What does the UK general election mean for employers?

This Insight examines what the Conservative and Labour parties, as the two main contenders to form the next government, propose in relation to employment, pension and immigration policy.

The General Election on 4 July will see a number of employment-related developments from the newly elected government as it seeks to provide a legislative environment which meets the changing needs of today's businesses and employees. Recent years have seen evolving technology, increased hybrid and flexible working and a changing workforce demographic as many older workers stay on or return to work. It will also be critical for businesses to be supported in ensuring that they can recruit the right candidates and that individuals have the skills they need for the modern workplace. Ill health remains an issue – Covid-19, long waits for medical health treatment and the prevalence of mental health conditions, particularly amongst the young, is a growing concern.

How are the two parties looking to address these issues should they form the next government?

Getting people into and staying in work

Recent years have seen the current government taking steps to upskill employees and get the "economically inactive" back into work. Most recently the Department for Work and Pensions and Department of Health and Social Care issued a call for evidence to explore reforming the fit note process; the call for evidence closes on 8 July. The Conservative manifesto restates the government's commitment to overhaul this process and a full consultation later in the year is likely to follow.

The current government also announced in May the launch of "WorkWell" pilots across 15 regions beginning in October 2024, which would see a single assessment and gateway to local employment support and health services. The aim is to help people manage their health conditions or disability and identify workplace adjustments helping them to stay in or return to work sooner. A commitment to testing the new WorkWell service is set out in the Conservative manifesto.

Labour's manifesto similarly sets out a commitment to support people with health conditions in the workplace by working with local areas to "create plans to support more disabled people and those with health conditions into work". Devolved funding will allow local areas to "shape a joined-up work, health and skills offer for local people". Labour also states that it will tackle the backlog of Access to Work claims, giving disabled people the confidence to start working without fear of an immediate benefit reassessment if it does not work out. Labour also plans to reform or replace the Work Capability Assessment, "alongside a proper plan to support disabled people to work".

Skills for the future

The Conservative manifesto emphasises its continuing commitment to "facilitating training and skills at every stage". This will include the delivery of the Lifelong Learning Entitlement allowing adults to train, retrain and upskill flexibly, with loans available to cover new qualifications, together with an expansion of adult skills programmes, such as Skills Bootcamps, to meet skills shortages. Building on the existing apprenticeship programme, the Conservatives will also look to create 100,000 new apprenticeships (including a flexible service in creative industries such as film, TV, gaming and music).

As has been widely reported in the media, a new Conservative government would also look to introduce a new National Service "for this century to give young people valuable life skills and build a stronger national culture" – examples of roles this would involve include special constables, NHS responders, RNLI volunteers and military service.

Labour is also committed to support young people into work. Its manifesto sets out its commitment to support people into work and remove barriers by:

• Bringing Jobcentre Plus and the National Careers Service together to provide a national jobs and careers service, focused on getting people into work and helping them get on at work; Labour will ensure the service is "responsive to local employers, inclusive of all users, and works in partnership with other local services".
• Establishing a youth guarantee of access to training, an apprenticeship, or support to find work for all 18 to 21 year olds.
• Guaranteeing two weeks' worth of work experience for every young person and improving careers advice in school and colleges.

Reforming employment laws

The Conservative manifesto is light on detail as to what employment law reforms businesses might see; specific reforms which are stated include:

• Equality: Amending the Equality Act 2010 to clarify that the protected characteristic of sex means biological sex and legislating so that an individual "can only have one sex in the eyes of the law in the United Kingdom";
• Industrial action: Continue implementing the Strikes (Minimum Service Levels) Act 2023 and introduce legislation to reapply the entirety of the Trade Union Act 2016 to Wales; and
• Minimum wage: Maintaining the National Living Wage at two-thirds of median earnings in each year of the next Parliament.  

In sharp contrast, Labour is looking to introduce a more substantial and significant overhaul of the current employment law system as it seeks to reflect its priorities in the modern world of work. On 27 May, Labour published its plan "Make Work Pay: Delivering a new deal for Working People", followed yesterday by its manifesto.

The manifesto states that Labour will implement the plan "in full" and introduce an Employment Bill in the first 100 days of government. The timing of the individual proposals remains unclear but the manifesto confirms that there will be a full consultation with "businesses, workers and civil society".  Some of the more significant changes proposed include:

