Starmer’s legacy law will keep wrecking the economy after he’s gone

This article was first published in The Telegraph.

The Government has looked at the £1bn equal pay claim which has bankrupted Birmingham city council and the hundreds of millions of pounds worth of claims wreaking havoc in the retail sector and decided it would like to make the situation worse.

In a parting blow to the British people and our economy, Sir Keir Starmer has decided that the Government will allow people to bring mass equal pay claims on grounds of race and disability, similar to the sex-based discrimination claims which have been running for many years.

This will be based on the principle of so-called “equal value”, under which a judge can determine that jobs drawing from different labour pools – and therefore attracting different salaries – are nevertheless equivalent and should be paid the same. It will be one of the most economically and socially damaging expansions of the equality act since its introduction.

First, it entrenches an economic and legal absurdity whereby judges are appointed to decide the value of different jobs, rather than the employers responsible for running the business. The equal pay claim against Next is a particularly absurd example of this. Next was accused of discriminating against its majority-female shop staff because it paid its majority-male warehouse staff higher wages.

Despite the fact that neither workforce was overwhelmingly segregated by sex, that Next offered additional perks to shop staff like clothing allowances, and that the retailer provided clear evidence that it had to recruit from different labour markets for very different jobs, the courts still ruled the roles equivalent and therefore of equal value.

Claimants argued that there was a “taint” of sexism in the fact that women were more likely to work in retail than men. The case is ongoing, but Next could be on the hook for as much as a £30m payout. It is ridiculous that judges have now become arbiters of economic reality and are now in the business of setting wages.

Second, this will turbocharge the toxic, litigious culture which has taken over British workplaces. Researchers from the campaign group Don’t Divide Us found that between 2017 and 2024, discrimination claims tripled on the basis of race, despite the actual success rate (about 5 per cent) remaining unchanged in the same period.

The equality act has had a chilling effect on many workplaces, turning ordinary interactions between staff members of different races, sexes or religions, into potential grounds for discrimination claims. Instead of advancing cohesion and collaboration, it has created the opposite. As recent research published by Prosperity Institute says, the equality act has made Britain less equal and less free. Expanding the remit of pay claims even further will only make this worse.

Third, this will have far-reaching consequences for hiring patterns and business operations, especially in diverse workforces. The equal pay claims in the retail sector provide a huge incentive for companies to split their logistics operations away from their shops and to use agencies and outsourcing instead of integrating everyone into the same company. This will increase costs and frictions within the operation of the business, but if those costs are lower than the threat of damaging equal pay claims, then they will be necessary to shoulder.

By expanding equal pay claims to matters of race and disability discrimination, the Government risks creating yet another disincentive for businesses to expand their workforces, encouraging greater reliance on agency staff and contractors who are not employees, and fostering greater risk aversion around hiring.

This is the sad reality of imposing new legal and financial risks upon employers. Everyone will probably find it harder to secure employment following these changes, including the ethnic minorities and disabled people the Government claims to be helping.

This Government’s labour market policies have been some of the most economically damaging decisions taken by a British government in years. They have increased the costs of hiring staff, eroded the necessary reality of price signals, pursued aggressive wage compression and disincentivised high earners via unrealistically high minimum wages and higher taxes. Ministers have also refused to reform a welfare state which now offers many a far better livelihood on benefits than they could find in work.

By adding new avenues for race and disability-based equal pay claims to an already hostile environment for employers, the Government is sending another signal that Britain is closed for business. The only beneficiaries will be lawyers and claims funders, as legal costs as a proportion of GDP have doubled since 2014 and are on course to exceed those of the United States.

The Equality Act 2010 has made Britain less equal, less free, and less prosperous. Unless it is repealed or radically reformed, the British labour market will be suffocated by litigation, and the whole country will be worse off for it.