Labor is living in the past – and will destroy the economy to get there

As he prepares to take office later this year, the Labor Party, and in particular its leader Sir Keir Starmer, is trying to reassure corporate bosses that the proposed overhaul of employment law will reduce significantly.

Zero contracts may sometimes be allowed to continue, with at least a few additional rights. The unions will not be invited back to help run the government, and some of the additional employment rights will be removed.

No one should be fooled. By far the most significant reform is the extension of collective bargaining agreements. They may sound technical, but in reality they are the Government setting pay rates across most of the private sector.

And if it does, it will destroy what’s left of the UK’s world-leading flexible labor market – and destroy thousands of small businesses too.

There are plenty of headline proposals in Labour’s plans to reform employment law.

Zero contracts will sometimes be banned. Fire and rent will be prohibited. Parental leave will be extended, flexible working will be encouraged, gig work will be regulated for the first time, and there could even be some fashionable reforms such as a “right to switch off”, a right to “work from anywhere”, and maybe even a holiday statutory sabbatical with no loss of wages or employment rights.

They are the kind of reforms that generate a lot of support on social media, and will satisfy the party’s largely professional public sector base which is always happy to give itself more time off as long as wages remain. and everyone’s pension benefits are equally generous.

Over the past few weeks, the party has pushed back on many of the reforms, replacing promises of additional legal rights with vague promises of best practice. The party leadership is desperate to keep big business on board as it heads into an election.

According to the Unite union, the latest version of the package is “completely unrecognizable”, and its general secretary Sharon Graham called it a “betrayal”. The final version of the plan is to be announced in the next few weeks, and we will see what is included in the final manifesto when the general election is called.

However, headline rights are not the most important. The meat of the plan will be in detail. The most significant overhaul is also the most technical. In its policy outline for 2021, the party pledged “sectoral collective bargaining” for the entire economy.

As law firm Lewis Silkin put it in an analysis of the plans, this is “the single most radical proposal in its 2021 Green Paper”.

What does it mean? Essentially, under sectoral bargaining there will be equal pay agreements for all different sectors of the economy, struck out at a national level between the Government, the trade unions and employers’ associations.

Nationally agreed wages will be set for, say, dental assistants, or care workers, or engineers, or retail workers, bar staff, and many other everyday roles. If you run a restaurant in Staffordshire, you will be told what the chef will be paid, and a vet clinic in Somerset will be told how much their receptionist will be paid.

It will be a radical change for the UK. In this country, only 26pc of workers are covered by equal pay agreements, and only 13pc of private sector employees (most of them in construction and transport where they have a longer history).

They are more common in some continental European countries, with 99pc of jobs covered in Italy, 98 in France, and 51 in Germany, but experimenting with labor systems with higher levels is hardly a great idea. unemployment they have created to permanently copy, in particular. among young people.

In reality, trying to micromanage the pay and conditions of 32 million employed people in the UK is madness.

There are three huge problems. First, it attempts to create one set of national standards for businesses that vary according to local conditions, who their customers are, and what part of the market they serve.

Should the chef at a Michelin-starred restaurant in Marlow be paid more or less than the equivalent of a roadside cafe in Derbyshire? Or should a dental technician in prosperous Cheshire be paid the same as a much poorer Wrexham, although housing and other costs will be very different?

Definitely not. All we have to do is set rates that will be completely wrong for everyone.

Next, it will push up wages. Just as the National Living Wage has risen far faster than inflation, we can be sure that the “fair wage” for all industries will continue to rise, especially if Angela Rayner is chairing its meetings.

True, some employers will be able to afford it, but others will not and will quickly be put out of business. It’s hard to see how that helps anyone. In fact, because of the increases in the living wage, some companies have already closed down, and the impact of “fair pay” will be even greater.

Finally, it will destroy flexibility. The UK economy has such a long list of flaws that it’s hard to keep track of them all, but one of its strengths is that it has a workforce that can adapt very quickly to changing conditions. By setting rigid national pay rates, we will do that, and anyone who thinks it’s an improvement is kidding.

Sure, collective agreements may have worked in the industrialized, regimented economies of the 1950s and 1960s. They may even work in countries that are much more dependent on industry, such as Germany. They are not going to work in the UK’s service-based enterprise economy in the 2020s.

In reality, Labor is living in the past – and trying to go back there will destroy the economy.

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