The industrial relations consequences of the "new" Labour Government.

Prior to its victory in the general election on 1 May, it was a major concern of the Labour Party to reassure voters in general, and business in particular, that, if elected, there would no return to what are seen as the "bad old days "of industrial relations of the 1960s and 1970s. This has meant that Labour has come to power with what some commentators see as a "minimalist" approach to employee rights, as well as a wariness of links with trade unions. Yet the changes the new Government is committed to introducing, including the effects of its pledge to accept the EU "social chapter", add up to a programme of radical change. This article reviews the relevant policies and their likely effects on industrial relations in the UK and the EU.

Flexibility, efficiency and fairness

From 1979, the economic policy of successive Conservative Governments was based on a fundamental belief in the effectiveness of free markets. In the case of the labour market, there was an emphasis on deregulation and the importance of flexibility in creating employment and economic growth. The Conservatives claimed that the UK's lack of regulation has reduced unemployment, while the rest of Europe's higher social costs, greater regulation and the adoption of the "social chapter" (the social policy Protocol and Agreement attached to the Maastricht Treaty on European Union) has caused unemployment and a lack of competitiveness. This prompted the "opt-out" from the social chapter and a continuous resistance to other forms European Union-level regulation - over working time, for instance.

The Labour leadership supports basic minimum employment standards and accepts the social chapter. However, its underlying analysis of labour markets does not differ fundamentally from that of the previous Conservative Governments. As its election manifesto states:" New Labour believes in a flexible labour market." To some extent anticipating the European Commission's latest Green Paper, Partnership for a new organisation of work, the job insecurity highlighted as a product of Conservative economic policies is to be addressed through enhancing economic stability and active employment and training policy, rather than by regulation. The new Labour Prime Minister, Tony Blair, has also avowed his intention of extending the campaign into Europe.

Despite the widespread view that the incoming Government has only a "minimalist" agenda in the area, the implications of the changes to which it is committed could have far-reaching implications for industrial relations in the UK. The "constructive engagement" which adhesion to the social chapter makes possible could also have considerable impact on the social policy debate within the EU.

The home-grown agenda

Employment and training

The Labour manifesto repeatedly stressed the importance that the party places on "upskilling" the UK workforce as a means of promoting greater economic competitiveness, and as an engine for greater social inclusion and equality of opportunity. Education and training are seen as closely linked, and a great deal of emphasis was placed on the importance of improving the quality of schooling, and in promoting lifelong learning for all. Tony Blair claimed that the party's three greatest priorities were "education, education, and education".

Specific policy commitments on training include:

  • The creation of a University for Industry (UFI), which will use modern technology to provide cost-effective training for adults. The UFI will be run as a public/private sector partnership, and will operate in collaboration with the existing Open University, which pioneered open and distance learning techniques in the UK.
  • The establishment of individual learning"accounts" for up to 1 million adults. These accounts will allow individuals to purchase training and development courses to meet their needs, and will be funded in the first instance by reallocating GBP 150 million of existing Training and Enterprise Councils (TECs) money. Employers will be encouraged to contribute to these accounts.
  • Greater take-up of the existing Investors In People initiative (UK9703111F) will be encouraged, especially among small firms.
  • The use of a one-off levy on the profits of the privatised utilities (such as gas, water, electricity) to fund a scheme to get 250,000 long-term young unemployed people back into work. There will be four options:
    • a private sector job and a GBP 60 per week job subsidy;
    • six months' work with a non-profit voluntary employer paying a weekly wage equivalent to social security benefit, plus a fixed sum;
    • full-time study for young people without a qualification; or
    • a job with a new environmental taskforce.
  • All four options will include day-release education or training leading to a qualification.
  • The replacement of the Youth Training (YT) programme with a new scheme called Target 2000.
  • All young people under the age of 18 in a job will have a right to study at college for a qualification.

Significant though they may be, implicit in many of these changes is that the incoming Government has accepted most of the major premises upon which the Conservative's training policies were based. These include a training system that is voluntaristic, with no return to any form of training levy or compulsion on employers to train being contemplated. Labour also appears to accept an employer-led system in which individual employers, through the locally-based TECs, have primacy and decide the level and focus of training activity. The role of the trade unions in training remains unclear. It also remains to be seen how an employer-led system can be reconciled with the increasing emphasis on the role of the individual in investing in their own skills.

