Labour’s flagship plans to introduce minimum pay levels in low-paid sectors like social care are at risk of failure without the full support of employers, the Institute for Government (IfG) think tank has warned.
Sir Keir Starmer and deputy prime minister Angela Rayner are to push ahead with the fair pay agreements policy as part of a wider package of workers’ rights reforms unveiled in last week’s King’s Speech.
The agreements will be introduced for social care workers first before being expanded to other sectors.
A fair pay agreement would allow unions to collectively bargain on behalf of everyone who works in a particular sector, such as care workers, who would then be entitled to a nationally agreed wage whoever their employer is.
IfG programme director Nehal Davison worked for seven years as a civil servant in former New Zealand premier Jacinda Ardern’s government, where fair pay agreements were introduced for a year before being axed.
In a new blogpost for the IfG, Ms Davison says the UK Government’s plans for the legislation to be introduced in its first 100 days are ambitious, given it took nearly five years for the same measures to be implemented in New Zealand due to wrangling between unions and employers over better pay and conditions.
Ms Ardern’s administration finally passed the Fair Pay Agreements Act in December 2022, four-and-a-half years after starting work on the reforms, but a year later it was repealed by the new right-wing coalition.
While six sectors had received approval to bargain for pay floors under the new system, no pay settlements were finalised before the legislation was repealed, Ms Davison writes.
She says that while improving pay in social care is a good place to start, New Zealand “offers an unfortunate case study”.
The reforms in New Zealand “faced stiff opposition from the off, particularly from employers due to concerns about cost and flexibility”, she adds, while there were “lengthy and protracted discussions” through the initial working group and then through public consultation which “failed to build the political consensus needed to withstand changes in administration”.
Ms Davison says: “That it took five years for New Zealand’s FPAs to rise and fall calls into question Labour’s pledge to introduce its legislation in its first 100 days.
“This is unlikely to allow time for meaningful collaboration with trade unions and (in particular) businesses on what it has described as the ‘the biggest upgrade to workers’ rights in a generation’.
“Here, the New Zealand experience provides a crucial lesson: rather than trying to reach compromise on every aspect of the system, it may be more effective to focus on building the ‘case for change’ with industry – as was done so successfully by a previous Labour government with the National Minimum Wage.”
Introducing minimum pay levels in social care may also be difficult because the sector is “notoriously fragmented” with no collective body representing around 1.5 million workers, and union membership at 15 per cent in the private social care sector and 41 per cent in the public social care sector.
The UK Government may also have difficulty in persuading social care employers who are funded through cash-strapped local government to agree to better pay and conditions if town halls do not receive an increase in their budgets from Whitehall, Ms Davidson writes.
Instead, the IfG blogpost says, the UK Government should consider bypassing introducing collective bargaining and instead look at setting sector-specific minimum wages, above the national living wage, in consultation with employers and unions, or establish a social care pay review body along the lines of those that already exist in the NHS and other parts of the public sector.
A third alternative could be to introduce a system, based on one in Australia, where a Fair Work Commission sets minimum rates of pay and other terms based on submissions from unions and employers.
In its blueprint for workers’ rights reforms, the Plan to Make Work Pay, Labour pledged to introduce the agreements to empower “workers and the trade unions that represent them to negotiate fair pay and conditions”.
It added: “This will help us tackle the serious recruitment and retention crisis facing the sector, deliver higher standards for those receiving care and help us to tackle NHS waiting lists.
“Labour will consult widely on the design of this Fair Pay Agreement, learning from those economies where they already operate successfully, ensuring the highest standards of representation and accountability.”
A Department for Business and Trade spokesperson said: “The world of work has changed rapidly but rights at work have not caught up. By making workplace rights fit for the modern economy, our Plan to Make Work Pay will empower working people, level the playing field for businesses and boost economic growth.
“A number of the measures in our plan already have strong support from businesses, and we are committed to a full and comprehensive consultation before implementation.”