Brexit and the London labour market
Context
More people are in employment than before the 2008 economic downturn, and there are now 5.7 million jobs in the London labour market – the highest number on record since records began in 1996. However challenges remain to ensure that the London labour market is fair, flexible, and inclusive. Many of the newly created jobs are part-time and low paid, a decline in mid-skilled jobs has led to a ‘hollowed out’ labour market meaning fewer opportunities for progression out of low pay, and the rising costs of living in London is perpetuating the rise of in-work poverty.
Until a formal withdrawal from the European Union (EU) is negotiated, EU laws on employment rights (and on the free movement of workers) will continue to apply. But questions remain around:
- what will happen in practice the day after the UK leaves the EU;
- whether UK workers’ rights will remain protected; and over the longer term,
- the extent to which existing legislation will be amended or new ones introduced; and,
- the potential for those rights to be eroded, as EU law continues to evolve.
Much of the way in which the answers to these questions develop, will hinge on the eventual nature of the relationship the UK secures with the EU.
The so called ‘Great Repeal Bill’, to be included in the next Queen’s speech, will repeal the 1972 European Communities Act and transpose EU law into UK law. Repeal of the 1972 act will not take effect until the UK leaves the EU under Article 50. The Prime Minister has said that Article 50, the formal process for exiting the EU, will be triggered by the end of March 2017- but the High Court ruled that Parliament must vote on whether the UK can start the process of leaving the EU meaning that the government cannot trigger Article 50 of the Lisbon Treaty – beginning formal exit negotiations with the EU – on its own.[1]
Impact of an EU exit on UK workers’ rights
A substantial body of EU-derived employment law is incorporated into UK law through a range of legal mechanisms affecting workplace rights ranging from working time and annual holidays, rights for women and family-friendly policies, to anti-discrimination legislation, ‘atypical’ workers,[2] and collective rights in cases of redundancies or protection of contractual arrangements when transferring to a new employer.
Health and safety in the workplace (and indeed for the wider public as affected by business) is also underpinned by EU regulation.
EU employment law provides a minimum standard below which domestic employment law should not fall. Typically, EU law is initiated in Brussels through directives and, once agreed, transposed into national legislation across all member states. The way in which this happens varies, including through primary legislation (acts of Parliament), such as the Equality Act 2010, secondary legislation under the European Communities Act 1972 (for example TUPE),[3] or through direct reliance on EU law, such as the right to equal pay contained in the EU Treaty,[4] and on case law derived from the European Court of Justice (ECJ).
Withdrawal from the EU would mean the removal of the current guarantee afforded to UK employment rights by virtue of EU law, as they could be subject to repeal or amendment. There are a number of areas at risk of change affecting agency, part-time and fixed-term workers, family-friendly rights such as annual, paternity, maternity and parental leave, and anti-discrimination rights amongst others.[5] The Government has also been critical of aspects of workplace health and safety protection.
Such workplace rights are also only of use, if ultimately they can be enforced. On the health and safety strand, the Government has severely cut the Health and Safety Executive, charged with workplace inspections, accident investigations, and the issuing of improvement notices, for example. The Government’s introduction of high fees to access Employment Tribunals has been widely criticised, as these fees have led to a significant reduction in claims: unfair dismissal down 73%; sex discrimination, down 71%; race discrimination, 58%; and disability discrimination, 54%.
The Prime Minister has sought to provide some measure of reassurance that, in the short term, at least, no sweeping changes will ensue. However, the outcome for the longer term remains uncertain. The Great Repeal Bill is a transitional arrangement – an approach that has the support of legal experts.
1.8 Stephen Laws, first parliamentary counsel 2006-2012, states: “there will undoubtedly be demands for more of the detail to be settled early. It will be difficult, in practice to prevent a consideration of the issues involved in any later legislation from arising during the passage of a paving, patching Bill; but, if the legislation is not to become totally unwieldy, some matters are bound to have to be postponed and so patched in the meantime.”
1.9 James Davies of Lewis Silkin concurs: “Repealing all the primary and secondary legislation in one swoop would result in an avalanche of legal changes for employers and their staff. A more realistic approach following an exit from the EU would be to maintain the status quo and start addressing particular laws individually over time. This could be by repealing them or merely tinkering to make them more palatable to the UK business environment.”
So UK workers’ rights could potentially be eroded over the longer term. Previously settled principles could be left open to future challenge, and existing rights could start to fall below minimum EU requirements, as EU law continues to evolve. A piecemeal reduction of workplace rights was the approach adopted in the 1980s by the then Conservative Government.
