Coalition agreement document: what the policies mean for employers

The official document setting out the terms of the deal between the Conservatives and the Liberal Democrats in the new coalition government has been published. There are a number of agreements on employment and HR matters.

Economic recovery

  • £6bn worth of cuts to non-frontline services within 2010-11, subject to advice from the Treasury and the Bank of England, although widely expected to go ahead.

  • Acceleration of plans to cut £163bn Budget deficit.

  • Emergency Budget to be held within 50 days of the final coalition agreement.

  • Banks will face a new levy and clamp down on “unacceptable” bonuses. An independent commission will be established to decide how to break banks up.


Jobs/welfare reform

  • End all existing welfare reform programmes and create a single welfare-to-work programme (details still to be outlined).

  • Unemployed people claiming benefits to be referred to the welfare-to-work programme immediately, not after six months, as is currently the case. Those under 25 to be referred within six months.

  • Realign contracts with welfare-to-work providers to improve results in getting people back to work.


  • The Tory plan to scrap the national insurance rise for the lowest-paid workers, dubbed “Labour’s tax on jobs”, will be watered down. Employers will not have to pay the extra contributions, but the increase for employees looks likely to go ahead. Employees will instead benefit from the income tax changes, the coalition government said.

  • The income tax threshold will be raised in the long-term to £10,000, giving workers an extra £700 a year.

  • Child tax credits for higher earners to be reduced.

Default retirement age (DRA)

  • Scrapping the DRA through phasing out the regulation.

  • A review to set a date for raising the state pension age to 66, but this rise will not happen before 2016 for men and 2020 for women.

  • Public sector pensions

  • An independent commission will be set up to review the long-term affordability of public sector pensions, while protecting accrued rights. The Tories originally proposed a cap on the biggest public sector pensions over £50,000.

Changes on the horizon

Other employment-specific policies which the Tories and Lib Dems may introduce – although they are not outlined in the coalition agreement – include:

Equality Act and flexible working

  • David Cameron could look to remove the positive action in recruitment and mandatory pay audit clauses from the Equality Act, due to come into effect this October.

  • Highly likely that the right to request flexible working will be extended as the Tories want to see it cover all parents with children under 18 while the Lib Dems want all staff to have the right.

  • Likely that parents will be allowed to share parental leave between them in a way which suits them and possibly be allowed to take time off simultaneously.

Agency Workers’ Regulations

  • Prior to the election David Cameron warned he wanted to repeal the regulations, which give temporary staff the same rights as permanent employees after just 12 weeks in a job. In reality it would be difficult for Cameron to amend the regulations too much as they derive from EU legislation. However, employers would welcome clarification on the definition of ‘pay’ which should be provided to the agency worker when comparing them to a permanent employee.

Public sector pay

  • A one-year pay freeze in 2011 (not for the lowest-paid workers).

  • Public bodies to publish online the job titles of every member of staff and the salaries and expenses of senior officials.

  • The Lib Dems initially proposed a £400 pay rise cap for public sector workers, for two years.


  • In the Tory manifesto there are plans to create 400,000 work pairing, apprenticeship, college and training places over two years, and a Community Learning Fund to help older workers develop new skills.

Employment law

  • One in, one out principle for employment law. Reduce the burden of red tape by assessing the cost effectiveness of regulations before implementation.

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