A National Minimum Wage

Labour's Manifesto states that:

"There should be a statutory level beneath which pay should not fall - with the minimum wage decided not on the basis of a rigid formula but according to the economic circumstances at the time and with the advice of an independent Low Pay Commission(LPC), whose membership will include representatives of employers, including small businesses, and employees. Every modern industrial country has a minimum wage including the USand Japan. Britain used to have minimum wages through the wages councils. Introduced sensibly the minimum wage will remove the worst excesses of low pay (and be of particular benefit to women), while cutting some of the massive GBP 4 billion benefits bill by which the tax payer subsidises companies that pay very low wages."

In a letter to The Times, Labour's employment spokesperson, Ian McCartney, elaborated the case for a National Minimum Wage (NMW) in suggesting there were three benefits rarely mentioned:

  • it encourages employers to compete through high-quality products and services;
  • it reduces staff turnover and absenteeism; and
  • it limits spending on "in work" benefits.

The Labour Party has very carefully avoided committing itself to any figure for the NMW or, indeed, to the many details that will be involved in its operation. These will be delegated to the LPC for recommendations and are likely to include:

  • the initial level of the NMW;
  • the level of the training rate (on the assumption that young workers will be excluded);
  • periodic reviews;
  • future levels on the basis of its reviews;
  • considering matters referred to it by ministers;
  • monitoring the enforcement mechanisms;
  • publicity for the NMW;
  • formal reports on progress and issues arising from its work.

The presumption is that the LPC will receive submissions from interested parties much in the way as the pay review bodies covering key groups of public sector employees.

It is impossible to predict the impact of a NMW in view of the unresolved issues (UK9703112F). The groups of employees most likely to be directly affected by a NMW, however, are to be found in sectors such as hotel and catering, retail and miscellaneous services plus, in manufacturing, textiles and clothing. A NMW is also likely to have indirect implications for public sector pay, as discussed below.

Public sector pay

Public sector pay was one of the major problems of Labour Governments in the 1970s and many commentators are expecting it to be a flashpoint again. Privatisation notwithstanding, well over 5 million people are employed in the public sector, and the majority are trade union members. There is also a variety of pay-fixing institutions, including several pay review bodies whose recommendations cover 1.5 million employees such as nurses and teachers, which adds to the complexity of the problem (UK9702104F).

Gordon Brown, however, as Shadow Chancellor, already made the approach of a Labour Government quite clear: it will stick to Conservative spending plans for the public sector for at least the next two years. The logic is set out in Labour's business manifesto;

"Labour will take a firm but fair approach to public sector pay. Decisions will be made with a view to retain, recruit and motivate staff. But these must be made within tough cash limits.

Under Labour all public sector pay agreements must be financed from within the agreed departmental cash limits. Just as we will resist every other unreasonable demand on the public purse we will resist unreasonable public sector pay demands."

It remains to be seen if the Government is able to maintain this line, which is essential to its commitment to avoid raising taxes. It may be that, as some MPs have argued, it will be necessary to offer greater job security as a trade-off for pay restraint. The kind of agreements negotiated at Blue Circle Cement (UK9702102F) have been suggested as a possible way forward.

It also remains to be seen if there are going to be major changes in public sector pay-fixing arrangements. In the National Health Service (NHS), for example, the Conservative Government had been struggling, without much success, to devolve the setting of pay to the 400 or so NHS Trusts. The Labour Government will have to come to a clear view on this. The relationship between the recommendations of the new Low Pay Commission and the public sector pay review bodies could also be problematic. If the pay review bodies simply anticipate the expected recommendations of the LPC on a NMW, they would effectively make themselves redundant; if, on the other hand, they take either past or expected increases in the NMW as the starting point for their awards, these could be inflationary and undermine the intention of the NMW.

Fairness at work

Given the close links between the Labour Party and the trade unions and the legacy of the restrictive and deregulatory legislation passed by successive Conservative Governments, a major issue in the run-up to and during the election campaign was the employment law changes a Labour Government would make. At every juncture, Conservative claims that there would be a return to the 1970s were fiercely rebutted as was the suggestion that the remarkable silence of trade union leaders during the campaign was evidence that a "deal" had been struck with them. Such was the sensitivity of the issue that Tony Blair was forced to say that, even with the changes his party proposed to make, the UK would still have the toughest labour laws in the western world.