• Basic rights from day one, including unfair dismissal: Labour is proposing to grant basic individual rights to parental leave, sick pay and protection from unfair dismissal from day one. Providing immediate access to statutory rights is one of the more significant proposals. Given Labour's proposal to introduce a single status of worker this could considerably raise both cost and risk for employers. The proposal to make unfair dismissal a day one right will make quick dismissals more difficult and expensive and place a greater emphasis on thorough recruitment and tighter performance management. This is the first time the general right to claim unfair dismissal has not had a qualifying period.  
• Single status of worker: Labour's proposal to introduce a single status of worker would remove the existing distinction between employees and workers; it would create a dual system of workers and the self-employed. This will be significant development for businesses using contingent workers and those operating a gig economy model. It is not clear whether there will be any corresponding harmonisation of the tax system.
• Zero hours: Labour has been vocal on its intent to ban "exploitative" zero hour contracts as it seeks to address the "modern challenge of insecurity, where new technologies and ways of working mean too many face insecurity over working hours… ". It will ensure workers have a contract reflecting the hours they regularly work and get reasonable notice of any change in any shifts and working time. This will require careful analysis and reduce the flexibility available to businesses to respond to fluctuating demand on a short-term basis (with exceptions for seasonal workers).
• Fire and re-hire: Labour has been vocal on its intention to crack down on the practice of "fire and re-hire" to force through changes to employment terms and promises to bring in a strengthened Code of Practice requiring more rigorous consultation with the workforce before changes can be made.
• Collective redundancies: Labour's proposal to trigger collective consultation across a business rather than using the narrower parameter of a single establishment would see an increase in the requirement for collective consultation on proposed redundancies for many employers.  
• Trade union reforms: Labour will modernise and simplify the process of union recognition to give workers, including those in the gig economy, greater access to trade unions. As well as increasing the rights of trade unions to access workplaces for recruitment and organising purposes, employers will be required to inform recruits of their right to join a union at the outset of employment.
• Equality: As part of a number of measures focusing on equality, Labour will introduce a new Race Equality Act providing a full right to equal pay for Black, Asian and other ethnic minority people and strengthening protections against dual discrimination. A full right to equal pay will also be introduced for disabled people. Obligations on ethnicity and disability pay gap reporting for large employers will require similar data analysis as for gender pay gap reporting.

Next steps for employment law

The parliamentary "wash-up" period following the announcement of the election saw some specific employment law developments coming into force:

• The Code of Practice on Dismissal and Re-engagement;
• The Code of Practice on Fair and Transparent Distribution of Tips and Gratuities; and
• The Paternity Leave (Bereavement) Act 2024.

However, the draft statutory instrument which brings into force the power for an Employment Tribunal to order an uplift of 25% on a protective award where the Code of Practice on Dismissal and Re-engagement does not appear to have been passed.  

It seems likely that, if elected, the Conservatives would continue to progress those measures that did not get passed and it would be interesting to see if other measures proposed, but not specifically mentioned in the manifesto, continue to be pursued, including proposals for regulations around the new statutory right for workers to request predictable terms and conditions, non-disclosure agreements, limitations on non-compete provisions, potentially re-introducing fees in the Employment Tribunal and some TUPE reforms (which are the subject of a current consultation). The new duty to prevent sexual harassment in the workplace is also due to come into force in October 2024.

However, as currently seems likely, if a Labour government is elected on 4 July, its proposals give employers much to consider and plan for; strategically in workforce planning and in their day to day management.

On top of the reforms set out above, other Labour proposals include further strengthening protections around sexual harassment (including third party harassment) and maternity and menopause discrimination, TUPE reforms, a national minimum wage reflecting the cost of living for all adults, support to get people back to work, and the introduction of appropriate rights and protections to keep pace with technological change, including proposals around a right to "switch off".

Employers should also anticipate greater enforcement of employment protections through a new Single Enforcement body which will ultimately place greater scrutiny on supply chains. Should Labour be elected, an announcement of an Employment Bill seems likely in the King's Speech on 17 July 2024, providing a good indication of what is on its immediate agenda and the consultations businesses can expect.   

What we might expect for pensions

The announcement that there would be a UK general election on 4 July resulted in a number of pensions workstreams and proposals being placed on hold.

These included next steps in relation to the new funding code and regime to apply to defined benefit (DB) pension schemes from 22 September this year, a second set of amending regulations needed in connection with the removal of the Lifetime Allowance with effect from 6 April 2024, an (already delayed) consultation on draft regulations to extend automatic enrolment so that it applies from age 18 (instead of 22) and contributions are paid from the first pound earned, and a series of proposals to encourage UK pension scheme investment in UK illiquid/productive assets and infrastructure projects.

For DB pension schemes, these included proposals to change the rules on use/return of surplus, and for a public consolidator scheme administered by the Pension Protection Fund.

For defined contribution (DC) schemes, they included strengthening the Pensions Regulator's powers around "value for money", and legislation to place duties on trustees to offer a suite of decumulation products and services suitable for their members and consistent with pension freedoms.

Conservative Party pensions pledges

If the Conservative Party wins on 4 July, the pensions industry would expect it to continue work in these and other areas. It is perhaps not surprising then that the Conservative Party's election manifesto contains just four pensions pledges:

• "Triple Lock Plus". A commitment to introduce a new Triple Lock Plus to guarantee "that both the State Pension and the tax free allowance for pensioners always rise with the highest of inflation, earnings or 2.5% – so the new State Pension doesn’t get dragged into income tax".
• Pensions Tax Guarantee. A pledge "not to introduce any new taxes on pensions. We will maintain the 25% tax free lump sum and maintain tax relief on pension contributions at their marginal rate. We will not extend National Insurance to employer pension contributions."
• Women Against State Pensions Inequality (WASPI). A commitment to carefully consider the Ombudsman report into WASPI women and work with Parliament to provide an appropriate and swift response.
• Veterans. A pledge to "bring forward measures so that War Pensions and Armed Forces Compensation Scheme awards are not counted as income for the purpose of benefits and pensions".

