Diagnosing the challenge: labour market insecurity and political constraints

The incoming Starmer government inherited a complex and fragile labour market, shaped by post-pandemic disruptions and persistent structural weaknesses. While headline indicators suggest modest improvement, the overall picture remains uneven. Between October and December 2025, the UK employment rate for people aged sixteen to sixty-four was estimated at 75.0 per cent, slightly down on the quarter but higher than the same period a year earlier. The unemployment rate rose to 5.2 per cent, and the economic inactivity rate remained at 2.8 per cent, largely unchanged in the quarter but lower than in 2024 (ONS, 2026).

The recent fall in inactivity has been attributed to a decline in the number of people aged thirty-five to sixty-four reporting caring responsibilities, as well as reductions among students and unpaid carers. Earlier increases in inactivity, particularly during the early pandemic period, were concentrated among those aged sixteen to twenty-four. In subsequent years, older groups, especially those aged fifty to sixty-four, became the primary contributors to the trend. Long-term sickness, especially linked to mental ill-health, remains a significant driver of economic inactivity, particularly in disadvantaged regions and among those with lower qualifications (Rocks and Atwell, Reference Rocks and Atwell2025).

Figure 1 illustrates labour market shifts between January 2018 and January 2025, showing a decline in overall employment, a modest fall in unemployment, and a substantial increase in economic inactivity. Although there are signs of improvement, the underlying labour market challenges remain significant and continue to shape the government’s policy space.

Figure 1. Employment, unemployment, and inactivity before and after the first COVID lockdown.

Source: Institute for Employment Studies (2025), based on Labour Force Survey data. Dotted line indicates first COVID-19 lockdown.

Young people have been increasingly marginalised in employment and social security policies in the decades leading up to 2024, and their precarious position was compounded during the pandemic period leading to a sharp rise in the number of young people Not in Education, Employment or Training (NEET), increasing by around 50 per cent to nearly one million sixteen- to twenty-four-year-olds (ONS, 2026). Unlike in the post-2008 period, where youth unemployment rose but inactivity stayed level, current increases are primarily driven by long-term ill-health. Over half of this growth is health-related, with mental health cited most frequently.

Insecure work further compounds these problems, and young people are disproportionately affected: 46 per cent of sixteen- to nineteen-year-olds and 27.9 per cent of twenty- to twenty-four-year-olds are in insecure employment, with 34.6 per cent and 12.7 per cent of those groups, respectively, also low paid (Richardson, Reference Richardson2023). Young people are nearly six times more likely to be on zero-hour contracts (Martin et al., Reference Martin, Williams, Atay and Florisson2024), and face significantly lower lifetime earnings than earlier cohorts, regardless of education level (Dabla-Norris et al., Reference Dabla-Norris, Pizzinelli and Rappaport2019). Research shows that minority ethnic young people are disproportionately affected by the overlapping dimensions of precarity (Arday, Reference Arday2022).

Although both the Conservative governments since 2010 and the current Starmer-led Labour government have framed economic inactivity as a fiscal challenge, the issue has a longer policy lineage. Under New Labour, reducing economic inactivity was a central objective of welfare reform. More recently, some policymakers have argued that the challenge lies less in rising ill health than in flaws in system design. For example, the Chair of the House of Lords Economic Affairs Committee has suggested that individuals face stronger financial incentives to claim health-related rather than unemployment-related benefits (House of Lords Economic Affairs Committee, 2025). This logic underpins continued reliance on work incentives in the benefits system, a thread that runs back to New Labour’s ‘no rights without responsibilities’ framing and behavioural discourses from the late 1990s onwards (Crisp, et al., Reference Crisp, Macmillan, Robinson and Wells2009; Alderwick, Reference Alderwick2012: 12). As we will show, the Starmer government attempts to address inactivity with policy tools that reflect such activation paradigms, albeit with a softer tone.

Internationally this emphasis on individual incentives and system design shapes responses to economic inactivity – even as centre-left governments pivot rhetorically toward structural solutions like ‘good jobs’ and regional investment. Post-COVID, centre-left governments in liberal market economies – including Albanese in Australia, Starmer in the UK, and former US President Biden (2021–2025) – have converged around a shared rhetorical commitment to ‘good jobs’ and targeted investment in left-behind places. This marked a turn toward recalibration without rupture: addressing the symptoms of inequality through labour market reform and place-based investment, while leaving core structures of economic power largely intact.

