10 April 2024

Labour’s social care plans are a century out of date


The Labour Party has announced, as part of its ‘New Deal for Working People’, that it wants to revive national sectoral bargaining, beginning with the social care sector. Sectoral bargaining will get private sector employers round a table with unions to negotiate ‘Fair Pay Agreements’ which will have the force of law.

National sectoral bargaining began at the end of the 19th century, as employers’ associations were set up to counterbalance the growing power of industrial trade unionism. Employers saw these bodies as a way of reducing the pressure on them from militant unions, by sharing it across other businesses; and by setting a common wage across the sector they reduced the possibility of new market entrants undercutting pay and staffing arrangements. They were thus anti-competitive from the off.

There has been a long decline in national collective bargaining. Larger private businesses are now often part of multinational corporations which prefer to determine their own pay levels and structures rather than be part of a national organisation. And industrial change has reduced the role of large-scale employers; around half of all private sector jobs are now in enterprises employing fewer than 50 people. Only around 20% of private sector employees have pay determined by collective bargaining of any sort, and so it is unsurprising that sector-wide employers’ associations, although they continue to exist, now play a far smaller role in the UK than they did for large chunks of the 20th century. In 1976, over 200 employers’ associations were recognised by the government’s Certification Officer as taking part in collective bargaining; last year this number had fallen to just 38.

Decentralisation of collective bargaining has been a factor in reducing union bargaining strength. It will also have had the effect of increasing the costs of trade union organisation: bargaining with several different companies, rather than one employers’ body, stretches resources.

So it’s unsurprising that the unions, and their Labour Party allies, would like to see a return to national bargaining. They point to many continental European countries where it is still a thing. However, Europe’s largest economy, Germany, has also moved away from widespread national bargaining and in some countries where it persists, such as France, low unionisation rates mean there are doubts about the representativeness of noisy and strike-happy unions with only 7 or 8% membership among employees.

It will be interesting to see how the new focus on national collective bargaining will work in social care. It’s an unpropitious testing-ground. There are few big employers – there are 18,000 organisations providing adult social care, many very small indeed – to form the equivalent of a modern-day Engineering Employers Federation for care homes (the original EEF, incidentally, is now rebranded as Make UK and simply organises PR puffery for loosely-defined manufacturing).

The reality with social care is that it is a private sector business which is hugely supported by the public sector; approximately 50% of social care is paid for by the state. So it seems unlikely that the government will allow unions representing a small minority of the sector’s employees to trample over a panel of ‘employers’ who will represent only a handful of social care operations, and secure massive pay increases. That would mean large increases in state spending, collapse of many businesses relying on private patients and residents, and thus a probable increase in dependence on the state. So government will want to be involved itself.

What we’ll probably end up with is something which more closely resembles the old Wages Councils, rather than the sectoral bargaining of the days of Harold Wilson and Ted Heath.

You may be only vaguely aware of the Wages Councils, which used to set pay rates in low-paid industries which were not strongly unionised – essentially what the planned new sectoral negotiating bodies will do. They had their roots in the ‘new liberalism’ of the early 20th century. Inspired by William Beveridge’s favourable impressions of Bismarckian Germany, Winston Churchill spearheaded a programme of labour market intervention at the Board of Trade. Labour exchanges and unemployment insurance were set up, and Trade Boards, the forerunners of Wages Councils, were set up to fix minimum wages in ‘sweated’ industries.

The Trade Boards Act of 1909 targeted just four trades, employing 200,000 people: ready-made tailoring, paper box making, machine lace-making and chain-making. The number of areas covered gradually rose over time: by 1970 there were 55 such boards including such exotica as the Sack and Bag Wages Council, the Pin Hook and Eye and Snap Fastener Wages Council and the distinctly worrying Coffin Furniture and Cerement-Making Wages Council. The numbers fell back as some of the smaller industries and trades disappeared, but there were still 2.5 million workers covered by the Councils when they were abolished by John Major in 1993.

Labour under Tony Blair was not minded to revive the Wages Councils, as it put its faith in a new National Minimum Wage, applied across all sectors. This innovation is now, rightly or wrongly, firmly embedded in the UK labour market set-up. The Low Pay Commission, with representatives drawn from unions, employers and academic researchers, proposes minimum pay rates which the government usually approves, but can reject. The Commission has almost always showed some restraint and concern with national economic conditions. Perhaps a Labour government would insist that a social care negotiating framework had to take advice from the LPC? It would either have to do that or intervene directly, as it probably should as the paymaster of half of the sector.

A generous ‘Fair Pay Agreement’ for social care workers which was out of line with national economic priorities would surely lead to demands for similar treatment by other low-paid groups. Labour’s nostalgic attempt to revive national sectoral bargaining cannot painlessly turn back the clock.

Click here to subscribe to our daily briefing – the best pieces from CapX and across the web.

CapX depends on the generosity of its readers. If you value what we do, please consider making a donation.

Professor Len Shackleton is an Editorial and Research Fellow at the IEA and Professor of Economics at the University of Buckingham.

Columns are the author's own opinion and do not necessarily reflect the views of CapX.