On personal tax more generally, the Conservative Party says that it would cut employee National Insurance to 6% by April 2027, abolish the main rate of Class 4 National Insurance contributions for the self-employed, and not raise the rate of income tax or VAT.

Labour Party pensions pledges

Labour's plan to "Make Work Pay", discussed above, includes proposals which would have an indirect effect on pensions. 

Looking beyond this, Labour's election manifesto mentions pensions in four contexts:

• Kickstarting economic growth and boosting investment in the UK. Labour commits to "act to increase investment from pension funds in UK markets", "reforms to ensure that workplace pension schemes take advantage of consolidation and scale, to deliver better returns for UK savers and greater productive investment for UK PLC", and to "a review of the pensions landscape to consider what further steps are needed to improve pension outcomes and increase investment in UK markets". 
• Greater economic security. Labour confirms that it will retain the triple lock for the state pension and "adopt reforms to workplace pensions to deliver better outcomes for UK savers and pensioners."  It says that its pensions review "will consider what further steps are needed to improve security in retirement, as well as to increase productive investment in the UK economy."
• Accelerating to net zero. Labour pledges to "make the UK the green finance capital of the world, mandating UK-regulated financial institutions – including banks, asset managers, pension funds, and insurers – and FTSE 100 companies to develop and implement credible transition plans that align with the 1.5°C goal of the Paris Agreement".
• Mineworkers' Pension Scheme. Labour makes a specific commitment in relation to this scheme.

The result is that we do not have much formal indication of what a Labour government might do in the area of pensions. It gives some detail about its plans for a pensions review and the consolidation of schemes in its Plan for Financial Services and this announcement of 9 June. However, the manifesto does not add to this.

The manifesto is also silent on the question of whether a Labour government might re-introduce the lifetime allowance and or make other changes to pensions tax or pensions tax relief. Recent media reports suggest that the Labour Party may have decided against reintroducing the Lifetime Allowance. However, the manifesto makes no commitment on this or on the subjects of pensions tax or tax relief more generally. There is a commitment to (just) "one major fiscal event a year" in order to give "due warning of tax and spending policies". Labour also says that it "will not increase taxes on working people [and so] will not increase National Insurance, the basic, higher, or additional rates of Income Tax, or VAT". No other pledges are made in this area.

Business immigration policy

One thing UK business can be certain of is that there will be changes to immigration law following the general election, whatever its outcome. These changes will affect businesses with sponsored workers, those that rely on sponsored workers and those considering hiring overseas workers (among other changes).

Net migration

There are manifesto commitments from both parties that they will reduce migration.

The Conservative government published its five-point plan in December 2023 in relation to reforming work and family migration, and its manifesto states "Immigration is too high."

In contrast, Labour has not set an actual figure on net migration but that "The overall level must be properly controlled and managed“, and that it will "reduce net migration".

The Office for Budget Responsibility’s most recent forecast (March 2024) suggested net migration should settle around 350,000 per year over the next five years, based on the impact of the government's current immigration policies. It went on to review the fiscal impact of this net migration and anticipated a net reduction in public sector borrowing of approximately £7.4 billion by 2028-2029.

Work and sponsorship

In its manifesto, the Conservative Party proposes to introduce a "binding, legal cap" for work and temporary work visas. This would be reviewed and voted on annually by Parliament.

By contrast, Labour has promised a reform of the points-based system with a focus on upskilling British workers – essentially linking immigration and skills policies. Further details of how this would work in practice are awaited, but the manifesto specifically envisages "workforce and training plans for sectors such as health and social care, and construction". There will also be an increase in compliance and enforcement for employers abusing the system.

Family routes

The Conservative Party has confirmed it will  tighten rules on dependants. The current government has already removed the ability for some students and care workers to bring their families with them to the UK. It will be interesting to see what further restrictions could mean and how this would affect application numbers.

In addition, the Conservative manifesto states it will further increase the income requirement for British and settled individuals wanting to bring their spouse or partner to the UK, by making the threshold automatically increase in line with inflation.

The Labour manifesto does not mention any changes or policies in relation to family members.

Other points

Although current opinion polls suggest it may be unlikely, should the Conservative Party retain power there is likely to be an increase in all immigration submission fees, some of which could be up to 25%. This would further increase costs to businesses hiring overseas workers.

The Conservative manifesto also states that it will be a requirement for migrants to undergo health checks before coming to the UK, with the Immigration Health Surcharge increasing or migrants being required to obtain private medical insurance if they are deemed likely to be a burden on the NHS.

Osborne Clarke comment

While employers wait for the outcome of the election and the next government's policy to be developed further and implemented, it is advisable to ensure they are compliant with current rules, including of the duties of a sponsor licence holder, as well as to review their current policies and workforce and future recruitment needs.

The King's Speech will set out the next government's agenda for the coming Parliamentary session, which will reveal more about its legislative priorities.