The case for sectoral collective bargaining

Good morning from New Economy Brief.

The Trades Union Congress’s (TUC) annual conference kicked off on Sunday. In his speech there,  - TUC General Secretary Paul Nowak called on the government to deliver its Employment Rights Bill in full and “show working people whose side you are on.” His comments come amid media speculation that the Bill risks being watered down following the resignation of Deputy Prime Minister Angela Rayner, one of its key champions within government. 

As part of the Bill the government has committed to establishing a Fair Pay Agreement process in the social care sector. And one of the big items on the TUC Congress’s agenda this week is ‘sectoral collective bargaining’ (SCB), where trade unions can negotiate pay and working conditions that apply to whole sectors. Unions want the government to be more ambitious, and are pushing for “a raft of new collective rights and sectoral bargaining agreements”. 

This week’s New Economy Brief takes a closer look at sectoral collective bargaining, including looking at the government’s plans for Fair Pay Agreements and the economic case for extending SCB in the UK. 

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Live from the Trades Union Congress 2025…

A big focus of this year’s TUC Congress is organising and bargaining, including the aim of improving trade union membership. Only 22% of the workforce are members of a union (less than half of what it was in the 1970s), with less than 50% of public sector workers and less than 12% of private sector workers belonging to a union. 

The reasons for this include restrictive trade union legislation by previous governments and years of employers adopting cheaper, more fragmented employment models which are harder to unionise, such as outsourcing, agency work and the gig economy.

Unions want to tackle this by working with government to remove legal and structural barriers to their organisation and collective bargaining. And at the TUC Congress this week a motion was carried agreeing that the TUC will produce “concrete steps to establish sectoral collective bargaining … and a plan to introduce sectoral level agreements in at least three sectors.”

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What is sectoral collective bargaining (SCB)? Instead of bargaining with individual employers, SCB lets unions negotiate pay and working conditions that will apply to entire sectors of the economy. This was common in the UK from WW1 until the 1980s, and meant the vast majority of workers were covered by collective agreements. According to employment barrister David Renton, the UK now has “the most restrictive anti-union laws in Europe”, following legislation by previous governments to weaken workers relative to businesses.

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What are the government’s plans for ‘Fair Pay Agreements’? In opposition, Labour’s Employment Rights Green Paper promised to deliver ‘Fair Pay Agreements’ (FPAs) “across the economy” via sectoral collective bargaining. These would cover issues including pay, pensions, working time and holidays, and would be binding on all employers and workers in the sector. Labour’s manifesto promised much less, only covering the social care sector. And its flagship Employment Rights Bill (ERB), now progressing through Parliament, has kept this limited scope: establishing a Fair Pay Agreements process in the social care sector and also including proposals for school support staff. The Institute for Employment Rights (IER) has been critical, arguing that “the commitment to SCB is all but gone.”

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What’s the trend abroad? The IER says that “the Labour Party has rowed back from its original commitments on sector wide collective bargaining and has fallen a long way short of the steps being planned elsewhere in Europe”, where the European Commission is currently promoting SCB to reduce low pay and inequality. UNI-Europa, the Europe-wide federation of service worker unions, has published four international case studies demonstrating SCB’s potential benefits for pay and conditions – e.g. in 2022 it secured pay rises of up to 16.4% for some 700,000 German industrial cleaners.

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The economic case for stronger collective bargaining in the UK.

As we have previously covered in New Economy Brief, strong workers’ rights are not only good for individual employees but for the whole economy. There is clear evidence that boosting them can improve living standards, productivity and growth. 

Higher pay for workers increases consumption and economic growth. But surveys of employment protection laws worldwide have also found these protections increase job stability, reduce unemployment, improve productivity and make sure the proceeds are shared with workers. 

However, at least 60% of British workers (around 19 million) are not protected by a collective bargaining agreement (compared to less than 5% in Belgium, Austria, France and Italy). SCB is key to making sure more workers get these protections. 

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SCB is good for employers. Establishing minimum rights for a whole industry also benefits employers. It lowers management costs by dealing with employee relations industry-wide rather than within individual firms. It makes it harder for other firms to undercut them and poach skilled workers. And it creates formal structures for cooperation between labour and management across sectors, helping spread ideas and good practice. This can increase investment in R&D and adopting new technologies, letting companies improve productivity and performance. 

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SCB should cover more than just pay. The Employment Rights Bill currently excludes negotiating bodies for school support staff and adult social care from collective bargaining in key areas from health and safety, to dispute resolution procedures. University of Warwick academics argue that fair pay agreements “need to cover much more than pay if they are to make a real difference to working lives” – they should focus on ‘fair work’ rather than just ‘fair pay’. Common Wealth argues "The Bill should have a sectoral duty to bargain on all terms and conditions."

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SCB should cover more of the economy. IPPR makes the case for FPAs in other sectors as part of ‘mission-driven industrial relations’. The IER argues it is essential to run SCB pilots in the private sector ahead of a gradual rollout across the economy, identifying  warehousing, cleaning, security, hospitality, construction, couriers, textiles and agriculture as good candidates.

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The political case for ‘making work pay’ 

Despite the clear economic benefits, the Employment Rights Bill currently only contains a limited version of SCB, and recent reporting suggests that other parts of the Bill are at risk of being weakened. This would be a political as well as an economic mistake. Reform UK is riding a wave of popularity while the government is struggling in the polls, and pay growth is facing another ‘lost decade’ of stagnation. Can it afford to water down the ERB any further? 

Polling from IPPR and Persuasion UK shows wide support for stronger workers’ rights among 2024 Labour voters, including those who switched from the Conservatives. Meanwhile the Guardian reports these policies are also popular with those “flirting with Reform UK”, which suggests that delivering the Bill in full (as the unions are calling for) could pay clear political dividends as well as economic ones.