In the circumstances, it is very unlikely that the Labour Government will stray very far from what it sees as a carefully balanced agenda. In the words of its business manifesto:

"The key to orderly and effective industrial relations is to establish a fair and effective balance between rights and responsibilities that will promote partnership, not conflict, at the workplace. This is the principle that will inform our whole approach to industrial relations. The Conservatives are scaremongering when they claim a Labour government would turn the clock back, reverse trade union immunitiesto allow secondary industrial action, and alter the rules on picketing. There is not a word of truth in any of this. The existing laws on industrial action, picketingand ballots will all remain unchanged. Every employee should be free to join or not join a trade union. We will not impose trade unions on employees or return to the closed shop. When they do decide to join, and where a majority of the relevant workforce votes in a ballot for the union to represent them, we believe that the union should be recognised. Strikes in support of recognition claims today are trade disputes covered by the existing legal immunities. Our proposal offers a better way and removes any need for industrial action by a trade union in support of a claim for recognition. We believe that this is a step forward in promoting orderly industrial relations. In government we will consult widely with both sides of industry on the best means of implementing these proposals. It is complete nonsense to suggest that it is our policy to prevent employers dismissing those who are on strike. We have no such proposals. The law will remain as it is now. And an employer cannot be compelled to reinstate those who successfully claim unfair dismissal. That will remain the position. We propose merely that, whereas at present employees who are selectively dismissed when on lawful strike can claim compensation from an industrial tribunal for unfair dismissal, this should apply also to the situation where all those on lawful strike are dismissed. This reflects an entirely fair balance between the rights and responsibilities of employers and employees at the workplace. Minimum standards of fair treatment at work and in the labour market are critical for good industrial relations. Real job security, however, will come only through improving the performance of the economy and enhancing people's employability."

In short, key elements of the 1980s legislation, especially as they affect trade unions, will stay. There will, however, be a statutory procedure to allow trade unions to achieve recognition for the purposes of collective bargaining where they can demonstrate majority support.

Less clear are the details of the recognition procedure. Original trade union proposals that there should be a representation agency to help resolve some of the technical issues, such as the definition of the bargaining unit, the number of employees needed to trigger a ballot, the issues unions would be entitled to bargain over, and the methods of enforcement, appear to have been rejected. Most likely, judging from the comments made during the election when the proposals came under attack, ACAS (Advisory Conciliation and Arbitration Service) and the Central Arbitration Committee will be given further responsibilities in the area.

Also to be decided is the timing of the procedure's introduction. Initial indications were that it might be included in a composite bill, along with the introduction of the NMW, in the first year of the new parliament. The signs are that this is now very unlikely.

It also remains to be seen what a Labour Government will do about a number of other policy pledges that it has made in the area. The main ones are listed below:

  • ending age discrimination
  • working with the Trades Union Congress (TUC) and the Confederation Of British Industry (CBI) to improve occupational health and reduce absenteeism;
  • giving employees the right to be accompanied at disciplinary meetings;
  • streamlining the operation of industrial tribunals;
  • protecting employees against the abuse of "zero hours" contracts and homeworking;
  • restoring the right to union recognition at GCHQ (the Government's secret communications headquarters).

The Labour Government also knows that trade unions can be expected to continue to campaign strongly for two further changes: a reduction in the two-year qualifying period for employment protection; and the same rights for part-time workers as for full-timers.

Labour and Europe

Working time Directive

Whichever party had come to power, it would have had to implement the 1993 EU Directive on certain aspects of the organisation of working time (93/104/EC). In rejecting the Conservative Government's legal challenge to the Directive on 12 November 1996, the European Court of Justice (ECJ) upheld the view that the Directive was correctly adopted by majority voting as a health and safety measure under Article 118A of the Treaty of Rome (UK9702103F). The difference between the two parties is that, whereas a Conservative Government would have sought to get the Directive "disapplied" to the UK as part of the Intergovernmental Conference (IGC) treaty negotiations, the Labour Government is committed to its implementation.

It is unlikely to rush to do so, however, even though the Directive should have been given effect by 23 November 1996. The Conservative Government began a process of consultation in December 1996 based on a detailed set of options prepared by the Department of Trade and Industry (DTI). Key issues include: whether the UK Government should take advantage of the Directive's Article 18, allowing the working of more than 48 hours per week; and the interpretation to be put on the Directive's phrase, agreements "between the two sides of industry". The Labour Government will almost certainly want to take time to examine the responses before making up its mind about the details.

