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Opinion - ​Labour's Victory: What Lies Ahead for the UK?

Opinion - ​Labour's Victory: What Lies Ahead for the UK?

Posted by Stelios on 5th Jul 2024

The Labour Party has clinched a decisive victory in the UK general election, securing a substantial majority of 209 seats, totalling 410. Keir Starmer is set to become the new Prime Minister, heralding a new era for the country. However, the euphoria of this triumph will be short-lived as the new government faces an uphill battle with an ailing economy, high taxes, and strained public services.

The incoming Chancellor faces a grim prospect:

  • High tax levels.
  • Struggling public services.
  • Large debt interest payments.
  • An economy that hasn't shown signs of rapid growth.

While Labour's manifesto set out a mission and a broad strategy for a stronger economy, it did not offer a detailed transformative plan. For instance, public net investment is still set to be cut from current levels.

The Reality of 'Securinomics'

Labour's economic model, termed "securinomics" by Rachel Reeves, aims to spur private sector investment in green industries. Critics argue that it mirrors the ambitions of Bidenomics but lacks the necessary funding. The plan's success hinges on capital spending and investment in infrastructure, areas plagued by issues that have persisted since the early 2010s. The national debt, exacerbated by the 2007/2008 financial crisis and the pandemic, continues to grow relative to the economy.

Rising global interest rates have intensified the urgency to address these economic woes. The UK is now spending £50 billion on debt interest—more than on most public services. This scenario necessitates running a surplus in the coming years, meaning the government will need to take more from us while providing less in return. This isn't a comfortable position, especially given the past 70 years of relative financial stability.

The Good and the Bad

On the positive side, the UK isn't forecasted to borrow excessively moving forward. The challenge lies in managing the slow economic growth and substantial debt interest. Health spending has increased, driven by rising health inflation and growing demand—a positive trend, as societal wealth means little if health is compromised. However, an ageing population places immense pressure on pensions and social care, 'managed' for years through defence budget cuts and austerity measures.

The Labour government must balance these demands while avoiding the temptation to water down their manifesto promises. With strong union backing, any deviation could provoke a significant backlash. Labour has ruled out raising main tax rates, but other taxes might rise in the upcoming Autumn Budget. This, combined with a spending review, will commence swiftly.

Labour's 'Make Work Pay' Plan

Labour's manifesto reaffirms its commitment to the "Make Work Pay" (MWP) plan, which aims to reform employment laws to empower workers. This plan builds on previous proposals but faces pressure from businesses wary of sweeping changes. I've long been concerned about these policies for small businesses. It's clear there is a fine balance to strike when it comes to working practices. As small business owners, these policies will impact you the most.

Here are some key elements of the MWP:

Zero-Hours Contracts: Labour aims to ban exploitative zero-hours contracts. They propose giving workers on such contracts the right to a contract that reflects the number of hours they regularly work based on a twelve-week reference period. This raises questions about its implementation, especially during seasonal peaks like pre-Christmas rushes in retail. It's unclear if all zero-hours contracts will be deemed exploitative or if the ban will only apply to those considered exploitative. The goal is to provide vulnerable workers with stability while preserving flexibility for those who benefit from it.

Day One Rights: Labour proposes extending basic employment rights to all workers from day one, including unfair dismissal, parental leave, and sick pay. Currently, these rights are reserved for employees with a qualifying period of service. This change could significantly impact employers, especially those relying on casual and seasonal workers. Employers might respond by extending probationary periods or using fixed-term contracts to evaluate employees before offering permanent roles.

Single Status of Worker: Labour intends to create a single worker status, merging the 'employee' and 'worker' categories to simplify employment law. However, this complex change will require detailed consultation to avoid stifling flexibility and innovation. The tax implications of this change also need careful consideration, as it could lead to increased National Insurance Contributions for employers using workers.

Redundancy Rights and TUPE: Labour plans to strengthen redundancy rights by ensuring collective consultation is determined by the number of people impacted across the business, not just at one workplace. This could lead to more frequent collective consultations. They also aim to extend TUPE protections to workers, not just employees, affecting businesses involved in outsourcing.

Family-Friendly Rights: Labour proposes making flexible working the default from day one and reviewing the parental leave system within the first twelve months. They also aim to protect pregnant women from dismissal for six months after their return to work and consider introducing paid carer's leave and bereavement leave for all workers.

Equality at Work: Labour's proposals include ensuring equal pay by preventing outsourcing to avoid equal pay obligations, introducing a Race Equality Act, and making pay gap reporting mandatory for ethnicity and disability. Large employers will also need to produce Menopause Action Plans.

Right to Switch Off: Labour plans to introduce a right to switch off, allowing workers and employers to negotiate workplace policies that benefit both parties. This approach acknowledges the complexity of modern working patterns and aims to create a balanced work environment.

Fair Pay: Labour proposes removing age bands within the National Minimum Wage, reflecting the cost of living when setting minimum wage rates, and ensuring sick pay entitlement is available to all workers. They also plan to introduce a Fair Pay agreement in the adult social care sector. Specifically, Labour aims to:

- Extend the National Living Wage (NLW) to cover workers aged 18 to 20, which currently applies only to those aged 21 and over. This adjustment could see a 38% increase in wages for 18- to 20-year-olds, from £8.60 per hour to an estimated £11.89.

- Raise the current National Living Wage for those aged 21 and over from £11.44 per hour to an estimated £11.89, reflecting a 4% increase.

- Remove the lower earnings level for sick pay entitlement, making it available to all workers, not just employees, and eliminating the waiting period.

Labour's MWP presents an ambitious overhaul of workers' rights, aiming to balance pro-worker and pro-business interests. While some proposals have been refined, the sheer volume of changes will present significant challenges for employers. As Labour moves towards implementing these policies, detailed consultations will be crucial to mitigate unintended consequences.

Labour has also pledged to replace the current business rates system with a new business property tax system. This aims to level the playing field between high-street shops and online giants. While this sounds promising for many in the hospitality sector, there could be winners and losers. For example, local fish and chip shops, which often don't pay business rates, might find themselves disadvantaged under the new system.

The average Joe, small business owners, and the hospitality sector might be in for a rough ride. Labour's intentions are noble, but implementing these policies will be crucial. Businesses must adapt quickly, and there will undoubtedly be growing pains.

It's okay for billionaires to endorse Labour's plans—they can weather the storm. But can the average worker, the small business owner, the local fish and chip shop? These are the people who will feel the immediate impact of these sweeping changes. Labour's challenge will be to balance their ambitious goals with the practical realities facing everyday Britons.

Labour's victory heralds a period of significant change. Businesses must prepare for a new regulatory landscape, bolstering HR and Health & Safety support to navigate the impending reforms. The journey ahead is fraught with challenges, but with careful planning and adaptation, the UK can work towards a more equitable and prosperous future.