New Zealand shows how to solve the equal pay crisis

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Outgoing governments often try to craft a legacy for themselves by introducing policy traps that incoming governments find hard to undo, such as Rishi Sunak’s National Insurance cuts in 2024 or Gordon Brown’s introduction of the 50p top rate of income tax in 2010. Keir Starmer just did something similar by initiating a huge expansion in the scope of pay equality regulation to cover race and disability.

As things stand, an equal pay claim is a legal action where an employee argues they are unlawfully paid less than someone of the opposite sex doing equal work. Equal pay claims are currently having devastating effects on the public sector, for example bankrupting Birmingham Council, and the private sector, imposing costs estimated at over £30 million on Next.

And this is just the tip of the iceberg. There are pending claims ‘worth hundreds of millions’ against Leeds City Council, and more against almost every major supermarket. High profile ‘success’ in the Birmingham case has inspired the filing of an ever increasing number of claims as law firms sense a winning formula.

This is not thanks to clear evidence of widespread pay discrimination across sectors. 

It is due to the law’s peculiar definition of equal work.

Two jobs are defined as equal work not just if they have the same responsibilities but if they are loosely defined as ‘of equal value’. This is how you get Kafkaesque diktats that bin workers must be paid identically to teaching assistants. In Birmingham, this led to a bankrupt council, hence pay cuts for bin workers and so bin strikes, with rubbish piling up in the streets.

Yet the Government now plans to hugely expand the reach of the most problematic section of our current equal pay laws, bringing race and disability into scope. The current consultation directly proposes to ‘enable claims for pay discrimination where work is not materially similar but is ‘rated as equivalent’ or of ‘equal value’, for race and disability.’ This would expose public and private employers across the UK to massive liabilities.

Andy Burnham’s economic inheritance from Starmer is tough enough as it is, and if he were canny, he would spot this trap and find a way to diffuse it before it can do any real damage.

In an ideal world, Burnham would also remove the ‘work of equal value’ clause from legislation regarding sex-based pay claims. However, even if he were so minded, this is unlikely to happen under the current government, given the sentiments of the Parliamentary Labour Party.

Luckily, New Zealand offers an excellent example of how a partial solution can be implemented without needing to challenge the core principle of ‘equal value’ work.

New Zealand faced its own wave of absurd equal pay claims after a Labour government expanded the scope of their pay equality laws in 2020. In one case, it was claimed that librarians were being discriminated against by being paid less than fisheries officers.

This led to a huge budgetary cost for the New Zealand government, which was required to set aside an estimated NZ$12.8 billion (around £5.5 billion) from their 2025 budget to pay off these claims. This would have pushed up the deficit over the next four year period by an estimated 55%.

The New Zealand government took effective action, pushing the Equal Pay Amendment Act 2025 through parliament in just three days. Swift implementation prevented opposition forces from having time to organise against the changes. Applying these changes to all existing claims also resulted in 33 in-progress claims being dropped.

The key provisions were: that a workforce had to be 70% female for at least 10 years to be able to launch a claim, tighter legal requirements for what could be used as a comparator, and an increased threshold for evidence that discrimination had taken place.

Taking its cue from New Zealand, the Government could introduce similar measures, requiring that for a class action claim under pay equality laws a workforce must be at least 70% female for 10 years to count as predominantly female. On top of this, it should also require that the comparator workforce is at least 70% male over 10 years. This would avoid the absurdity of Next’s warehouse operators being used as a comparator in a sex-discrimination case when they were 47.25% female.

Secondly, employers’ ability to defend themselves against equal pay claims could be strengthened. Currently, a tribunal can find no ‘conscious or subconscious influence of gender’ and yet hold that pay decisions made to ‘reduce costs and enhance profit’ still count as indirect sex discrimination. If an employer can explain its pay decisions in terms of market rates, this must be recognised as decisive proof that the equal pay claim has no merit.

Finally, the Government should retroactively apply these changes to all pending claims, just as New Zealand did. The UK still has time to reverse course as almost all major private sector cases are either under appeal (Next), or still mid-litigation (Asda, Tesco, Sainsbury’s, Morrisons, and Co-op). The supermarket cases alone are estimated to have potential costs of £8bn in backpay and will permanently push up the wage bill by requiring shopfront staff to be paid the same as warehouse workers. Allowing these huge liabilities to be imposed on British supermarkets will damage growth and push up the price of a weekly grocery shop.

Of course, under a future centre-right government, a more root-and-branch approach to reforming equal pay tribunals – and the tribunals system in general – would be desirable, for example along the lines outlined in the recent Centre for Policy Studies report ‘Suffocated by Tribunals’.

But in the meantime, the Government’s consultation on expanding the scope of equal pay claims is still ongoing and open to public comment. So if you are reading this, please take five minutes and try to push the UK towards a saner approach.

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