Could banning zero-hour contracts be Labour’s downfall?

Despite the painted smiles as Labour and the trade unions declared an outbreak of peace in a joint statement last night, tensions remain between the two sides.

In public, the unions declared victory after their three-hour meeting with Keir Starmer and shadow ministers confirmed Labour’s commitment to what Starmer has called the biggest “levelling-up of workers’ rights” for a generation. “We stood firm, stood together, and those in the leader’s office who wanted to water it down retreated,” one union official told me.

Privately, however, some union figures fear the Labour leader will bow to pressure from business to dilute the package, which is championed by his deputy Angela Rayner. It originally included protection against unfair dismissal from day one of employment; a ban on zero-hours contracts and “fire and rehire”; fair pay agreements; higher sick pay; better maternity rights; and a “right to switch off” when not at work.

Labour is now committed to “full and comprehensive” consultation with business; probationary periods and seasonal work, while workers who want the flexibility of zero-hours contracts could opt-in to them. Company restructuring would be allowed when it was the only way to save jobs.

Labour insists the changes are in line with the agreement struck during the party’s policymaking process last July. Last week, the unions cried “betrayal” over an election campaign document summarising the plans, which will now be reworked.

The cause of the tension is that Labour is rightly moving to a “preparing for government” phase. There’s a big difference between a wish list of workers’ rights approved by the Labour Party conference and implementing complex reforms in government. It won’t be the only pledge made in opposition to collide with reality.

All shadow cabinet ministers have submitted plans for Labour’s “first 100 days” in power. The unions had hoped the reforms would be implemented during that period, but that was never going to happen. Now, draft legislation would be published while the government consults business and the civil service fleshes out the details.

Unions fear further dilution during that process. Their power to influence the final package is at its strongest now; Starmer wants them onside for the election to avoid damaging rows. (Despite Tory attacks on “Labour’s union paymasters”, it’s not about Starmer rustling up donations, because rich individual donors, who deserted the party under Jeremy Corbyn’s leadership, have returned.)

The unions want to nail down the detail when another meeting with Labour is held in three weeks. They are right to be suspicious. One senior Labour figure predicted: “A lot of stuff will be delayed after the election, when it will be simpler politically and decisions will be more informed.” To which union officials reply that such an act of bad faith would hardly help Starmer achieve his goal of restoring trust in politics. Fair point: better to reach an agreement for the Labour manifesto and then stick to it.

The Tories will play “the union card” against Labour. They need all the ammunition they can get – but might be firing blanks. The 1978-79 “winter of discontent” still gets the Tories’ juices flowing, but doesn’t mean much to people not born then. Kemi Badenoch, the business secretary, writes in today’s Daily Mail that Labour’s “French-style employment laws” would “add red tape on to small business and allow unions to cripple larger ones” by lowering the bar for strikes. (A bit rich after all the recent strikes in the public sector.)

Voters can see that Starmer and Rachel Reeves have forged a strong partnership with business. They really mean it; with government spending constrained, Labour would need more private investment to secure economic growth.

Although we live in an age of precarious work, business leaders (and the Tories) warn that extending workers’ rights would cost jobs. They would say that, wouldn’t they? They issued similar blood-curdling warnings before the Blair government introduced the national minimum wage – the Tories claimed 2 million jobs would be lost – but it didn’t happen. Labour’s new deal for working people enjoys public support, including among Tory voters, according to Savanta. It is popular in the red wall. Labour needs to give its traditional supporters a reason to turn out, and stop the drift to the Greens among progressive voters evident at the local elections.

Implemented sensibly like the minimum wage, Labour’s package would be good for the economy – crucially, by boosting pay to lever the UK out of its low-wage, low-skill, low-growth trap. Wages have stagnated since the 2008 financial crisis, costing the average worker £14,000, and the average wage will not return to pre-2008 levels until 2026. When Labour sought a second term, it would need voters to answer “Yes” to the “Are you better off since 2024?” question.

So further diluting the new deal could undermine Labour’s economic strategy. Starmer’s desire to reassure business should not mean giving it a veto over the blueprint. He should not throw out the baby with the bathwater.