1997 Annual Review for the United Kingdom

This record reviews 1997's main developments in industrial relations in the United Kingdom.


Over the five years to 1997, growth and productivity levels in the UK have shown above average figures for the EU. In 1997, GDP continued to grow at between 3% and 3.5%. Average earnings growth fluctuated within the range of 4.25% to 4.75%, with average pay awards remaining at around 3% for most of 1997, but moving towards the 4% mark in the last quarter.

Inflation had risen to 3.75% by the autumn of 1997, with forecasters arguing that it would reach the 4% mark by the spring of 1998. Retail prices showed an increase in the last quarter, with most commentators arguing that these rises were fuelling larger pay awards, rather than the other way around.

Unemployment in the UK is significantly below the EU average, at 5.1% in 1997 according to Eurostat data. However, the Trades Union Congress (TUC) argues that lower unemployment in the UK owes little to "flexible" labour markets, with the recent fall being the result of faster economic growth combined with falling labour market participation: for example, more jobs are now part time.

A new Labour Party Government was elected in May 1997, replacing the Conservative Party administration. The Conservatives had held office since 1979.

Key trends in collective bargaining and industrial action

The summer of 1997 saw a number of industrial disputes (UK9708153F) which led to speculation over a possible upsurge in militancy. However, it seems that fears were unfounded as, after a rise in industrial action during 1996 (UK9707144F), figures settled down again in 1997. In the 12 months to September 1997, the number of stoppages recorded was 211, with a total of 259,800 workers involved and 414,800 working days lost. This compares with 239 strikes, 25,400 workers and 1,244,700 days for the same period in 1995-6 (according to Labour Market Trends).

The UK system of collective bargaining remains largely decentralised, with a continued decline in the coverage of bargaining (UK9705126F). In the public sector the Government continued the former policy of a freeze on the overall paybill, with any further pay increases having to be found from efficiency savings (UK9710170F).

After almost 20 years of Conservative Governments which deliberately set out to deregulate an industrial relations system already heavily reliant on voluntarism, perhaps the most significant event affecting industrial relations in 1997 was the election of the Labour Government (UK9704125F). Labour's election manifesto expressed its support for basic minimum employment standards, though the party's underlying analysis of labour markets arguably did not differ significantly from that of previous Conservative Governments. At the time, despite what some commentators saw as the incoming Government's "minimalist" agenda, it was argued that its planned changes could have far-reaching implications for industrial relations in the UK.

Specific Labour policy commitments included the following.

  • Introducing a national minimum wage (NMW) (UK9711177F). In the summer, the Government established a Low Pay Commission (LPC) to advise on the implementation and rate of the NMW (UK9708158N). A NMW bill was set in motion during the latter part of the year, in preparation for the recommendation the LPC was due to make in the spring of 1998.
  • "Fairness at work". Although the key elements of the Conservative labour legislation reforms of the 1980s were to remain in place, especially as they affected trade unions, Labour was committed to making certain changes, including a right to trade union recognition where the majority of the relevant workforce votes in a ballot for the union to represent them. It also proposed that, whereas at present only employees who are selectively dismissed when on lawful strike can claim compensation in an industrial tribunal for unfair dismissal, this should also apply to the situation where all those on lawful strike are dismissed. A fairness at work White Paper is due in the first half of 1998, with legislation to follow and, in advance of this, the TUC and Confederation of British Industry (CBI) agreed a joint statement on recognition in December 1997, identifying areas of agreement and disagreement (UK9801194F) (though the latter began to dominate the debate in early 1998 - UK9802105N).

Other key policy pledges by Labour included:

  • ending age discrimination;
  • working with the TUC and CBI to improve occupational health and reduce sickness absence;
  • a new right for employees to be accompanied at disciplinary meetings;
  • streamlining the operation of industrial tribunals;
  • protecting employees against the abuse of "zero-hours" contracts and homeworking; and
  • restoring trade union rights at the GCHQ secret communications centre (this occurred relatively swiftly - UK9708156N).

Although Labour signalled its intention to legislate if necessary in these areas, its preferred position has been for the social partners first to reach voluntary agreements.

The new Government was more receptive than its predecessor to the social policy agreement annexed to the Maastricht Treaty on European Union (the "social chapter"), but was essentially pragmatic, believing that the "opt-out", denying the UK a seat at the bargaining table, was a serious mistake. The new foreign secretary, Robin Cook, confirmed within hours of Labour's election that the UK would sign the "social chapter" - this now means that, following the ratification of the new Amsterdam Treaty, the UK will be covered by the same social policy provisions as the other Member States (EU9707135F).