In Australia, this shift has been framed as thin labourism (Manwaring and Foley, Reference Manwaring and Foley2025): a pragmatic centre-left strategy built around infrastructure investment, activation services, and selective improvements in job quality, while avoiding deeper redistribution. The Starmer’s government appears to be following a similar path, blending softened enforcement in employment services with modest regulatory interventions and wage floor increases – consistent with the UK’s voluntarist industrial relations tradition.

In addition, both the UK and Australia have conducted parliamentary reviews of their benefit compliance regimes. While both have softened the tone, emphasising personalised support over punitive enforcement, conditionality remains a defining feature of employment support. New strategies like Australia’s Working Future (Treasury, 2023) and the UK’s Get Britain Working (DWP, 2024) illustrate this recalibration: activation persists, but within a more supportive and localised framework.

Labour’s 2024 platform: commitments and silences

Over the fourteen years in opposition prior to the 2024 general election, the Labour Party underwent three leadership changes offering various proposals on employment and social security. Under Jeremy Corbyn, elected as leader in 2015, the Labour Party shifted from the centre ground to the left. Reiterating Labour Party manifestos of the 1970s, the party committed to tackling in-work poverty, low pay, and raising the adequacy of social security ‘by shifting the balance of power back towards workers [to] achieve decent wages, security and dignity at work’ (Labour Party, 2019: 60).

Corbyn’s manifesto included commitments to worker ownership, e.g. establishing a Ministry for Employment Rights, supporting greater collective bargaining and repealing the Trade Union Act of 2016. Labour also sought to appeal to younger voters by proposing relatively bold policy reforms, including the introduction of a Real Living Wage, a rate based on actual living costs, and the abolition of age-based minimum wage bands. This would significantly increase pay for under-18s, effectively doubling the minimum wage for that group.

However, Labour’s significant defeat in the 2019 general election prompted a leadership transition, with Keir Starmer elected as Corbyn’s successor in 2020. By 2024 the Labour Party manifesto advocated for ‘mission-driven government’ that no longer contained the bold labour market reforms outlined five years earlier. Rebalancing power between workers and employers was no longer central; instead, Keir Starmer’s Labour manifesto offered a ‘pro-business, pro-worker’ approach based on ‘five national missions’ and ‘first centring economic growth’ and ‘tough spending rules’, as well as responding to popular election issues such as supporting the National Health Service (Labour Party, 2024a: 9). There was no mention of employment and social security in these missions, although the manifesto outlined a need for new industrial strategies, local growth plans, and proposed a renewed focus on employment support including combining the public employment service Jobcentre Plus and the National Careers Service (in England). Notably, it adopted a discourse centring ‘hard-working families’, a need to ‘move people into work’ to address poverty, plus a Youth Guarantee (including mandatory work experience and conditionality). These ideas strongly echoed some of New Labour’s policies from the late 1990s:

The 2024 manifesto was arguably light on substantial employment and social security reforms expected of a Labour Party with strong trade union ties. Some policy ideas continued from pre-2020, including tweaks to the minimum wage age bands and the need to enforce employment rights (although this time through a less powerful single enforcement agency known as a Fair Work Agency rather than the more comprehensive and weighty policies proposed under Corbyn). However, substantial labour market reforms and a commitment to rebalance the relationship between workers and employers went missing. Instead, Labour committed to introducing legislation within 100 days to implement Labour’s Plan to Make Work Pay: Delivering a New Deal for Working People, a document that outlined a plethora of policy ideas under a commitment to ‘Securonomics’ (Labour Party, 2024b: 5), including: banning zero-hours contracts (i.e., contracts with no guaranteed minimum working time and thus regular pay expectation); developing a Fair Work Standard; ending fire and rehire practices; and introducing basic employment rights from day one (for parental leave, sick pay, and protection from unfair dismissal). These legislative proposals offered the potential for a Labour government to address some aspects of inequality and precarity affecting the UK’s labour market.

However, early hopes among left-leaning think tanks, commentators, and sections of the public for a more ambitious Labour policy agenda were tempered when Rachel Reeves, Labour’s incoming Chancellor of the Exchequer, highlighted a projected £22 billion gap in the public finances (Crerar et al., Reference Crerar, Elliott and Walker2024) and reaffirmed the party’s commitment to ‘balancing the books’ and maintaining ‘fiscal stability’ (Labour Party, 2024c). Some policy ideas, such as abolishing Universal Credit (the UK’s main means-tested benefit for working-age people, introduced in 2013) and expanding welfare entitlements, which Keir Starmer had championed between 2020 and 2023 as priorities for a future Labour government, were notably absent from the party’s later campaign messaging. Their deprioritisation signalled continuity in key aspects of social security policy, particularly in relation to low benefit levels and strict conditionality.

