How Labour could sabotage its big play for business
Eir Nolsoe
6 min read
Labour has vowed to scrap zero-hour contracts and create a ‘genuine’ living wage - Paul Ellis/AFP
Workers and unions created the Labour Party. Yet Keir Starmer is keen to appeal to a very different constituency.
Addressing 200 of the UK’s most influential chief executives, chairs and other corporate leaders in Liverpool last week, his message was clear: Labour is now the party of business.
“If we go into government, you will come with us,” he told the crowd at the Business Forum event at the party’s annual conference. “The Labour Party you see today is completely changed.”
Representatives from companies including Rolls Royce, Siemens, British Gas-owner Centrica, Ikea and National Grid were in the audience listening intently. Each paid significant sums just to get a seat at the table.
Ann Francke, the chief executive of the Chartered Management Institute and a self-confessed “classic swing-voter”, was another of those in the room. Labour’s policies seemed “promising”, she said.
“I’ve seen an acknowledgment of what the problems and issues are that business is facing.”
But keeping both businesses and workers happy will be a tricky task as the election draws nearer.
The party has pledged to deliver a radical “new deal for workers” that will strengthen rights from the first day of employment. Labour has also vowed to scrap zero-hour contracts and create a “genuine” living wage.
“Make no mistake, this is an agenda that we will deliver hand in hand with the trade union movement,” shadow levelling up secretary Angela Rayner told members last Sunday.
“Labour’s New Deal for Working People is our plan to boost wages, make work more secure and support working people to thrive.”
Toughening protections for workers while wooing business is a difficult balancing act. Labour’s policies threaten to put up costs for companies at a time when inflation and a slowing economy are already stretching many businesses.
Rayner, who was herself previously a trade union representative, has promised the party’s members a shake-up of workers’ rights within Labour’s first 100 days in power.
The plans would also include an end to the practice of fire and rehire, a boost to union power and stronger sick pay protections.
The announcements have caused a stir among companies who worry that rushing in new radical legislation risks going against both workers’ and companies’ interests.
“I think the key thing is not to act too swiftly,” says Kate Shoesmith of the Recruitment and Employment Confederation.
She fears that introducing such widespread changes immediately will not leave any time to consult businesses and reflect their feedback in the legislation.
Already, there are issues that business leaders have identified. For example, ending zero-hour contracts may actually prove to be unpopular with both staff and companies, Shoesmith says.
Figures from the Office for National Statistics show that around 1.2 million workers in the UK are on zero-hour contracts. A majority of them – 60pc – are not interested in working more hours or in having a different type of contract.
“There are a number of people who work on zero-hour contracts because they are the thing that suits them,” Shoesmith says. “They want flexibility for reasons in their work life and in their home life. So it shouldn’t be the case that there’s a need to ban zero hours contracts at all.”
Plans to enhance workers’ rights from the first day they are employed have also sparked concerns. The changes would effectively axe probation periods, making it much harder to get rid of staff who underperform from the beginning.
Shoesmith says: “We shouldn’t be removing the ability for employers to support everybody within their team and that includes dealing with poor performance or thinking about how you make sure the right person is in the right job.”
Matthew Percival from the Confederation of British Industry says the changes “whilst well intentioned” would make it “impossible for firms to have probationary periods”.
He says: “Poorly targeted legislation risks damaging a key strength of the UK economy without having the desired effect on living standards.”
Labour will likely also face a fight over creating a “genuine” living wage, which would factor in living costs rather than just wage growth across the economy and economic conditions.
Such a change would likely push up wage bills at a time when businesses already face fierce pay pressures.
Jane Gratton from the British Chambers of Commerce, says: “In recent years, the national living wage has been rising faster than inflation, resulting in pressure to raise wages for people earning above the wage floor too.”
Despite warnings of a significant increase in unemployment when the minimum wage was introduced in 1997, this never materialised. It suggests that often firms can swallow greater costs than they let on.
However, Gratton points out that businesses face the toughest conditions “in generations” and are now far more indebted because of Covid.
“There is a limit to how much new cost firms can absorb – and above-inflation increases are unsustainable in the long term,” she says.
Unemployment has been gradually edging up since last summer to 4.3pc, as interest rates have raced to a 15-year high.
Economist John van Reenen from the London School of Economics admits Labour’s policies may raise costs for employers but says the changes could also improve productivity, meaning companies will earn more per worker.
Shadow Chancellor Rachel Reeves claims greater security for workers and boosting growth are “two sides of the same coin”.
“There’s now a mountain of evidence that greater security at work and better wages lead to a more motivated and a more productive workforce,” she told The Telegraph.
“Building on what the last Labour government did with the first ever introduction of a national minimum wage, we will go further and turn that into a real living wage.”
However, there are signs of tension about these labour market plans even within the party.
Peter Mandelson, who helped guide Labour to a landslide victory with Tony Blair in 1997, used several speeches at the Labour conference in Liverpool last week to warn his colleagues against going too far.
“As we reform labour market policy and legislation, we have got to take care that we don’t reintroduce rigidities or trade union prerogative,” he told a fringe event, saying the party must be wary of empowering “those wonderful massive strike funds so beloved of Len McCluskey and Sharon Graham and one or two others”.
Wholesale reforms risk putting off international investors too, he said.
Unite general secretary Graham, meanwhile, accused Mandelson of being someone who would have resisted the creation of the NHS in 1945 and said Labour under Starmer was “too timid”.
Reeves insists: “Labour is a proudly pro-worker party. It is how we were created, it’s in our DNA. But we are also proudly pro-business because you can’t be pro-worker unless you’re pro the businesses that create the jobs and the wealth and prosperity.”
Just how sustainable that position is, will be put to the test as the election draws nearer.