The reason is that, even though DTI officials suggest that in the main employers will have little difficulty in implementing the key provisions, of all the EU countries, it is in the UK that the Directive is likely to have most impact. The Directive introduces, for the first time in the UK, a statutory framework giving new rights and imposing new obligations over a wide range of working time issues. It is not just that a higher proportion of full-time employees than elsewhere in the EU work more than the 48-hour week, or that many more will benefit from the provision for four weeks' holiday. Historically, working time has not generally been regulated by the law in the UK. Moreover, the little legislation there had been (protecting the hours of women and young workers) was dismantled by successive Conservative Governments in the line with the policy of deregulating the labour market. There has also been a decline in the coverage of sector-wide collective agreements which were the main source of working time regulation. The key substantive issues which have to be addressed include:

  • the most appropriate form and enforcement mechanism for the employee rights and employer obligations;
  • whether or not to take up the Directive's option of allowing individuals to agree to work more than 48 hours a week;
  • whether or not to take up the Directive's option to restrict the right to annual paid leave to three weeks rather than four until November 1999; and
  • the extent to which the available derogations are taken up by law or left to collective agreement.

Assuming that the UK legislation to implement the Directive takes up all the possible options for flexibility - and the DTI's consultation document suggests it is likely to - most organisations will be faced with a number of practical issues such as the approach to flexible application by collective agreement, and obtaining the agreement of employees to work more than 48 hours. Some, such as adapting work to the worker, raise relatively novel concepts in the UK.

The Directive, in stimulating consultation over working time, is also likely to raise yet again the issue of the UK's "representation gap" (discussed below). It is also likely to encourage the reform of current working time arrangements and, in particular, moves towards annualised hours.

The social chapter

The social chapter was one of the main issues between the parties in the election campaign. Whereas the Conservative party remained firmly opposed to its acceptance, having secured the opt-out at Maastricht, Labour and the Liberal Democrats expressed support. Labour's approach is essentially pragmatic - it believes that the opt-out, by denying the UK a seat at the bargaining table, was a serious mistake. Its business manifesto, Equipping Britain for the future, elaborates the party's position:

"We will sign the social chapter. We believe it is a sensible procedure for setting certain Europe-wide minimum standards. The social chapter has produced only two Directives: the introduction of works councils for large companies operating across Europe and a right to unpaid parental leave. Neither would damage the competitiveness of British industry. In fact, despite our "opt-out", a great many British companies are voluntarily including their British employees in their works councils. The social chapter has not been responsible for the level of social costs for employers in Germany, the laws on redundancy in Spainor the industrial relations rules in France. These are all the result of domestic legislation.

We understand business concerns that in the future costly legislation could be imposed on Britain through the social chapter. But we have made it clear that in government we will not extend qualified majority voting (QMV) to social security or co-determination in the boardroom. We will keep matters concerning pay and the right to strike outside the scope of the social chapter.

There is no appetite among other EU governments for significant new labour market legislation. Should any further proposals be made a new Labour Government will make sure the issues of employability and competitiveness are central to the decision-making process."

The new Foreign Secretary, Robin Cook, confirmed within hours of his party's victory that the UK will sign the social chapter. Most likely, UK accession will be dealt with as part of the package of Treaty revisions eventually agreed by the IGC due to conclude at the Amsterdam summit in mid-June. This could be done by incorporating the Maastricht social policy agreement into the Treaty, as has been advocated by the European Commission and a number of member state governments. Any new Treaty agreed at Amsterdam would require ratification by all member states before taking effect, however, and past experience suggests that this could take anything up to 18 months to complete. Only once the new Treaty took effect would the parliamentary procedures enabling the UK Government to implement EC obligations by regulation rather than Act of Parliament become available in respect of the existing social chapter Directives.

Other suggested ways of opting in include the following:

  • a "mini-"IGC might be held, dealing solely with bringing the UK within the Maastricht social policy agreement and involving parliamentary ratification procedures in other member states; or
  • if UK accession to the social policy agreement does not require the full Treaty amendment procedures to be carried out, opting-in might be given effect by a Council decision and subsequent amendment of the UK European Communities Act.

European Works Council Directive

In the case of the 1994 European Works Council (EWC) Directive (94/45/EC), given the Directive's implementation date of 22 September 1996 has passed, a revised timetable for UK implementation would need to be discussed with the Commission and other governments, perhaps as part of the discussions about opting-in to the social chapter. It is not clear whether the new UK Government will wait until the "opt-in" process has been completed before proceeding to legislate on the basis of the EWC Directive.

Although there may be other implementation options, the most likely, in advance of the UK's "opt-in" becoming effective, is the revival and amendment of the original, 1990 whole-Community draft Directive on EWCs, put forward under Article 100 of the EC Treaty, which has apparently never formally been withdrawn from the Council's agenda. The Council could agree amendments to the Article 100 draft to bring it in line with the existing social chapter Directive and, in effect, extend the latter's provisions to the UK. It would then be permissible to implement the Directive's requirements via regulations.