European Court of Justice (ECJ) case law contributes to the interpretation of EU employment rights, which member states are obliged to follow. This may not be the case for the UK, following Brexit. A recent parliamentary briefing notes that: “[the ECJ has] enlarged the scope of rights beyond the limits that would have been set by domestic courts. Post-Brexit, UK courts may no longer be required to follow existing and future (ECJ) decisions, and may merely regard them as having persuasive force. An inevitable consequence of that approach would be the re-litigation of settled principle – for example, whether holiday pay needs to take account of non-guaranteed overtime and commission payments, or whether sleep-in shifts count as working time.”[6]
The TUC has highlighted areas currently under consideration by European policy makers and which could have brought future gains for UK workers. Measures include extending the right to a written statement of terms and conditions to all workers (including those on zero-hours contracts), improved work-life balance rights and improved rights for posted workers.[7]
Low pay and in-work poverty
Employment is arguably the most important route out of poverty, but more and more low income households in London include someone who is working. According to the London Poverty Profile the number of low-paid jobs in London (690,000 in 2014) is almost twice as many as in 2005/2006, and 80,000 more than in 2013.[8] Nearly one-in-five employees (around 18 percent) are on low pay, nearly two percentage points more than in 2013. The data show that this increase is almost entirely driven by the number of low-paid part-time jobs.
Latest figures released on 4 November 2016 by Trust for London show that 720,000 Londoners are paid below the London Living Wage.[9] In 2006, 6% of full-time jobs were low paid, which has risen now to 12%. There are now twice as many low-paid jobs as in 2006, a period in which total employment rose by 20%. This means that the rate of low pay has increased by almost two-thirds since 2006, from 11% to 18%, so that in 2016 almost 1 in 5 jobs in London were low paid.[10]
The Resolution Foundation recently published Low Pay Britain 2016, an annual analysis of the low pay landscape in Britain. [11] Their analysis show that across Great Britain a similar proportion of workers are low paid, (21 per cent). They conclude that, an uncertain economic outlook in the wake of the UK EU referendum could drive down average pay growth, with a direct effect on how the minimum wage is set. [12] Any curb on the National Minimum Wage (NMW),[13] could potentially have a knock on effect on the progression of the LLW.
2.3 A higher minimum wage, rebranded as the ‘national living wage’ (NLW) was introduced by the government on 1 April 2016. Set by the Low Pay Commission, the NLW is the statutory minimum employers must pay to employees over 25 years of age. Currently set at £7.20 per hour, pre-EU referendum projections set it on course to reach £9.00 per hour by 2020. The NLW rate makes no allowance for the higher costs of living in London.
By contrast the LLW, currently set at £9.75 is an independently calculated, voluntary rate of pay based on the costs of living and paid to employees over the age of 18. It is calculated by the London Living Wage Foundation and is reviewed annually, the latest increase being announced last week (31 October).[14] The current rate is a 3.7 percent increase on the previously set rate of £9.40.
Analysis by the London Fairness Commission shows that it costs at least 20 percent more to achieve a decent standard of living in London, compared to the rest of the UK, and in some cases this can rise as high as 50 percent. High costs of housing, transport and childcare, are the main contributory factors, the latter being 35 percent higher in London than elsewhere in the country. [15] The LLW goes some way to alleviate these costs, but its adoption by London employers is on a voluntary basis only.
Brexit induced inflation is expected to soar to 4 per cent in 2017.The costs of food, clothing and fuel will be impacted which consume a greater proportion of the income of the low paid. According to the National Institute for Economic and Social Research (NIESR), the rise in prices will “accelerate rapidly” during 2017 as the fall in sterling is passed on to consumers.[16] Many retailers and suppliers are finding it difficult to absorb price increases caused by the 14.5% drop in the value of the pound against the euro and 18% against the dollar since the UK voted to leave the European Union.[17] Analysis by the Guardian indicates that prices on Unilever products have risen the most at Morrisons since the Brexit vote, where they rose nearly 9%, closely followed by Sainsbury’s, where they were up 8.6%.
However, current uptake of the LLW is low, with approximately 1000 employers across all sectors – around 0.1 percent of London’s 970,000 or so private sector businesses –paying the LLW. The Mayor needs to find ways to further the positive impact of the LLW (which has benefitted approximately 30,000 workers in London since 2011), and reduce the proportion of Londoners facing in-work poverty. The Labour Party is calling for a Statutory London Living Wage.
