Experiments are key for more grown-up industrial relations

I am puzzled when people complain that the UK’s opposition Labour Party under Keir Starmer is bland and boring. When it comes to the labour market, at least, the party’s plans are more radical than many seem to realise, even after recent moves to water them down. One example is the promise to launch sectoral collective bargaining: a system that is common in continental Europe but would represent a big change in the way the UK economy works.

Labour has been inspired, at least in part, by the example of the Labour government in New Zealand, which introduced what it calls “fair pay agreements” (FPAs) at the end of last year. New Zealand’s labour market has similar strengths and weaknesses to the UK’s: it is very flexible and tends to sustain high employment rates, but productivity and wage growth have typically been weak. FPAs are the New Zealand government’s proposed answer. The idea is to get employers and unions to sit down and negotiate minimum floors for pay and conditions across different sectors or occupations.

For Craig Renney, director of policy at the New Zealand Council of Trade Unions, the hope is to persuade employers to compete on “product innovation” or “quality”, rather than by taking the “low road” by shaving down labour costs. “If I look at countries that have sectoral agreements [such as] Germany, Denmark, Sweden — they have industrial peace and higher productivity levels,” he says.

The UK Labour Party seems to have drawn a lesson from this. If it wins power in the election expected next year, it now plans to focus on just one sector — social care

But Renney might never find out if he was right. Employers’ associations in New Zealand did not buy into the idea and the country’s opposition parties have promised to repeal the policy if they unseat the Labour government in next month’s election, which the polls suggest is likely.

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The UK Labour Party seems to have drawn a lesson from this. If it wins power in the election expected next year, it now plans to focus on just one sector — social care. The plan is to get the system running smoothly so it can bear fruit before the country goes to the polls again.

Even this downscaled ambition would be a big challenge. When I spoke to David Hopper, a lawyer at Lewis Silkin who specialises in industrial relations, he reeled off a series of questions that would need to be answered. How would employers in the sector co-ordinate themselves, before they even sit down with the unions? Different employers might well have competing interests, particularly between the largest and smallest. What mechanism would there be if the parties failed to agree? How would the agreement extend to companies that didn’t want to take part? Who would enforce it, and how?

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And perhaps most importantly: if the agreement succeeded in raising low pay and improving working conditions in the sector, who would pay for those higher labour costs? The fundamental problem in the social care sector is inadequate government funding. A fair pay agreement might well make sure any extra funding goes to improve working conditions rather than to fatten profit margins, but it can’t magic that extra money into existence.

That said, I think it is a worthwhile experiment. Partly, because I think improvements to low pay, poor training and zero-hours contracts in the social care sector would benefit both staff and the people they look after.

There are plenty of European economies such as Sweden in which constructive industrial relations are the norm

Negotiating this way could be good for employers, too. In Sweden, which has a long-standing system of sectoral collective bargaining, Mattias Dahl of the employer body the Confederation of Swedish Enterprise believes it is better for businesses to negotiate pay and conditions with unions than to be regulated by employment laws. “We have been able to be more flexible — we can change regulations faster than the law could. We can renegotiate each third year — from a business point of view that’s much better,” he says.

More ambitiously, it might start the UK down the road towards a more grown-up system of industrial relations, in which employers and unions treat each other as negotiating partners rather than adversaries. There are plenty of European economies such as Sweden in which constructive industrial relations are the norm. These countries have very different histories and traditions, of course. For Britain, it is a long way from here to there. But that’s no reason not to take the first step.

There will be those who fear that empowering unions in this way will lead to more strife, but Dahl argues the opposite is the case. “The worst thing from an employer’s point of view is small and weak unions,” he says. “This puts stress on a union. That’s when they might try to attract members by burning tires and screaming.” — Copyright The Financial Times Limited 2023