The inclusion of the UK within the legislative framework will mean that UK workforce figures will count towards the thresholds specified in the Directive. The TUC has calculated that this will mean a further 127 UK-based multinationals become subject to the Directive's requirements, as will an unknown number of additional foreign-based multinationals. The position of other EEA-based companies newly brought within the scope of the Directive by virtue of the UK's inclusion would need to be considered by the other member states.

In the UK, arguably the biggest challenge will be to determine the procedures to be used for the election or appointment of UK members of special negotiating bodies and UK members of statutory EWCs given the limited extent of union recognition, the prevalence of multi-unionism and the general absence of group- or company-level joint representation arrangements. The detailed application of these procedures will need to be tied in with the proposals developed in respect of trade union recognition discussed above.

Parental leave Directive

The 1996 parental leave Directive (implementing a European-level framework agreement between the social partners), which gives men and women a right to at least three months parental leave for child care purposes until a given age up to eight years, is likely to create fewer problems of implementation. Member states have until June 1998 to give effect to it and a range of time off rights ( for public or trade union duties and antenatal care, for example) in existing UK legislation offer a model. The Directive also does not require parental leave to be paid for.

Prospects for the future: works councils for the UK?

A number of further issues are in the social chapter pipeline, including equality of treatment for part-timers and the burden of proof in sex discrimination cases. Perhaps the most controversial will be the proposal for information and consultation of workers at national level in undertakings with more than 50 employees. Such a proposal, which is likely to mean the introduction of works councils, originally surfaced in 1995 when the Commission argued that it would make it possible to withdraw the employee involvement provisions from the stalled European Company Statute and related proposals. More recently, the commissioner for industrial relations, employment and social affairs, Padraig Flynn, has emphasised the need for such a measure to deal with the perceived inadequacies of existing regulations highlighted by Renault's controversial closure of the Vilvoorde plant in Belgium (EU9704118F).

In principle, the Labour Government might be expected to support such a proposal. It fits in with the approach of promoting individual employment rights. It recognises, as some major UK companies - such as Sainsbury's, the multiple food retailer - recently have, that there is a need for a mechanism through which employees can have a collective "voice". It complements the EWC Directive's requirements at transnational level. Most pragmatically, it goes a long way towards dealing with the so-called "representation gap" in the UK which, as well as emerging as a major issue in the areas of health and safety, and working time, has been highlighted most crucially by the ECJ in the area of collective redundancies and transfesr of undertakings.

Under British law, obligation to consult employee representatives on impending redundancy or transfer of undertaking was restricted to employers which recognise trade unions. In the light of the rapidly declining trade union membership of the 1980s and 1990s, this left large groups of employees unrepresented. The ECJ decided in June 1994 that the ability of employers to frustrate the protection provided for employees was contrary to the Directive's intentions. The Conservative Government put in place legislation to bridge the gap, but this is unlikely to be adequate. Indeed, the European Commission is reportedly of the view that the measures do not meet the terms of the ECJ ruling.

The problem is that the two sides of industry may resist such a measure in the UK. Many employers have been persuaded that there is no need for a collective "voice" - there has been a decline in joint consultation as well as collective bargaining. Many trade unions, for their part, are worried that works councils would threaten the long-standing tradition of "single-channel" representation through themselves: they are especially afraid that, in the UK's highly decentralised system of collective bargaining, statutory works councils might inhibit the further recognition of trade unions and even lead to the withdrawal or narrowing of such recognition where it exists.


The Labour Party has come to power determined to maintain a balance between flexibility, efficiency and fairness in its approach to industrial relations. To suggest, as some commentators have done, that its approach is "minimalist "is wide of the mark, however. Individual learning accounts, a National Minimum Wage, provisions for trade union representation, a new statutory framework for working time and the prospect of works councils can hardly be described in these terms. UK industrial relations looks set for a period of radical change.

As for relations with Europe, although committed to accepting the social chapter, the Labour Government is unlikely to welcome further regulation associated with the "Roman-Germanic" model of some EU member countries. Indeed, Tony Blair describes a Labour Government's role as "to campaign to extend flexible labour markets to the rest of Europe". The debate over the future direction of EU social policy could become even more lively than it has been. The novelty will be that the UK will be arguing its case from inside rather than outside the tent.

(Paul Edwards, Mark Gilman, Mark Hall, Ewart Keep, Caroline Lloyd and Keith Sisson, IRRU)

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