Use of public sector purchasing of goods and services is one approach, through the GLA’s stated commitment to fair employment and ethical sourcing as part of its procurement strategy. The previous Mayor did not always used the softer powers available to him for the advantage of the labour market, and had an apparent reluctance to make the LLW accreditation a requirement for businesses in receipt of capital funding from the GLA or TfL.[18] However the use of procurement remains a complex legal conundrum, leaving a question mark over whether, and the extent to which public bodies have the legal right to stipulate payment of a living wage as a performance clause, in the delivery of a particular contract. Sadiq Khan has instructed his Deputy Mayors to ensure that all the GLA bodies and their contractors pay the LLW.
Another approach is the expansion of existing business rates discounts offered to LLW accredited business across a number of London boroughs, (such as by the London Borough of Brent).
Low-pay in self-employment is becoming an increasing problem in London as the number of people classed as self-employed is rising. London has the highest rate of self-employment of all UK regions, with the self-employed accounting for 18 percent of all workers.[19] The self-employed are not entitled to the same rights as employees, such as holiday and sick pay.[20]
52% of London’s self-employed have a low monthly income – a similar proportion to the rest of the UK. Based on recent UK-level trends, this figure could now stand at around 55%.[21] In London in particular, the high cost of living is likely to make it particularly difficult to manage the unpredictability of earnings from self-employment. Data show that two-thirds (67%) of self-employed Londoners earned less than the equivalent of a full-time employee on the London Living Wage – which stood at just over £15,000 in 2011.[22]
Concern regarding the increasing trend towards self-employed, temporary and low paid workers continues to mount, both at central government level and amongst trades unions and other employee representative organisations. The recent Uber ruling confirmed the right for Uber drivers to be classed as workers rather than self-employed, meaning that they would be entitled to holiday pay, paid rest breaks and to be paid the national minimum wage. [23] The landmark ruling could make way for a complete rethink of the ‘gig economy’ business model, where companies use apps and the internet to match customers with workers. Uber is to appeal the outcome.
The government has announced a six-month review of modern working practices[24] and, the Business, Energy and Industrial Strategy Select Committee confirmed that it is to investigate the rights and treatment of non-permanent staff. The inquiry will focus on the status and rights of agency workers, the self-employed, and those working in the ‘gig economy’.[25]
Potential risks to flexibility and inclusion
Part-time and temporary contracts are on the rise. In London, the proportion employed on such contracts increased from 25 to 29% between 2008 and 2015. Research by the CIPD notes that for one third of employees, flexible working has helped reduce the amount of stress they are under, and a similar proportion felt that it had improved their productivity.[26]
Quality, well-paid flexible working can be beneficial for workers, particularly those with caring responsibilities, but evidence from the Timewise Foundation[27] suggests that such opportunities in London remain disproportionately low. They note that the majority of part-time roles in London are not ‘quality,’ with flexible work being clustered in low-pay sectors. 48% of part-time jobs paid less than the LLW in 2015, compared with 13% of full-time jobs.[28]
The Timewise Foundation categorises a ‘quality flexible job’ as one which pays a salary greater than £20,000 (full time equivalent), and has flexibility that is mutually compatible for the employee and employer. They said, “If you put a cap at £20,000 as the equivalent of a quality wage (FTE), only three per cent of vacancies [above that level in London] are either part-time or open to flexibility. That is half the national average. [And] flexibility is concentrated at the bottom of the labour market in sectors where there is an existing need for flexibility because of customer service: retail, hospitality and social care.”
The use of zero hours contracts has questioned their role in the current labour market and the value for fair and flexible working, with some advocating an outright ban. It is generally accepted that there are shortcomings to the way zero hours contracts are managed and that these need to be addressed. But while employee representatives such as the TUC maintain that they are disproportionately weighted in favour of employers,[29] there is evidence to suggest that a significant proportion of employees on zero hours contracts (almost two-thirds according to the CIPD) are content with them.[30]
Use of these types of contracts is on the rise nationally. Data released by the ONS in September show that just over 900,000 people were employed on zero hours contracts in the period April–June 2016, representing 2.9 percent of the workforce, and a rise of more than 20 per cent since the same period in 2015. [31] In London however, estimates show a slight drop (by 1000 or 0.6 percent) to 95,000 over the same period. Workers on zero hours contracts tend to be young, women or in full time education and work part-time.
As for part-time roles, zero hours contracts tend to be heavily concentrated in lower pay occupations with nearly 60 percent classified as unskilled or in caring, leisure, and other service occupations. They are also heavily concentrated in the hospitality as well as health and social work sectors, where they account for 24 percent and 21 percent of employment respectively.