Early actions: labour in power

The Employment Rights Act 2025, institutional reforms, and enforcement

With expectations set for continuity in social security and employment policy, we turn to Labour’s first actions in power on employment rights, where Labour moved quickly to engage in policy reform. Meeting their manifesto promise to ‘Make Work Pay’, Labour published the Employment Rights Bill within the first 100 days of office, setting out Labour’s approach to:

The Employment Rights Act passed in December 2025, with legislative changes to be introduced over 2026 and 2027. Reflecting long-standing concerns by trade unions and anti-poverty organisations, the Act attempts to tackle issues relating to poor work and to support those in insecure and low paid work (Budak et al., Reference Budak, Fitzmaurice and Florrison2024), the majority of whom are women (Stephenson, Reference Stephenson2024) and groups such as young people and migrants. Budak et al. (Reference Budak, Fitzmaurice and Florrison2024) equate ‘poor jobs’ to severely insecure work characterised by unpredictable hours, pay, and low wages, with few rights and protections. Conversely ‘good’ jobs’ are equated to those with guaranteed contractual hours from day one, secure, flexible working arrangements, and reasonable notice of work schedules. Strengthening statutory sick pay is also highlighted by Budak et al. (Reference Budak, Fitzmaurice and Florrison2024) as a defining characteristic of a ‘good job’. Wider dimensions, including work-life balance; the intrinsic characteristics of work; health, wellbeing, and safety; and representation and voice are also fundamental elements of job quality (Warhurst et al., Reference Warhurst, Knox and Wright2025).

In respect to individual rights, the measures claim to target insecure work through addressing ‘one-sided flexibility’. The Employment Rights Act sets out a ban on ‘fire and rehire’ practices, requires employers to offer guaranteed hours to workers on zero-hours and minimum-hours contracts that reflect their usual working patterns, and compensates for shifts cancelled at short notice. The Act extends Statutory Sick Pay, making it payable from the first day of illness and removing the lower earnings limit. Yet, the scale of this reform should not be overstated: even under these changes, a full-time worker would receive only 13 per cent of their earnings during a two-week absence, up from 9 per cent (Rocks and Atwell, Reference Rocks and Atwell2025). These proposals represent a partial recalibration of UK labour market governance, moving beyond a reliance on voluntary frameworks and employer goodwill, signalling a shift toward greater statutory protection. This policy direction responds to broader concerns raised by the Trades Union Congress (TUC), which has warned that the UK is falling behind other Organisation for Economic Co-operation and Development (OECD) countries in protecting workers’ rights and enforcing minimum employment standards (TUC, 2024).

In terms of collective rights, Labour’s ‘Make Work Pay’ proposals set out plans to ‘empow[er] workers to organise collectively through trade unions’ (DBT, 2024: 14), including repealing both of the previous Conservative government’s restrictive anti-strike laws. This focus on collectivism contrasts with New Labour’s White Paper Fairness at Work that stated there ‘was no going back’ on the 1980s anti-strike legislation (Bogg and Ford, Reference Bogg and Ford2024). Enforcement of these new employment laws will be brought under the remit of the new Fair Work Agency, which is proposed to consolidate existing regulatory bodies. This new agency is likely to receive a degree of cross-party support, as it was considered under the previous Conservative government.

Labour has also committed to establishing sectoral negotiating bodies in adult social care and among school support staff, moves broadly welcomed as potential levers for improving pay and conditions in low-wage, insecure sectors heavily staffed by (female) migrant workers. However, legal scholars have expressed concern that these institutions fall short of a systemic extension of collective bargaining rights (Ewing and Hendy, Reference Ewing and Hendy2024). In short, while the reforms mark a notable shift, they remain partial and largely consistent with the UK’s voluntarist industrial relations framework.

