Labour’s Fair Pay Agreements: lessons for Keir Starmer from New Zealand

The King’s Speech confirmed that the new Labour government intends to introduce an Employment Rights Bill within its first 100 days. At the heart of its ‘New Deal for Working People’ is a bold – but rarely discussed – proposal for a Fair Pay Agreement (FPA). FPAs are essentially a form of an industry-wide collective employment agreement in which representatives from workers and employers negotiate minimum pay rates and conditions that apply across the sector. The government’s FPA for care workers, a first of its kind in the UK, is intended to serve as a ‘proof of concept’ before the model is replicated in other low-paid sectors.  

Social care is a sensible place to start. Historic underinvestment in the sector has resulted in low wages and a long-standing recruitment and retention crisis, with around 150,000 posts currently unfilled.  ²⁵ https://www.kingsfund.org.uk/insight-and-analysis/blogs/social-care-needs-long-term-workforce-plan  Higher pay is needed to attract more social care workers, improve service performance and meet ever rising demand in the sector. The government says it wants to learn from countries where FPAs operate successfully.  ²⁶ Change Labour Party Manifesto 2024  But it should also learn from countries where they have not stuck – for which New Zealand offers an unfortunate case study.  

Employer support and cross-party buy-in is essential  

In early 2018, Jacinda Ardern’s government created the tripartite Fair Pay Agreements Working Group (FPAWG) bringing together unions, business and labour market experts to make recommendations on the design of a new sector-wide bargaining system. This was just the start of a nearly five-year long journey to develop a whole new set of rules and shepherd the legislation through parliament.  

The Fair Pay Agreements Act  ²⁷ https://www.legislation.govt.nz/act/public/2022/0058/latest/LMS655984.html?src=qs  came into force on 1 December 2022. However, the act was swiftly repealed a year later by the new right-wing coalition that came to power after the 2023 general election. At the time six sectors, including bus drivers, commercial cleaners and early childhood education workers, had received approval to initiate bargaining under the new system. However, none had got far, and no pay settlements were finalised before the legislation was repealed.  

Progress on policy design was initially stymied by the then Labour government’s coalition partner (the nationalist New Zealand First party) followed by the pandemic. But FPAs faced stiff opposition from the off, particularly from employers due to concerns about cost and flexibility. Lengthy and protracted discussions – initially through the tripartite working group model and then through public consultation – failed to build the political consensus needed to withstand changes in administration. BusinessNZ, the main body representing employers, even tried to argue that the FPA bill contravened International Labour Organisation conventions by interfering in employer-worker affairs, despite it being part of the original working group.  

That it took five years for New Zealand’s FPAs to rise and fall calls into question Labour’s pledge to introduce its legislation in its first 100 days. This is unlikely to allow time for meaningful collaboration with trade unions and (in particular) businesses on what it has described as the “the biggest upgrade to workers’ rights in a generation”. Here, the New Zealand experience provides a crucial lesson: rather than trying to reach compromise on every aspect of the system, it may be more effective to focus on building the ‘case for change’ with industry – as was done so successfully by a previous Labour government with the National Minimum Wage.

There will be big practical barriers to overcome  

The decline of sectoral bargaining in the UK has left no clear choice of representatives on either side. The social care sector is notoriously fragmented, with around 18,000 mostly small care providers and approximately 1.5 million workers, some 130,000 of which are ‘personal assistants’ directly employed by the person to whom they provide care.  ²⁸ https://www.kingsfund.org.uk/insight-and-analysis/data-and-charts/key-facts-figures-adult-social-care  There is no collective body representing workers and union membership is low: 15% in the private sector, in which most carers work, and 41% in the public sector.  ²⁹ https://www.resolutionfoundation.org/app/uploads/2023/01/Who-cares.pdf  Finding representative bodies that have the capacity, expertise and infrastructure to coordinate across multiple – and potentially conflicting – employers and workers will not be easy.  

Even if representatives can be found, employers will have limited incentives to ratify an agreement, potentially leading to prolonged negotiations and disputes (something New Zealand officials feared would happen). Low pay in adult social care is partly due to local authorities’ inability to substantially raise the fees they pay providers: without a corresponding increase in local government budgets, it will be hard to get employers to agree to better pay and conditions.