Overall, the retail and hospitality sectors are among the most prolific users of casual, part-time and temporary contracts. The recent Sports Direct case has done little to help the public image.[32] This case highlights the extreme inequity that can occur in the power balance between employer and employee, where workers can be left without sick pay and uncertainty over working hours and earnings from week to week.
Measures to extend the right to a written statement of terms and conditions (T&Cs) to all workers, including those on zero-hours contracts, are being considered by European policy makers. The CIPD, along with the TUC advocate written T&Cs for all workers to help improve the operation of zero hours contracts.
The EU Working Time and the Agency Workers Directives are viewed by some employers as undermining the flexibility of the UK’s labour market. The 1993 Working Time Directive sets a maximum 48-hour working week limit which some businesses would be particularly keen to see repealed, along with any working time record keeping requirements.[33] It also ensures a statutory entitlement of at least 20 days’ paid annual holiday for all workers and, subject to ECJ judgements, fluctuating payments such as commission or overtime can be included in holiday pay calculations. Post-Brexit, the UK would potentially have greater freedom to decide how statutory holiday pay should be calculated, as EU case law may no longer be binding. (It should be noted that a more generous 28-day holiday entitlement, including bank holidays is applicable under UK).
Repealing the Agency Workers Directive would remove the requirement for agency workers to be paid the same rate for the job as permanent staff once they have been in post 12 weeks, reducing business costs and record keeping requirements and must be seen as a post Brexit threat to workers’ rights.
ONS data show that net migration into the UK was 243,000 in 2013–14. EU citizens – including an increased number from Romania and Bulgaria – accounted for two-thirds of the growth from the previous figure of 175,000. Opponents of migrant workers argue that they take up the jobs of UK-born workers, particularly younger workers, have a depressing effect on wages and put a strain on public services and infrastructure. On the other side of the argument, supporters of migration say migrants are a key part of the UK’s flexible labour market, help meet skills shortages and help UK businesses grow and compete.[34]
However, in May 2016, the London School of Economics reported that the effect on pay of low skilled workers was minimal: the effect was measured at less than 1% over 8 years. Far greater pressure on pay came as result of the 2008 recession and slow recovery. Moreover, HMRC figures show that EU migrants who arrived in Britain in the last 4 years paid £2.54 billion more in tax and National Insurance than they received in benefits. The Office of Budget Responsibility estimated their contribution helped grow the economy by an extra 0.6% a year.
CIPD research highlights the positive role of EU migrants in enabling organisations to find the skills they need to grow. It found that organisations which employ EU migrant workers are more likely to report that their business had been growing over the previous two years (51%) than organisations that did not employ migrant workers (39%). Employers in low-skilled sectors were particularly positive about the contribution EU migrants made to their organisations’ performance.
The research also shows that employers who employ migrant workers are also more likely to invest in training for the wider workforce and provide apprenticeships than employers who do not employ them.[35] The CIPD argues that this strongly suggests that most employers who employ migrant workers are not doing so to cut costs on training and development, but as part of a broad approach to addressing recruitment difficulties and skills shortages. The CIPD also argues that there is a strong body of evidence showing that investment in high performance working practices, for example in leadership and management development, apprenticeships and other training programmes, smart job design and flexible working, can help boost workplace efficiency and outcomes.
The Resolution Foundation concludes that any benefits to be gained by UK-born low paid workers, (in terms of less competition for low paid jobs), from a fall in migration, will pale in comparison to the general wage slowdown predicted over coming years. The latter, will they say, be hardest borne by those with the lowest earnings.[36]
While the status quo on EU nationals is maintained individuals are able to continue to come to the UK to live and work and vice versa. However, once negotiations are completed it is probable that some form of registration scheme could be put in place with the Home Secretary, Amber Rudd having signaled tougher restrictions on hiring people from abroad in the future.[37]
The City of London recently published a report it commissioned to explore the possibility of creating a ‘regional visa’ for all non UK nationals seeking to live and work in the UK.[38] It argues that a ‘regional visa’ offers the potential to allow regional decision makers to assess and address the immigration needs of their region in a post Brexit world in a way that would support local economies and overall UK competitiveness. The City further suggests that it could aspire to more integration as local authorities could also target training and apprenticeships for resident labour accordingly.
The Mayor recently published, his vision document, a first step towards developing the London Plan. The document, A City for all Londoners, builds on the Mayor’s election manifesto commitments and sets out how he plans to respond to the challenges London faces, not least the uncertainty following the EU referendum result. The topline message as indicated in the document’s title is his aspiration for an inclusive and fair city for all, which celebrates diversity.
