Labour pledge to close loophole allowing migrants to work for lower wages

Ed Miliband has promised, if elected, that a Labour government would close a loophole for British businesses, which currently allows them to use cheap labour from abroad. Ed Miliband claims that this loophole exploits cheap foreign labour, whilst making life harder for Britons who are facing a cost of living crisis.

The EU Agency Workers Directive

The EU Agency Workers Directive was introduced granting rights for equal pay and conditions for agency staff across Europe. However, under a loophole known as the ‘Swedish derogation’, negotiated by Sweden (who as a country rely heavily on agency staff), companies anywhere in the EU have been able to employ agency workers at cheaper rates if they are permanently employed by the umbrella agency. The loophole has allowed major firms in the food, packaging and call-centre sectors to employ workers, often from abroad, on lower rates.

The rationale behind closing the “Swedish derogation”

This seems to be as a result of  general fear surrounding the arrival of migrant workers from Romania and Bulgaria since the labour restrictions were lifted on the 1st of January 2014. The leader of the Labour party writing in The Independent on Sunday said he wanted to deal with the ‘understandable’ public fears over the potential influx of Bulgarian and Romanian migrants.

The “Swedish derogation” allows businesses to avoid paying agency workers the same rates as directly-employed staff. This loophole is being used in sectors where levels of employment from abroad is high, and now accounts for as many as one in six of those employed by agencies.

Ed Miliband states that new arrivals working for lower wages cause some UK nationals to ‘lose out.’ He argues that by paying agency staff up to £135 a week less than permanent staff, despite them working in the same job, undercuts British workers.

In Mr Miliband”s view, life is more difficult for British workers to obtain and keep permanent jobs, due to the fact that a large number of agency workers, who are willing to work for lower rates, are migrants.

The aim that Mr Miliband is trying to achieve, by proposing to close the loophole, is to put all workers on an even footing. In his view, it will mean that foreign workers can no longer be exploited for cheap labour, since all workers, foreign or British, will be earning the same hourly rate.

Criticism of Ed Miliband”s proposal

Ed Miliband”s proposals to close down this exception have been criticised by business leaders such as James Sproule, Chief Economist at the Institute of Directors, who has said that restricting flexibility in the job market would boost unemployment and would be detrimental to small businesses. Arguably because employers would simply hire fewer workers on higher wages, leaving more people jobless and small businesses short staffed, making them less productive.

Katya Hall from the Confederation of British Industry also states that a flexible labour market has kept unemployment down as well as kept our economy going and is concerned about the government closing the loophole on equal pay for agency staff.


The point that has not really been made during this debate is that whilst migrants make up a high number of agency workers, they do not make up the entire workforce of agency workers. A high number of agency workers are also British nationals.

The criticism of this proposal is that it will drive up unemployment generally, rather than helping British citizens into employment. Small businesses will not be able to employ more people on higher salaries, so it is not likely that more jobs will become available. Ultimately, many migrants have skills to offer and are willing to undertake jobs that traditionally British workers do not want to fill.  At the end of the day, surely it is preferable for the UK economy for our businesses to continue to run and run profitably, rather than the alternative?

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