The Employment Rights Bill sets out proposals to strengthen labour market protections, reduce welfare spending and tackle economic inactivity. It is positioned as a mechanism to deliver the broader policy objective to ‘make work pay’, which includes supply-side reforms designed to tackle unemployment and labour market inactivity. In this article, Mat Johnson, Jill Rubery and Eva Herman examine the likely impacts of the proposed reforms and whether they go far enough.

• Many proposed reforms address ‘decent work deficits’ faced by vulnerable workers, but mapping the impacts across different workforce groups, sectors and geographical regions is critical to understanding their potential for improvements in equalities and productivity.
• Although there has been a focus on the short-term ‘costs’ of the new rights particularly for SMEs, new universal standards could benefit both employees and employers.
• Meaningful dialogue with trade unions and employers throughout the consultation phase will be important to ensure decent minimum standards are written into legislation.

A question of supply or demand?

The Employment Rights Bill is ambitious, although it has been framed as part of a broader economic mission to ‘modernise’ the UK business landscape and to improve ‘productivity’ and ‘growth’, as opposed to a social mission to tackle structural inequalities. It encompasses a broad range of measures – but by bundling together both demand and supply side proposals, equalities and worker rights aspects could be diluted or lost altogether in pursuit of economic growth.

Tackling economic inactivity is a significant policy objective but extensive international research shows that attention needs to be paid to demand side issues of low pay and precarious work, as well as barriers to accessing or sustaining employment including mental health, too high transport costs, and the growing problem of finding affordable and flexible childcare. Given the uneven concentration of women, younger workers and migrants in low paying, insecure jobs, the careful mapping of existing inequalities at work is essential to understand the potential impact on different groups in the labour market.

Flexibility – a tale of two halves

Research at The University of Manchester Work and Equalities Institute shows multiple risks associated with low paid and precarious employment. The UK’s ‘productivity puzzle’ can partly be explained by the proliferation of low paid and insecure jobs that are detrimental to income stability and can undermine the development of ‘high-commitment’ employment relationships. Moreover, many jobs are still not advertised with flexible working options – it is up to applicants to negotiate alternative arrangements (such as job share, flexitime, and condensed hours) on an individual basis with employers.

Conversely, two-sided flexibility (that seeks to balance employer and employee considerations) is important for workplace inclusion, income security, gender equality, and better reconciliation of home and work life – as shown in a comparative study of protections for part-time work in France, Germany and the UK. This international evidence emphasises the potential win-win of improved worker rights and higher productivity.

Much public discussion to date focuses on the short-term ‘costs’ of the new rights particularly for SMEs. However, proposals within the Employment Rights Bill are based around the ‘right to request’ flexible working rather than a full legal entitlement to such benefits from day one. Universal standards would further reduce the scope for undercutting and employers may also benefit from improved staff recruitment and retention.

Minimum wages, living wages and ‘fair pay’

The proposal to link increases in the national minimum wage to inflation is an important step to help protect decent living standards but falls short of an independently calculated ‘real living wage’ and may leave lower paid workers struggling to keep up with price rises.

The use of the consumer price index (CPI), instead of the retail price index (RPI), which includes housing costs, fails to account for the disproportionate amount low-income households spend on rent, food and energy. For example, CPI inflation at the end of 2024 was 2.6% whereas RPI inflation was 3.6%. Food and energy costs are also prone to in-year ‘spikes’ that  an annual cycle of uprating cannot easily adjust to  so that the real value of the minimum wage falls over the year.

Evidence on the UK national minimum wage shows increasing pay at the bottom can help narrow wage inequality, but there is a need for a broader framework of ‘fair pay’ with greater recognition of skills and opportunities for workers to progress. This is a particular issue in many low paying industries in the UK where wage hierarchies are ‘compressed’ and career progression opportunities are limited.

Rebuilding labour market institutions

One of the most significant institutional changes proposed is the creation of new ‘negotiating bodies’ for school support staff and adult social care workers both of which could help tackle entrenched problems of low pay and weak career progression. The need for such institutions reflects the long-term erosion of public sector collective bargaining and the transfer of many front-line roles in schools and social care to the independent sector.

In contrast with some European countries, the UK lacks automatic extension mechanisms that extend collectively-agreed pay and conditions to outsourced and ancillary workers. Specific negotiating bodies for these groups would go some way towards addressing issues of low pay and limited career progression. However, further details are required on the technicalities of how pay awards for these groups will be agreed and funded.

Early Childhood Education and Care – A Cinderella service

Another sector where workers face low pay and insecurity is early childhood education and care. The UK frequently performs poorly in international league tables for childcare affordability, as the sector faces significant staff shortages and problems of worker burnout as a result of poor pay and working conditions.

Our research illustrates that many are leaving the profession for roles in retail where work is often better paid with fewer emotional and physical demands. Including these workers within existing collective agreements for teaching staff or local authority staff could improve employment standards and harmonise pay rates, but, as with adult social care workers, a new negotiating body, or a wages council, may be required to address acute challenges of low pay.

The return of the public sector as a ‘model employer’

The Bill also aims to generalise good practice across the labour market through improved public sector contracting. The reinstatement of the two-tier code (abolished in 2010) will require public sector commissioners to work with external suppliers to ensure new workers are offered the same contractual terms and conditions. Commissioners will have to take steps to extend Public Sector Equalities Duty (PSED) along the supply chain. This should ensure outsourcing is used when there are genuine efficiency gains, not when the main motive is to reduce pay and conditions for staff.

Many local authorities in England now require third party contractors to follow minimum employment standards such as guaranteed hours contracts and the real living wage. Although harmonising standards along the supply chain will reduce inequality, the government should account for additional costs in future spending reviews.

Further actions and priorities

The COVID-19 pandemic highlighted the limited access of many low paid ‘essential workers’ to occupational and state-provided sick pay. Our research points to the need for more state intervention to improve minimum standards in employment and ensure better enforcement.

A negotiating body for the Early Childhood Education and Care sector is an urgent priority, to tackle low pay, limited career progression, and prevent workers in this sector falling further behind.

As the Bill progresses into legislation, we also urge policymakers to consider the use of RPI inflation to calculate minimum wages, which will move closer to a ‘real living wage’.