In all the excitement of Liz Truss resigning and the starting pistol being fired for yet another race to become Prime Minister, many people have overlooked a speech by Keir Starmer in which he set out some substantive policies. Speaking to the Trades Union Congress on 20th October, Starmer committed to a series of labour market reforms. These include banning zero-hour contracts, extending parental leave, strengthening entitlements for flexible working, creating stronger protections for pregnant women, creating a single “worker” status for all but the most obviously self-employed, getting rid of one-sided flexibility, creating statutory sick pay for all, repealing 2016 restrictions on unions, and enforcing mandatory reporting on ethnicity pay gaps.
It’s a long list, and many of the ideas will be unsurprising. They’re the sort of things that Labour leaders often promise. But Starmer also committed to a new and radical idea, to create sector-specific “Fair Pay Agreements” (FPAs). As Starmer explains, FPAs would entail unions and industry representatives getting round the table to negotiate industry-specific minimum wages and minimum worker entitlements, which would then be applied to the rest of the sector – regardless of whether the sector’s other workers were represented by those unions at the negotiating table, and regardless of whether the sector’s other employers were represented by the industry bodies that took part.
The implications of such a policy, as you can imagine, are profound. If applied across all industries, they would empower both unions and industry bodies to set the terms for all workers and firms in an industry. If it passes, we might expect the membership of industry bodies to grow, in order for businesses to get any say in the matter. But unions may well dwindle because workers would gain regardless of whether they are actually members. This may or may not be what Labour intends, but many on the left have long dreamed of the UK becoming more like other European countries, where such agreements are common. Labour is also following New Zealand’s Labour party, which is currently shepherding the same reforms through Parliament.
We don’t yet have all the details from Labour, but New Zealand’s plans for FPAs give us some indication of what to expect. FPA agreements, when made, would become secondary legislation, so that breaches of the agreement would mean breaking the law rather than just a contract. The FPAs would also last for 3-5 years, after which they can be renegotiated. Unions are able to initiate FPA negotiations when they gain the support of either 1,000 employees or 10% of the workforce in a given sector – whichever is lower. And when an agreement cannot be reached, the government can step in to command one. Interestingly, unions would not be allowed to strike to achieve an FPA, but could take industrial action if employers fail to keep to the agreements.
Just as in New Zealand, Labour’s first target for FPAs is the social care sector, in which half a million workers are paid less than £10 an hour. But where it may get more troublesome is in how it gets applied beyond that. The plan for New Zealand is for FPAs to cover either occupations or industries, with overlaps defaulting to whichever provides the best coverage. But if the proposals are taken beyond social care, we can probably expect a lot of legal disputes down the line as to how industries or sectors are defined.
And Labour should take into account how larger firms may use the process to hurt their smaller, newer competitors. It is not uncommon for small start ups, without much money now, to offer their employees equity or a particularly flexible or dynamic work culture to offset lower wages today. It’s already challenging enough for entrepreneurs to come up against large incumbent firms, but if those large firms have a seat at the table and their competitors (or potential competitors) do not, there’s a very big risk that larger firms able to swallow much higher labour costs may use FPAs to bury the firms that are less able to do so. This anticompetitive process – of big businesses pushing for higher and more costly regulations to benefit themselves – may ultimately benefit big businesses and hurt workers’ bargaining position in the long run. So Labour should pay close attention to how it designs FPAs in order to prevent it, or find ways to offset it. Otherwise, an economy dominated by big business will not lead to the dynamism, growth, and rising opportunities for employment that Labour envisions.