Applying our conceptual matrix, the verdict on employment rights is that policy addressing employment precarity has been touched, but much still depends on interpretation and enforcement, there is yet to be a detailed picture of how the proposals will be effectively enacted. In addition, the enduring presence of the voluntarist industrial relations framework also appears to constrain the Act’s potential impact. Much also remains open to interpretation, not only through statutory instruments but also through non-binding guidance and codes of practice. As a result, there is a significant risk that the Bill’s ambitions could be progressively diluted, particularly through amendments that narrow its reach. Taken together, these proposals suggest a cautious orientation toward reform, with significant limitations in addressing the foundational causes of labour market insecurity.

Youth employment

Labour’s flagship programme for young people, the Youth Guarantee, commits to providing every eighteen- to twenty-one-year-old in England with access to an apprenticeship, training or education opportunities, or help to find a job (DWP 2024: Chapter 4). Here we see an effort to make reforms, albeit in line with the existing activation approaches from previous governments. Furthermore, with limited resources, the Youth Guarantee does not involve any new policy approaches or additional investment and instead is based on joining-up policy and provision across government (e.g. through connecting Young Futures Hubs and DWP Youth Hubs). Eight place-based Youth Trailblazers in England will receive £45 million to target NEET young people in their areas and match them with job or training opportunities. Their location within Mayoral Combined Authorities reflects the government’s focus on locally led responses within a disjointed landscape of initiatives, and in doing so does offer some change from previous rounds of activation programmes that were nationally procured across contract package areas.

Governance and devolution

While international examples of centre-left governments offer valuable insights, the devolved nations of the UK provide equally important, nuanced lessons in more social democratically orientated policymaking. Employment is a cross-jurisdictional policy area in the UK with education, skills, and aspects of employment being devolved competencies in Scotland, Wales, and Northern Ireland. Social security, however, presents a more complex picture. While it is formally fully devolved in Northern Ireland, longstanding adherence to the parity principle means that Northern Ireland usually mirrors Westminster’s decisions to ensure fiscal sustainability. In Scotland, social security is partially devolved, with the Scottish Government holding responsibility for certain disability and income-related benefits administered through Social Security Scotland. In contrast, social security remains reserved to Westminster in Wales, although the Welsh Government has developed a growing role in delivering anti-poverty and discretionary support schemes (Chaney, Reference Chaney2025; Joseph Rowntree Foundation, 2025).

As of April 2025, there are twelve metro mayors across England, eleven from Labour, and one Conservative, each with varying degrees of control over employment support. The English Devolution White Paper (DLUHC, 2024) expanded powers for some mayors in this area but did not extend this to social security functions. In contrast, the devolved governments have sought to distinguish their approaches to employment and welfare, even while acknowledging administrative and fiscal constraints that limit the scope of divergence (Simpson, Reference Simpson2022; Scottish Government, 2023; Bennett and Wiggan, Reference Bennett and Wiggan2025).

The Get Britain Working agenda includes UK-wide reforms, but key elements such as the Youth Guarantee and the integration of the National Careers Service into Jobcentre Plus largely apply only in England. Scotland and Wales already operate integrated employment support systems, via Skills Development Scotland and Careers Wales, coordinated with Jobcentre Plus through formal and informal referral protocols (Pearce and Narayan, Reference Pearce and Narayan2025). No Welsh or Scottish local authorities are included in the Youth Trailblazers, highlighting the limits of policy transfer in devolved settings. However, three Welsh councils – Blaenau Gwent, Denbighshire, and Neath Port Talbot – are part of the economic inactivity trailblazer pilots, signalling some inclusion in broader UK employment experiments.

When it comes to disability benefit reform, territorial continuity is evident. Universal Credit remains a centralised, reserved benefit, and the proposed changes to the Work Capability Assessment in the Pathways to Work Green Paper apply across the UK, including Scotland and Wales. However, variations do exist; for example, the Scottish Adult Disability Payment to support people with a disability or long-term health condition that affects everyday life highlights how devolved governments can shape outcomes and lived experiences despite policy constraints (Patrick et al., Reference Patrick, Bennett, Hudson and Simpson2025).

Meanwhile, aspirations for a more balanced constitutional arrangement remain unrealised. The Council for the Nations and Regions, which will involve the Prime Minister, the First Ministers of the three devolved administrations, and the mayors of England’s combined authorities, has been called ‘[far from the] powerful, legally mandated [institution envisioned by a Commission on the UK’s constitutional future]’ (Campbell, Reference Campbell2024: 1). Labour’s reforms suggest a growing interest in place-based governance, but these remain shaped by enduring national frameworks, centralised funding, and intergovernmental asymmetries, making the UK’s welfare landscape complex, multi-layered, and politically contested.