A new deal: TUC statement on the spending review

Years of austerity and a failure to regulate the labour market have left workers facing the longest pay squeeze for 200 years, and an epidemic of insecurity at work. Rising employment has not been enough to tackle in-work poverty, and levels of household debt are rising.

Workers in Britain badly need a new deal. That starts with giving workers the power to negotiate better terms and conditions in their own workplaces with expanded trade union rights. But government must play a role too, with a higher minimum wage, more funding for enforcing the rights we have, and fair social security.

The situation we face: a pay crisis and insecure work

Failed austerity policies have hit hard people at work, with the worst pay crisis for 200 years and a structural shift to more insecure work. Jobs growth may have been strong, but financial pressures on households have intensified not reduced. A record 8 million people are in poverty despite being in a working family.[31] Earlier this year an United Nations ‘rapporteur’ issued a damning report, confirming TUC warnings that “even full-time employment is no guarantee against in-work poverty”.[32]

On top of these deep-rooted trends, the slowdown in the economy may now be feeding through to the labour market, though the picture is still mixed.  While full-time employee jobs drove employment growth over 2016 to 2018, over the last three quarters the great part of the increase has been in self-employed and part-time employee posts. The self-employed now make up 15 per cent of the workforce, some 5 million people. Almost half of self-employed adults aged over 25 are earning less than the minimum wage of £8.21 an hour.

Moreover, the latest set of zero hours contracts data showed an increase of over a 100,000 people over the year, confounding expectations of gradual reductions. TUC analysis also shows the share of full-time employee jobs in the labour market is still lower than it was in 2008, with a shortfall of around half a million jobs.

Also indicative of a slowing labour market, the number of vacancies has fallen throughout 2019. The last time such a sustained fall happened was in 2011. 

Wages growth has picked up over the past two years. Average earnings growth of 3.9 per cent in the in the second quarter of 2019 was the highest for a decade. With (CPIH) inflation moderating, real earnings are also up – though not at post-crisis peaks.  However, most commentators – not least the Bank of England - expect growth to slow in coming months.

Moreover, a decade on, real pay remains below the pre-crisis peak. Recent gains fall far short of repairing the worst pay crisis for two centuries, with weekly earnings still down £16 on the pre-crisis peak (using CPI; £59 using RPI[33]).

Moreover in spite of these pay gains there has been a material deterioration in household finances over the past two years (in part as support from investment income has faded).

TUC analysis shows household outgoings outstripping income in every quarter since the end of 2016.  The total shortfall is now £61 bn across all households – an average of over £2,200 per household.

This hasn’t been driven by excessive spending, but by stagnant incomes. Thanks to almost a decade of austerity, people simply aren’t earning enough to get by.

Household shortfall, £ billion

Our analysis also showed the repercussions on personal debt. In 2019 Q1 unsecured borrowing per household was at an all-time high of £15,880.[34] Unsurprisingly the evidence suggests that the greatest pressures are at the lower end of the income distribution. The National Audit Office reported that 8.3 million individuals are struggling with unsecured debts.[35]

A new deal for workers

There is nothing inevitable about the current poor conditions that workers face. International evidence shows that countries with strong trade unions and collective bargaining deliver better jobs and higher pay, alongside tackling inequality.[36] The first step for any government interested in improving the quality of work should be to empower workers to negotiate better pay and conditions through their trade unions.

• Government should abolish the Trade Union Act 2016, introduce new rights for unions to access workplaces, strengthen workplace bargaining rights, and allow trade unions to negotiate pay and conditions across sectors.

But government can also play a direct role in driving up pay and conditions in the workplace through increasing the national minimum wage, improving rights and better funding enforcement bodies, and ensuring that social security plays its role in tackling in-work poverty.

Increasing the minimum wage.

Raising the NMW rapidly towards £10 would help to stimulate demand, investment and productivity at a time when it is characterised by high personal indebtedness, low disposable income and weak demand.

• The TUC believes the national minimum wage should rise to £10 an hour as quickly as possible.
• 21-24 year olds should be included in the highest rate (the ‘National Living Wage’), the gap between rates should be narrowed, and the apprentice rate should be increased match to the youth rate.

Increasing the minimum wage can be expected to generate a modest but welcome boost in spending. Low-wage workers are likely to spend a high proportion of any pay increase with much of it ploughed into their local area.

But a higher NMW will only help working people and the broader economy if the law is properly enforced.

There is evidence of a worrying trend towards underpayment. The Low Pay Commission estimates that as of April 2018, 439,000 individuals were underpaid, including 369,000 who were paid less than their entitlement under the National Living Wage (NLW); or 23 per cent of all individuals entitled to this rate. This was a two-percentage point rise in the share of workers entitled to the rate.[37]

A key lesson from the NMW is that increasing the funding for proactive enforcement has had a substantial positive impact.

Successive governments have substantially increased the budget for enforcement, with the result that arrears recovered for underpaid workers has increased from around £3.5 million in 2014/15 to £15.6 million in 2017/2018.

Recent history shows that investment in pro-active enforcement is money well spent. As part of this the government must restart naming and shaming bad bosses who cheat their workers out of pay.

At the last Budget, the government announced that it  would seek to end low pay.

• The TUC supports the goal of raising the minimum wage to two thirds of median earnings, and believes this should be achieved swiftly.

