights.
Predictably, businesses are less keen on the proposed reforms. The employers’ lobby group the Confederation of British Industry (CBI) was one of the business groups that was wrong about the minimum wage in the 1990s, but that hasn’t prevented its president, Rupert Soames, sounding off to the Financial Times about the need to avoid a “European model” of employment rights and resist excessive regulation that harmed productivity.
Given that it nearly went under as a result of a scandal involving sexual misconduct and bullying, a period of silence from the CBI on employment issues might be welcome. It does, though, have allies in the Labour party – most notably Lord Peter Mandelson – who are warning against rushing through changes.
So far, Labour has resisted the pressure to water down its plans, and it is right to do so. It should listen politely to what businesses have to say and then go ahead anyway. This is not about turning the clock back to the 1970s.
Rather, the rationale for change is simple. Giving more rights to workers and to unions would help redress the imbalance of power between employers and employees. Change would be good for workers but also good for the economy.
What’s more, it is a politically risk-free option. As things stand, Labour is going to win the general election by a landslide anyway, but even if that were not the case, the new deal for workers would win more votes than it would lose. Paul Nowak, the general secretary of the TUC, says voters recognise that Labour will inherit an economic mess and that it will take time to turn round public services. “But a new deal for workers is something Labour could do on day one and which would generate a massive amount of public goodwill.”
The TUC – and individual unions – have made it clear to Sir Keir Starmer, Rachel Reeves and Angela Rayner that they expect Labour to deliver on workers’ rights. Watering down the green prosperity plan was tough to accept, but a U-turn on the new deal for workers would be of a different order of magnitude. For the unions, it is a red-line issue.
What should stiffen Labour’s resolve is that the “flexible” labour market has failed even on its own terms. Since 2008 – the height of the global financial crisis – the number of people on zero-hours contracts has increased from about 0.5% of the workforce to more than 3%. Over that same period, productivity growth has averaged less than 0.5% a year, while wages adjusted for inflation are lower than they were in 2008. A truly flexible labour market would not have almost a million job vacancies, many of them in the sectors – such as hospitality and social care – where trade union membership is lowest and job protection scantiest.
At times, even the Conservatives have recognised that there is a problem. Theresa May talked of the need to deliver for those who were just about managing. Boris Johnson pledged to create a “high-wage, high-skill, high-productivity economy”.
There is a long, long way to go before that happens. To be sure, unemployment is low but economic inactivity is at near-record levels. Hundreds of thousands of people left the workforce during the pandemic and have never returned. This is an economy marked by low wages, a disregard for skills and weak productivity. Workers are plentiful, cheap and easy to dispose of, so there is little incentive for firms to invest in training or in expensive new kit that would help make them more efficient. The UK is disfigured by epic levels of insecurity and in-work poverty.
Ultimately, the strongest case for Labour sticking to the new deal for workers is not that it would force employers to treat people more decently, although that would be the case. Nor is it that the unions would be livid if it fails to pass, although that too is true. No, the argument that Labour should make is that the status quo is not delivering, and so it is time to try something else. That might make the labour market less “flexible” but, to coin a phrase, flexibility isn’t working.
Larry Elliott is the Guardian’s economics editor
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