Labour's Policies On Workers Rights And Mandated Workplace Benefits

28th June 2024

This comment assesses the potential impact of Labour's proposed increases in workplace rights and benefits such as sick pay.

What are Labour's proposals?
The Labour party has proposed a range of enhancements to employment rights including mandating certain workplace benefits. In this comment, we discuss the economics of these sorts of policies and review the empirical evidence on how they are likely to affect employees and employers.

Labour has proposed a ‘New Deal for Working People'. This includes changes to rules on unfair dismissals, ‘fire and rehire' regulations, and potentially a higher minimum wage. Some of these plans have been discussed by IFS researchers already (Boileau et al., 2024). Here we focus on the proposals for ‘mandated benefits' and workplace environment regulations, which include:

expanding statutory sick pay to the first three days of illness and to those earning less than £123 per week;
making paternity leave (but not paternity pay) available to fathers from day 1 of a job, rather than after nine months of employment;1
other workplace rights such as increased flexitime working opportunities, the ‘right to switch off’ (i.e. restricting requirements to work outside normal working hours) and stronger health and safety regulations in the workplace.
The proposals are for increases in the legal minimum required from employers. Legal minimums are often flat-rate, and therefore low as a percentage of pay for middle (or higher) earners (see Harrop, Reed and Sacares (2023)). That said, many employers already offer more benefits than the legislated minimum. For example, survey evidence in Cominetti et al. (2023) suggests 60% of employees in the UK receive more sick pay than what is legally mandated (with higher earners being much more likely to receive more than the legal minimum than lower earners). This pattern of additional generosity (in absolute terms) to high-earning employees also exists for other benefits including holiday entitlement and paid paternity and maternity leave.

It should be noted that Labour’s proposed changes to statutory sick pay and paternity leave, at least, are relatively modest in scale. In particular, the effects of making paternity leave available ‘from day 1’ would likely be very small indeed. The proposals for expanding statutory sick pay (SSP) are also fairly small. The latest figures from the Office for National Statistics (2023) suggest 5.7 working days are lost to sickness each year per employee. Many of those will be accounted for by long periods off sick already covered by SSP (and, as noted above, many workers are offered sick pay above the minimum level). However, around 30% of sick days are for minor illnesses which are more likely to last only a few days (and therefore less likely to be covered by sick pay). It is harder to have a good sense of the scale of proposed reforms to workplace rights such as the ‘right to switch off’ and stronger health and safety regulations; the devil is likely to be in the detail. To the extent that many of the changes are likely to be modest, it is fair to say that both the benefits, and the costs, are likely to be small.

In any case, a gradual approach here, starting small, could be advisable. If the policies do turn out to be small in size, that would enable time to gather evidence on their effects, providing an evidence base for making judgements about any further expansions.

Read the full IFS report HERE