The document reiterates the Mayor’s commitment to continue to lobby government to create an immigration system that ‘keeps London open’ and enables the London and UK economies to thrive and grow. Through devolved powers he aims to develop home grown skill and build on the capital’s educational success. He has committed to working with business and civil society to think about the most effective measures that will be taken forward by a newly established Economic Fairness Team to be based at City Hall.
[1] BBC News, (3 Nov 2016), Brexit court defeat for UK government, date accessed 07.11.2016
[2] This term is generally used to describe someone who does not work on a permanent basis, and covers temporary workers, contract workers, agency workers, seasonal workers, term time workers, casual workers, sessional workers etc.
TUPE is the abbreviation for Transfer of Undertakings (Protection of Employment Regulation 1981) which protect which protects employment rights when employees transfer from one employer to another.
[4] Treaty on the Functioning of the European Union, Article 157
[5] Others include: the right to a written statement of terms and conditions, information and consultation rights, collective redundancy rights, posted worker rights, protection of employment upon the transfer of a business state-guaranteed payments upon an employer’s insolvency, and health and safety obligations. See Brexit: impact across policy areas, House of Commons briefing paper 07214, August 2016
[6] Brexit: impact across policy areas, House of Commons briefing paper 07213, August 2016. The passage refers to recent ECJ judgements – Williams and Lock, and Bear Scotland
[7] UK employment rights and the EU, TUC February 2016. A posted worker is an employee who is sent by his employer to carry out a service in another EU Member State on a temporary basis.
[8] The London Poverty Profile is independent source of data and analysis of poverty and inequality in London created by the charity London Trust and independent think tank New Policy Institute.
[9] Trust for London, (3 Nov 2016), London’s Poverty Profile: 5-year rise in low pay in London finally halts, date accessed 07.11.2016
[10] Trust for London, (3 Nov 2016), London’s Poverty Profile: 5-year rise in low pay in London finally halts, date accessed 07.11.2016
[11] The Resolution Foundation’s definition of low pay captures individuals with gross hourly earnings (excluding overtime) below two-thirds of the median, equivalent to £7.83 an hour in April 2015.
[12] Low Pay Britain, October 2016
[13] The National Minimum Wage (NMW) is the minimum pay per hour most workers are entitled to by law. The rate paid depends on a worker’s age and whether they are an apprentice.
[14] Mayor’s press release dated 31 October 2016
[15] London Fairness Commission, March 2016
[16] BBC News, (2 Nov 2016), Inflation ‘set to soar to 4% by late 2017′, date accessed 07.11.2016
[17] The Guardian, (7 Nov 2016), Price of 20 Unilever products up by average of 5.7% since Brexit vote, date accessed
[18] The Hourglass economy: An analysis of London’s Labour Market, February 2016
[19] Trust for London, Tough Gig – Low paid self-employment in London and the UK
[20] Ibid.
[21] Ibid.
[22] Trust for London, op.cit.
[23] BBC News, (28.10.2016), Uber drivers win key employment case
[25] The future world of work and rights of workers inquiry launched 26 October 2016
[26] Flexible working provision and uptake Survey Report, May 2012, CIPD
[27] The Timewise Foundation is a GLA partner, working with the GLA to improve its approaches to flexible working. They have been incredibly helpful in getting managers to consider advertising jobs on a flexible basis and thinking creatively about structuring teams in different ways.
[28] The Hourglass economy: An analysis of London’s Labour Market, February 2016
[29] TUC general secretary, Frances O’Grady recently said that zero hours contracts can be a nightmare for workers and that the ‘so called flexibility these contracts offer is far too one-sided. Read the full comment in the Guardian article, 9 March 2016
[30] Zero hours and short hours contracts in the UK: Employer and employee perspectives, December 2015
[31] ONS Labour force survey, 8 September, covering the period April to June 2016
[32] Business Insider UK article dated 22 July 2016
[33] Under current EU regulation, individuals can opt out of the 48-hour working week limit.
[34] The growth of EU labour: assessing the impact on the UK labour market, CIPD, September 2014
[35] The growth of EU labour: assessing the impact on the UK labour market, CIPD, September 2014
[36] Low Pay Britain 2016, Resolution Foundation, October 2016 – see pages 34 and 35.
[37] The Telegraph, 4 October 2016. See also Defence Secretary, Sir Michael Fallon’s comments on the subject, BBCnews, 9 October 2016
[38] Regional Visas – unique immigration solutions?, October 2016