And even if these barriers are overcome and a deal is struck between employers and workers, there are big questions around how to effectively monitor compliance across so many providers and enforce any breaches. The current labour market enforcement system is fragmented and ineffective, with underpayment of wages in social care widespread.  ³⁰ https://www.nuffieldtrust.org.uk/sites/default/files/2024-07/Nuffield%20Trust%20and%20Health%20Fdn%20-%20Care%20worker%20pay_WEB.pdf   

The government plans to counter this by establishing the Fair Work Agency, a single enforcement body to uphold workers’ rights. This is a positive step; however, creating it simultaneously with the FPA, through the passing of the Employment Rights Bill raises questions about whether it will be ready to enforce such a radically new system straight away.  

For legislation, New Zealand offers a good starting point

In New Zealand, the final legislation was detailed and comprehensive, spanning a total of 285 sections and four schedules. Key design choices for the UK to learn from include:

• Providing funding to each bargaining side to help with FPA costs. The New Zealand government awarded up to $50,000 NZD (£23,000), though this likely covered only a fraction of the expenses. Ensuring both sides are properly resourced to act as sector-wide representatives will be crucial.
   
• Allowing unions to negotiate FPA terms for non-union members. This, and granting unions access to workplaces to address employees on relevant issues, was key in New Zealand – and will be in the UK too, given low unionisation rates across the sector.
   
• Establishing a credible threat to incentivise employers to find a collective voice. New Zealand’s Employment Relations Authority (ERA), a tribunal, was given powers to step in to set FPA terms if no representation could be found for employers, or if agreements failed after two ratification attempts. This acted as a real incentive for employers to participate in bargaining. A similar credible threat will be needed in the UK. 
   
• Ensuring the FPA system as a whole has some ‘teeth’. Each FPA in New Zealand became secondary legislation, making breaches legal violations. Employees could enforce their rights through standard dispute resolution mechanisms (like mediation) and the New Zealand Labour Inspectorate was empowered to enforce specific FPA terms. Given the time it will take the UK government to get the Fair Work Agency up and running, similar dispute and enforcement mechanisms could be developed as part of the FPA framework, with plans to transition them to the new body over time.

Alternative models to FPAs may deliver quicker results  

If the Labour government wants to deliver results more quickly, it should seriously question whether FPAs (and bargaining processes in more general) are the right tool for the job. It may be easier – and more effective – to bypass the bargaining process altogether and look at other models for boosting pay and conditions. Certainly New Zealand’s legislative approach had downsides.

The potential for ERA intervention was, for example, a crucial design feature but also undermined the purpose of the FPA system – achieving better pay and conditions through sector-wide collective bargaining. The Ministry of Business, Innovation and Employment (MBIE) itself concluded that FPAs were “constrained by Government decisions” and were “likely to result in bargaining stalemates” necessitating ERA intervention – diminishing the practical benefits of bargaining.  ³¹ https://www.mbie.govt.nz/dmsdocument/15512-fair-pay-agreements-regulatory-impact-statement-pdf

To avoid this, the UK government could pursue alternative models that deliver results more quickly – and importantly lay the groundwork for a future FPA by fostering the collective voices needed on both the employer and worker sides to make the system workable. Three options – each a variant on the same theme – could be to:

• Set a Sector-specific minimum wage: setting this above the nationwide National Living Wage (NLW) and developing it in consultation with employers and unions would immediately make the sector more attractive to workers. 
   
• Establish a social care Pay Review Body (PRB): this could provide evidence-based advice and recommendations to the government on pay, similar to the NHS PRB.  
   
• Look at Australia’s Awards System: an independent body, the Fair Work Commission, sets minimum rates of pay and other terms (such as overtime) for the sector based on submissions from unions and employer industry bodies.  ³² There are currently over 120 Modern Awards in Australia covering a range of industries and occupations – these must be strictly complied with and cannot be displaced, except in very limited circumstances.

These alternative models reflect the preferred approach of New Zealand officials. They would be less complex, reduce the potential for bargaining stalemates and not require extensive coordination from employers or unions.  

Better pay and conditions for social care workers is urgently needed. New Zealand’s Fair Pay Agreement legislation offers valuable lessons, but alternative models could enable the government to achieve results more quickly and effectively.