Will the Labour Government’s New Deal for Working People be enough to address the UK’s labour market challenges and improve working lives?

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The Downing Street sign on a wall in Westminster, London with the Houses of Parliament in the background.

Such is the pace at which UK Parliamentary elections move, no sooner have the final ballots been counted than removal vans arrive in Downing Street, and Sir Keir Starmer makes his way to the Palace to begin forming his new Government. And just as rapidly, attention is already switching to what a Starmer administration will seek to achieve in office with its landslide majority of over 170 seats.

The big question being asked by many commentators, and indeed voters, is whether the proposals that Labour offered during the election campaign will be enough to tackle the breadth and scale of policy challenges that the UK now faces.

Serious challenges facing the UK labour market

One such area which I expect will dominate the Parliament is the state of the UK labour market. The UK Insecure Work Index highlights that 6.8 million people in the UK are in severely insecure work – unable to access predictable income or basic employment protections. In addition, the most recent data from ONS points to a weakening jobs market in the UK, with employment levels beginning to fall, unemployment and economic inactivity rising, and the number of job vacancies declining.

Rising levels of economic inactivity due to long-term sickness are particularly alarming, with a near record 2.83 million people now opting out of the labour market due to ill health – a staggering increase of over 700,000 people compared to the pre-pandemic period. All while pressure on NHS services remains acute and the state of the public finances more broadly remains extremely challenging.

In this context, Labour has campaigned vigorously on its New Deal for Working People – a series of policy commitments aimed at strengthening work rights and protections. Specific pledges include the kerbing of exploitative zero-hour contracts, the introduction of a day one right to flexible working, and increases to statutory sick pay.

In part these proposals reflect long overdue reforms that will bring the UK more in line with other countries who have adopted regulations and guidance that reflect shifts in the modern economy and better meet people’s needs. But are they also sufficient to make significant progress on the deeper labour market challenges that the UK faces?

Can these priorities reduce levels of economic inactivity?

Elements of the New Deal can certainly contribute to tackling economic inactivity due to ill health. For example, strengthening sick pay so that those who need it can access it regardless of how much they earn or how long they’ve been sick could help people with a health condition remain in work, and de-risk the prospect of returning for those outside of the labour market.

Likewise, strengthening employment protections for those in insecure work may also mitigate the health impacts of working for an extended period without predictable income or access to basic employment rights. And it could encourage more of those who are currently out of the labour market to return – reassured that if they fall ill again, they will have the protections they need.

Increasing access specifically to flexible working could also be critical in encouraging those with long term health conditions to apply for jobs in the first place – right now many in that scenario have to apply without really knowing whether, if they are successful, they’ll be able to do the job on a basis that works for them. And taken together with strengthening employment rights and kerbing zero-hour contracts, Labour could ensure that individuals no longer face a choice of flexibility or job security.

The devil remains in the final detail of proposed reforms

But in each of these areas the extent to which the New Deal will make a difference depends on the specific choices Ministers make when in Government. In particular, the outcome of consultation processes with employers, unions and other key stakeholders will be critical.

For example, on sick pay reform – where will the new level be set at? What support will be on offer for SMEs and other businesses who might struggle to afford to pay it? And will there be adequate occupational health, rehabilitation support and flexible working models, meaning that people don’t drop out of work once their period of entitlement to statutory sick pay ends?

Or on the day one right to flexible working – how will ‘business need’ be defined in any guidance for employers, and what exemptions will be made explicit in the legislation? And how do we ensure that people with little agency and bargaining power in the workplace still get the flexible work they need, with a security of income, in order to participate in employment?

A ‘lite’ version of these reforms will significantly dilute the impact they’re likely to have for workers, employers and the wider issues facing the UK labour market. This is especially true as elements of the New Deal intersect and depend upon one another - the day one right to flexible working requires a guaranteed contract, and stepping back on one reform will impact the other.

Most crucially, individual elements of the New Deal must not be seen as a ‘one off’ set of commitments. The new Government should make clear as it implements these changes how it intends to keep employment legislation up to date, and how key entitlements like Statutory Sick Pay will be reviewed and uprated in the future.

In this spirit, Labour’s commitment to a Fair Pay Agreement for social care workers is crucial because it will build the infrastructure for ongoing consultation in the sector, so that future proposals on pay, progression, skills, can be properly determined with the views of the workforce, employers and government taken on board.

Delivering on wider reforms will also be crucial

Ultimately, however, these measures will also need to form part of a wider suite of labour market interventions from Government – particularly when it comes to reducing economic inactivity.

That includes welfare reforms that shift the ‘any job is better than no job’ mindset of DWP policymaking towards a focus on sustained employment, and changes that make it easier for those opting out of work to step back into employment without fearing they might lose their entitlements if they fall ill again.

It also means prioritising more investment in personalised and devolved employment support to better connect those out of work with opportunities that are right for them. And it includes delivering on wider commitments, such as improving access to childcare provision and NHS services, the absence of which is likely preventing some people from returning to the labour market.

Clearly then, even with an enormous Parliamentary majority, the new Labour Government faces a stark challenge when it comes to improving the UK labour market in the coming years. The territories it has identified for reform are broadly the right ones – but much will depend on how far they are prepared to take those reforms, and their ability to deliver major and complex change in Government.

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