A "vote for change"? What we can expect for Employment, Pensions and Immigration after the UK election

If Britain votes for change in the General Election on Thursday 4 July, a Labour Government will need to hit the ground running. That is why we will introduce legislation in Parliament within 100 days of entering government.

These were the introductory words to the Labour Party's worker rights manifesto, launched in the first few days of its election campaign.  As many expected, Britain did indeed 'vote for change', resulting in a landslide victory for the Labour Party (winning 412 of 650 seats) and seeing them take power for the first time since 2010.

Unsurprisingly, worker rights formed a central part of the Labour Party's proposals and, although some of them fall in areas where the previous Conservative Government had already proposed changes, Labour is looking to go further. Indeed, this week's King's speech confirmed that we can expect new Bills on employment, pensions and immigration. In this Update we consider some of Labour's key proposals in these areas.

Employment

Labour's worker rights manifesto was titled as their 'Plan to Make Work Pay' and ran to more than 20 pages.  There is a particular desire to move quickly and the King's speech this week has confirmed that an Employment Rights Bill will be produced within the first 100 days of government.

It is not currently clear whether the Bill will cover all of the proposed changes, which are too numerous to be covered in full in this Update, but we have highlighted below a selection of the most significant:

• Worker status: undoubtedly one of the most fundamental of Labour's proposals is the creation of a single "worker" status, to cover all but the truly self-employed and removing the current three-tier system. This will see full employment rights granted to all working people, save for the self-employed.The current intermediate category of workers receive some employment rights (such as pension, minimum wage and holiday pay) but this will extend to (e.g.) sick pay, family-friendly leave and most significantly, the right not to be unfairly dismissed.What is not clear is whether the new workers will be taxed as employees, which may provide a disincentive for those individuals who currently enjoy certain core employment rights (as noted above) but are taxed as self-employed.
• Unfair dismissal: another key change is the proposal to remove the qualifying period for unfair dismissal. Currently, with certain limited exceptions, it is not possible to make a claim for unfair dismissal unless an employee has at least two years' continuous service with their employer. Labour will make this a day-one right for the first time since unfair dismissal law was introduced in 1971. Labour has indicated, however, that there will be an exception for employees who fail to pass a probationary period, provided there is a fair and transparent probationary process.Employers should consider adding probation clauses to their standard contracts (where they do not already have them) and, once we know more about what is required, a sufficient process will need to be established to cover probationary dismissals.

• "Fire and rehire": this refers to the practice whereby an employer terminates an employee's contract while offering new, sometimes less favourable, terms. It is a means of forcing through changes where employee agreement cannot or is unlikely to be achieved but the practice has come under an unfavourable spotlight, since P&O dismissed nearly 800 ferry workers without consultation and replaced them with cheaper overseas agency workers in 2022.

  The Conservative Government had proposed to tackle the issue with a code of practice but Labour proposes to go further.  While they have stepped back from an outright ban, they have committed to legislate so that fire and rehire is only possible when there is 'genuinely no alternative'. Interestingly, the ability of employers to fire and replace employees does not seem to be affected.

• Zero-hour contracts: as with fire and rehire, Labour originally committed to ban zero-hour contracts altogether. The proposal in the manifesto is to grant a zero-hour worker the right to a contract containing guaranteed hours based on their average hours over a 12-week reference period. Employers that currently make use of zero-hours contracts should plan ahead and consider how they might need to change their business model if greater certainty over hours worked is introduced in this way. 
• Flexible working: under new regulations which came into force in April 2024, the right to make a flexible working request has already become a day one right for employees. It remains, however, relatively easy for an employer to reject a request provided they can point to one of a variety of broad business justifications.Labour propose to make flexible working the default unless it is "not reasonably feasible". Depending how this is framed in the new legislation, it is clearly likely to have a significant impact on hybrid work models at a time when many employers in the UK are moving back towards more in-office working.
• Equal pay and pay reporting: the King's speech proposes a second draft Bill – the Equality (Race and Disability) Bill – although this is not promised within the first 100 days.The Bill will allow equal pay claims to be brought on grounds of disability and ethnicity and extend pay gap reporting obligations for larger employers (with 250 or more employees) to include ethnicity and disability.The second of these is a significant extension of the existing pay gap reporting regulations which are currently limited to measuring the gender pay gap.Employers who do not already collect ethnicity and disability data will need to consider how best they can begin to do so.