Industrial relations, employment creation and new forms of work organisation

The Labour Government has made solving the problem of unemployment one of its top priorities. In the UK, it committed itself to getting 250,000 young and long-term unemployed people back to work through the "Welfare to work" scheme (UK9707143F). "Welfare to work" is essentially three schemes aimed at tackling unemployment among young people, long-term adult unemployed people, and lone parents. The new initiatives received support from the CBI and the TUC and many companies signed up to take part in the "New Deal". (UK9709168N). Within Europe, the UK Government was also keen to make employment a priority as part of its EU Presidency of the first half of 1998, though within the tight limits of promoting labour market flexibility (UK9706136F).

Changes in work organisation have also been linked with employment issues. In particular, some firms - such as Blue Circle (UK9702102F) - have introduced employment security agreements which are usually aimed at committing permanent full-time employees to a process of change, in exchange for job security. Many of the agreements are signed on the basis that they allow the flexible use of temporary or subcontracted labour. These agreements are intrinsically linked to pay bargaining. Paradoxically, they are also highly associated with job losses.

Of all the EU Member States, the 1993 Directive on working time (93/104/EC) is likely to have the greatest impact in the UK, due to its historical legacy of "non-regulation" of working time, and to the fact that in the 1980s the Government of the time dismantled what little protective legislation there was on women's and children's working time. (UK9702103F). During 1997, the Department of Trade and Industry (DTI) sought the opinion of the business community and suggested that in the main, employers will find little difficulty in implementing the key provisions of the Directive. The DTI estimated that the Directive may directly affect around a quarter of UK employees at a cost to employers of between GBP 1.8 billion (ECU 2.6 billion) and GBP 2.3 billion (ECU 3.3 billion). This would be mainly due to further rest periods and increases in minimum holiday entitlements (UK9703116N).

Developments in representation and the role of the social partners

At a meeting of the EU Council of Labour and Social Affair Ministers on 15 December 1997, final approval was given to a Directive applying the provisions of the existing 1994 European Works Council (EWC) Directive (94/45/EC) to the UK (EU9712175N). The UK has until December 1999 to introduce the necessary national legislation to implement the Directive. It is thought that the DTI will undertake a consultation exercise, prior to implementing the Directive by means of regulations under the European Communities Act 1972.

According to the most recent figures from the TUC, 114 UK-based multinational companies are currently subject to the existing EWC Directive because of their employment levels elsewhere in the European Economic Area (about half of these are thought already to have some from of EWC arrangements in place). The TUC estimates that once the Directive is extended to cover the UK, an additional 125 UK-based parent companies will be covered, bringing the total to 239. It is also estimated that 628 foreign-based companies with operations in the UK are currently covered by the Directive and that this figure will rise by 300 once the UK's opt-out is reversed.

One of the biggest stumbling-blocks for the effective implementation in the UK of successive EU industrial relations Directives has been the so-called "representation gap" - whereby a significant and growing proportion of the UK workforce is without trade union representation at work (UK9708152F). Measures to implement the EWC Directive in the UK will also need to take account of the "representation gap" when determining the procedures to be used for the selection of UK members of special negotiating bodies and statutory EWCs. An EU development with potentially even more far-reaching implications for the UK is the Commission initiative targeting national employee information and consultation procedures, on which the European-level social partners were consulted during 1997 (EU9711160N). The UK and Ireland are the only EU Member States without a generally-applicable system of information and consultation through works councils or similar bodies established by law or by central collective agreement.

Industrial relations and the impact of EMU

The Labour Government agrees with the concept of EMU but feels that the UK economy has not yet sufficiently converged with the rest of the EU to enable it to join in the first wave in 1999 (UK9802102F). A second factor is that the Government does not consider that the UK is flexible enough to be able to deal with the loss of control over monetary policy and exchange rates without much of the pressure of any potential shocks falling on labour markets. As such, the Government has put in place a number of macroeconomic policies which it hopes will help this convergence process, as well as attempting to address some of the labour market issues - in particular wage flexibility, employment flexibility and "employability" and lifelong learning.

Reaction to EMU in the UK has been very mixed. Both the TUC and the CBI support the UK's inclusion, but views in the wider business community views are mixed - it is mainly those companies which work in the export market which argue for inclusion. Companies also feel that there is a lack of information about what they should be doing to prepare, an issue which the Government and the social partners are addressing.

Conclusions and outlook

It is likely that most of 1998 will be taken up with the introduction of those measures mentioned above, with very few major new changes being put forward. The Government is set to continue to promote labour market flexibility throughout the EU, and to promote employment and low inflation at home.

The social partners are expected to continue with their social dialogue, although this might prove to be difficult in some areas where disagreements are serious, such as those over employee representation. In these cases, the Government is likely to seek an independent body to make judgments rather than be seen to take sides.

(MW Gilman, IRRU)

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