Q4 2024 Labour Market Outlook: Insights from Resolution Foundation

This report delves into the issue of extending Statutory Sick Pay (SSP) to lower earners and determining the replacement rate for newly eligible workers. Strengthening the UK’s SSP system is crucial, but it’s also important to consider how to balance income protection with the risk of absenteeism. Setting a replacement rate below 100% can help mitigate this risk, especially since the removal of ‘waiting days’ allows workers to access SSP from the first day off sick.

However, it’s essential to prioritize protecting the incomes of those newly eligible for SSP, who are largely low-income individuals. Nearly a third of these workers are living in poverty, compared to just one in ten of other employees. Therefore, we suggest a replacement rate of 80% for these workers, aligning with previous government consultations and the Coronavirus Job Retention Scheme.

The report also highlights differences between Labour Force Survey estimates in Great Britain and Northern Ireland, discusses wage growth for graduates versus minimum wage earners, and examines the government’s industrial strategy in targeting areas needing a pay increase.

The introduction of the Employment Rights Bill in October 2024 marks a significant step towards reforming employment rights with the ‘Plan to Make Work Pay’. The government is currently consulting on various policy decisions, including strengthening the SSP system. The UK’s current system falls short compared to other OECD countries, with many gaps in coverage and inadequate rates.

Expanding SSP eligibility to workers earning less than £123 per week is a crucial step. The government plans to base SSP on earnings but is consulting on the replacement rate. Setting an earnings replacement rate of 80% for newly eligible workers is recommended to strike a balance between income support and mitigating absenteeism risks.

The choice of earnings replacement rate is crucial, especially for workers who will now have access to sick pay coverage. Most countries set mandatory sickness payments below normal earnings or include waiting days to prevent misuse. With waiting days set to be removed in the UK, the replacement rate will play a key role in balancing sickness insurance and absenteeism risks.

While some countries provide full earnings replacement from the first day of sickness, setting a replacement rate below 100% is more common. Considerations of cost to employers are also important, but should be addressed separately from the decision on the replacement rate.

In conclusion, reforming the UK’s SSP system is a necessary step towards providing adequate support to sick workers and ensuring a fair balance between income protection and absenteeism risks. A replacement rate of 80% for newly eligible workers is a sensible approach based on consultations and international practices.