Pensions

The announcement in the King’s Speech of a new Pension Schemes Bill makes pension reform a pivotal  element of the new government’s agenda. While the announcement of a Bill has surprised industry insiders – whose expectation was that an industry-wide review would precede the introduction of new primary legislation – the Bill, as trailed, looks to be business as usual. Of course a more distinctively “Labour” approach to pensions reform could develop in response to an industry-wide review of the sector, but it is not yet known when this review will take place.

Today, the fundamental political objectives for any governing party are the same:

• Securing more sustainable retirement incomes for future generations.
• Utilising pension assets to help ramp up UK economic growth and productivity.
• Driving consolidation of workplace pensions.

In attempting to meet these objectives, the newly-announced Bill will introduce several regulatory initiatives which were already in the pipeline (so no surprises here); such as requiring DC occupational pension schemes to offer decumulation solutions, introducing a new DC value for money framework, creating a system for the automatic consolidation of small DC pots and encouraging the establishment of DB superfunds.

In a further sign of continuity, the Government has not used the King’s Speech to suggest it will reinstate the Lifetime Allowance (LTA) – which was abolished by the Conservative government earlier this year. Although the Labour Party has not expressly ruled out a return of the LTA, this seems increasingly  unlikely especially considering the full agenda of announcements in the King’s Speech.

Perhaps a more surprising omission given the Labour Party’s wider emphasis on making work pay, and industry concerns about the adequacy of current pension pots, is that no commitments have yet been made to build on the successes of auto-enrolment. Nonetheless, since expanding the scope of the auto-enrolment regime is something that could be brought into force by implementing existing legislation (rather than passing a new Act of Parliament), the enhancement of auto-enrolment remains a possibility.

One area where the Labour Party distinguished itself from the Conservatives during the election campaign was its express commitment to require pension funds to develop and implement credible transition plans that align with the 1.5C goal of the 2015 Paris Agreement. This suggested the new government would increase the pressure on the pensions industry to better address the risks and opportunities of climate change. Although this pledge has not made it into the King’s Speech, the Government is expected to legislate in this area during this parliament.

Immigration

Although Labour has stated that it intends to reduce net migration, it has also said that it will not set a net migration target.  It is also not looking to introduce an annual cap on any immigration route, although it has pledged to bring in appropriate restrictions on certain immigration categories.  In relation to concrete proposals, Labour has stated that:

• it will establish a closer link between immigration and skills policy.
• it will pass a law to force different parts of the government to draw up skills improvement plans in high-migration sectors with the aim of reducing the economy’s reliance on overseas workers. In particular, Labour wants to address shortages in areas such as: construction, IT and engineering through reforming the apprenticeship levy to skill/upskill resident workers.
• it will require those who sponsor workers in those sectors set out above, along with companies operating in the adult social care field, to adhere to a government-determined workforce plan and fair pay agreement.
• ·on the compliance front, it intends to prevent companies that are not doing enough to carry out workforce training from sponsoring workers.
• it will lengthen the ban that employers who have had a sponsor licence revoked will have to serve before they can apply for a new licence, and increase other immigration penalties, where those employers have not complied with minimum wage and other employment laws.

In order to assist it in achieving these goals, Labour will strengthen the Migration Advisory Committee (“MAC”), which is the body which advises Government on immigration policy, and ensure it works more closely with skills bodies, the Industrial Strategy Council and the Department for Work and Pensions.  In addition, it will commission the MAC to investigate the effects of the increases to the salary thresholds which were introduced for the Skilled Worker route in April 2024.

Consequently, although Labour has pledged to reduce net migration, it intends to do this by reducing the need for employers to hire overseas workers by upskilling resident workers and increasing the penalties for non-compliance, rather than simply immediately introducing new restrictions on, or capping, specific immigration routes. The Labour Government clearly wants to see what effect the recent changes to the UK immigration system, such as increasing certain immigration fees and raising the Skilled Worker salary thresholds, are having on net migration before deciding what further changes to the immigration system may be required.

Conclusions

The new Government will be under pressure to deliver on its manifesto and other proposed changes and we can expect to see action taken soon.  On employment rights, we can expect a draft Bill within the first 100 days.  Clearly, employers will need to keep abreast of the changes when they come and the impact will only really be known when we see the detail of the new laws.  In the meantime, however, employers can prepare by auditing their workforce and reviewing their business model to assess how significant the impact is going to be. Likewise, trustees of pension schemes and their employer sponsors will wish to keep abreast of changes that may impact their schemes.