Labour Manifesto Promises Biggest Shake-up Of The Workplace In A Generation, Against Backdrop Of Further Tax Rises And Cuts To Public Services

14th June 2024

The Labour Party is proposing the biggest shake-up of the workplace in a generation, with the laudable aim of boosting the quality of work, which will demand careful consultation and implementation given the scale of change proposed. This boldness contrasts with a politically cautious approach to the public finances, which means a future Labour Chancellor could be left implementing significant tax rises and public service cuts over the next parliament, the Resolution Foundation said in its manifesto response.

The Labour manifesto proposals include new employment rights, tougher labour market enforcement, and an innovative approach to setting sector-wide standards in social care.

With care staff among the lowest-paid workers in Britain, and often at risk of being paid less than the legal minimum wage when travel time is included, there are strong moral and practical reasons for a new Fair Pay Agreement in social care - a sector that is dogged by chronic staff shortages, and in a country where demands on social care will only increase.

If this agreement were to ensure that all care workers are paid at least the real Living Wage (currently £12 an hour, and £13.15 in London, compared to the National Living Wage of £11.44), over two-in-five care workers would benefit directly. However, creating new labour market institutions is not straightforward, and will need to be implemented carefully, just as the Low Pay Commission was 25 years ago.

The wider package of employment rights reforms is equally bold, though their impact and risk will depend on the details reached during consultation.

The right to a contract reflecting regular hours worked will need to strike a balance between tackling the inappropriate use of zero-hours contracts (which at over one million are close to a record high level, despite a tight labour market) while maintaining the flexibility needed in sectors like hospitality. Similarly, ‘day one' rights to improve job security should include a probationary period to avoid the risk of deterring firms from recruiting.

Labour’s boldness on labour market reform contrasts sharply with a politically cautious approach to tax and spend. Their current stance sets the scene for a parliament of further tax rises, hard to deliver spending cuts, and the risk that a weaker productivity forecast from the OBR at the next fiscal event could force an incoming Labour Chancellor into fresh hard choices in order to meet their stated fiscal rule of getting debt falling by the fifth year of the forecast.

Labour’s plans to raise taxes by £8.5 billion a year over the next parliament, coupled with £23.5 billion post-election tax rises announced by Jeremy Hunt in the last parliament, would leave the UK’s tax-to-GDP ratio rising from 36.5 per cent in 2024-25 to 37.4 per cent to 2028-29 – equivalent to a tax rise of £1,100 a year per household (in 2028-29 prices) – with the UK’s tax take reaching its highest on record.

This scale of this rising tax take in the next parliament would be modest compared to the last parliament (which rose by 3.3 percentage points) but comparable in scale to the 2001-05 parliament (when it also rose by 0.9 percentage points).

The decision to accept the continuation of the six-year freeze to tax thresholds would see the personal tax bills of a typical employee earning £30,000 rise by £180 a year by 2027-28.

Labour’s modest pledges to increase spending largely lie in departments that are already protected, such as education and health and social care. This means that an incoming Labour government would still need to deliver around £18 billion of cuts to unprotected departments such as Transport, Justice and the Home Office. Neither party has said anything on how they intend to deliver these extremely challenging cuts.

The Foundation adds that Labour’s commitment to a child poverty strategy is welcome, and comes with a pledge to increase childcare places. But noticeable by its absence is any comment on abolishing the two-child limit on welfare support – a policy that, according to the Foundation’s analysis, is set to push the majority of large families below the poverty line by the end of the decade.

Finally, the manifesto pledges a significant ramping up of public investment – of almost £5 billion a year by 2028-29 – largely through its Green Prosperity Plan. However, this would merely undo one-fifth of the already announced investment cuts due to take place over the next parliament.

This welcome extra investment should contribute to decarbonising our economy in a growth-friendly way. However, the level of ambition doesn’t match the scale of the task facing the next government of investing more in Britain’s future.

Mike Brewer, Interim Chief Executive at the Resolution Foundation, said, "Labour’s manifesto proposes the biggest shake-up of the workplace in a generation. The aim of boosting the quality of work across Britain is laudable, as is a better deal for under-paid and under-valued care workers. But the sheer scale of these reforms carries risks that demand careful implementation. While Labour may want to start consulting over these reforms in their first 100 days in office, they’ll need to take their time to get their details and delivery right.

"This boldness in the workplace does not extend to the Treasury, where Labour have taken a politically cautious approach to tax and spend, with modest proposals on either side of the ledger. This approach sets the scene for a parliament of tax rises and spending cuts for unprotected departments. Even then, a modest dose of bad economic news could force a fresh round of tough fiscal choices if the debt rule is to be met.

“The manifesto includes stretching ambitions for employment and GDP. These reflect the scale of change needed if we are to transform growth and living standards. But with much of Labour’s economic strategy resting on contentious reforms, rather than a step-change in investment, it’s unclear whether the measures set out will be enough to end stagnation – let alone secure the strongest growth in the G7."