Improving employment rights and enforcement

The increase in the number of people in work has failed to tackle rising insecurity, with 3.7 million people, one in nine, still in some form of insecure work. Government urgently needs to introduce new employment rights to help stamp this out. Government should introduce: 

• a ban on zero-hours contracts and bogus self-employment
• a decent floor of rights for all workers and the return of protection against unfair dismissal to millions of working people
• ensuring workers enjoy the same basic rights as employees, including redundancy pay and family-friendly rights
• enforcement mechanisms are failing workers who are attempting to exercise their rights.
• for example, analysis by the TUC has found that two million UK workers, one in 14, are not getting their legal holiday entitlement.[38]

There is a great need to improve the effectiveness of state-led enforcement activity, by making sure that agencies are sufficiently resourced. This is particularly true of the Employment Agency Standards Inspectorate which has an annual budget of just £750,000 to regulate nearly 23,000 recruitment agencies.[39]

The TUC would like to see the licensing model currently used by the Gangmasters Labour Abuse Authority (GLAA) in the shellfish-gathering, agriculture and horticulture sectors, extended further across the labour market. Licensing requires organisations to prove that they can comply with minimum employment standards through initial and ongoing inspections.

Official figures show that the backlog in employment tribunal cases is rising much faster than new cases. The outstanding caseload was up 39 per cent in the first quarter of this year compared to the year before. And the mean age of cases at disposal was 33 weeks, six weeks more than in January to March 2018.[40]

Meanwhile, a recent survey by the Employment Law Association found long delays in claims being processed, lengthy delays in listings, the regular cancellations of preliminary and full hearings, telephones going unanswered for hours and overworked administrative staff. [41]

Delays cause problems for employers, workers and unions and can have a detrimental impact on employment relations. The Ministry of Justice needs urgently to identify additional resources, notably for administration, to ensure that working people and employers can secure swift resolution of workplace disputes.

It should not be thought that reintroducing tribunal fees in some form is the solution. In July 2017, our affiliated union UNISON secured a landmark legal victory, with the Supreme Court deciding that the employment tribunal fees system was unlawful as they limited access to justice and meant that working people no longer had access to effective remedies where employers breached the law.

It would further aid workers seeking to enforce their rights if the government reinstated the power for employment tribunals to make recommendations where employers are found to have breached employment standards.

Parts of UK employment law already provide for joint and several liability arrangements. The TUC wants this approach to be extended, so that organisations who transfer their obligations to other parties, can still be found liable for any breaches of the core employment rights of the people who do work for them.

• Government should double the funding for the employment agency standards inspectorate, and invest sufficient resources in the employment tribunal system to clear the backlog and ensure that the system has enough resources to deal swiftly with ongoing cases.

A fair social security system 

The social security net is becoming increasingly frayed by Government cuts and plans to plough ahead with the introduction of Universal Credit (UC) will bring misery to millions.

The problems with UC are well documented; difficulties in registering a UC claim online, excessive payment delays, housing arrears, financial hardship and increased use of foodbanks. And it is not just the delivery of UC; there are serious issues embedded within the new system. This includes the rigidity of the monthly assessment periods which works against some claimants, financial cuts to UC which have made it less generous than the previous system, unfairly penalising the self- employed, and there are questions on the notion of ‘making work pay’.

The spending review provides an opportunity to take immediate steps to get much needed money in to the hands of working people by removing the 5 week wait for first payment. There is no justification for the 5 five week wait for the first payment. The 5 week wait policy has fundamental consequences, people fall in to poverty and debt, we have witnessed the rising numbers being referred to foodbanks, and there is an increased risk of homelessness.

• The TUC believes Universal Credit should be stopped and scrapped. And the government should help families immediately by removing the five week wait for Universal Credit to be paid.
• The Government should reverse the cuts to the UC work allowance in full, the removal of the first child premium in UC, and the unfair ‘two-child’ policy.

The current benefit freeze has capped most working age benefits since 2016, saving £4.4 billion up to 2019/20.[42] The saving has been more than expected due to inflation being higher during the forecast period.

According to the Joseph Rowntree Foundation, 400,000 people will have been pushed in to poverty by the time the freeze finally ends in April 2020. By then, it will have affected 27 million people (including 11 million children) – the vast majority of whom come from working families with children[43]

This four-year freeze comes on top of earlier real cuts to benefit uprating, including capping benefit uprating at 1 per cent from 2013 until 2016. The link between inflation and the uprating of benefits has become distorted creating a disconnect between income and actual living costs, and pushed people in to poverty. The link between inflation and benefit uprating needs to be restored.

• The Government should scrap the benefits freeze immediately.

Ensuring fair pensions

Pensions are deferred pay, and those who face insecurity and low pay in their working life, are more likely to face inadequate pensions in retirement.

It is a longstanding principle that the state support retirement saving through upfront tax relief.

There should not be a shift away from the important principle of providing upfront relief for pension saving, nor a reduction in the overall support given to savers.

However, more needs to be done to stop the complexity of the system disadvantaging some groups. Many low-paid workers who do not pay income tax are missing out on tax relief because their employer enrolled has them in a net pay scheme.[7]

Meanwhile, other workers, including many middle-income workers, are being caught by a complex set of annual and lifetime allowances for tax relief.