Growth is projected to hold steady, but amid weakening prospects and rising threats, the world needs a shift in policy gears
Blog Post by Pierre-Olivier Gourinchas | Let’s start with the good news: it looks like the global battle against inflation has largely been won, even if price pressures persist in some countries. After peaking at 9.4 percent year-on-year in the third quarter of 2022, we now project headline inflation will fall to 3.5 percent by the end of next year, slightly below the average during the two decades before the pandemic. In most countries, inflation is now hovering close to central bank targets, paving the way for monetary easing across major central banks.

The global economy remained unusually resilient throughout the disinflationary process. Growth is projected to hold steady at 3.2 percent in 2024 and 2025, but some low-income and developing economies have seen sizable downside growth revisions, often tied to intensifying conflicts.

In advanced economies, growth in the United States is strong, at 2.8 percent this year, but will revert toward its potential in 2025. For advanced European economies, a modest growth rebound is expected next year, with output approaching potential. The growth outlook is very stable in emerging markets and developing economies, around 4.2 percent this year and next, with continued robust performance from emerging Asia.

The decline in inflation without a global recession is a major achievement. As Chapter 2 of our report argues, the surge and subsequent decline in inflation reflects a unique combination of shocks: broad supply disruptions coupled with strong demand pressures in the wake of the pandemic, followed by sharp spikes in commodity prices caused by the war in Ukraine.
These shocks led to an upward shift and a steepening of the relationship between activity and inflation, the Phillips curve. As supply disruptions eased and tight monetary policy started to constrain demand, normalization in labor markets allowed inflation to decline rapidly without a major slowdown in activity.
Clearly, much of the disinflation can be attributed to the unwinding of the shocks themselves, together with improvements in labor supply, often linked to increased immigration. But monetary policy played a decisive role by keeping inflation expectations anchored, avoiding deleterious wage-price spirals, and a repeat of the disastrous inflation experience of the 1970s.
Despite the good news on inflation, downside risks are increasing and now dominate the outlook. An escalation in regional conflicts, especially in the Middle East, could pose serious risks for commodity markets. Shifts toward undesirable trade and industrial policies can significantly lower output relative to our baseline forecast. Monetary policy could remain too tight for too long, and global financial conditions could tighten abruptly.
The return of inflation near central bank targets paves the way for a policy triple pivot. This would provide much-needed macroeconomic breathing room, at a time where risks and challenges remain elevated.
The first pivot—on monetary policy—is under way already. Since June, major central banks in advanced economies have started to cut policy rates, moving toward a neutral stance. This will support activity at a time when many advanced economies’ labor markets are showing signs of cooling, with rising unemployment rates. So far, however, the rise in unemployment has been gradual and does not point to an imminent slowdown.

Lower interest rates in major economies will ease the pressure on emerging market economies, with their currencies strengthening against the US dollar and financial conditions improving. This will help reduce imported inflation, allowing these countries to pursue their own disinflation path more easily.
However, vigilance remains key. Inflation in services remains too elevated, almost double pre-pandemic levels. A few emerging market economies are facing a resurgence of inflationary pressures and have started to raise policy rates again.
Furthermore, we have now entered a world dominated by supply disruptions—from climate, health, and geopolitical tensions. It is always harder for monetary policy to contain inflation when faced with such shocks, which simultaneously increase prices and reduce output.
Finally, while inflation expectations remained well-anchored this time, it may be harder next time, as workers and firms will be more vigilant about protecting pay and profits.
The second pivot is on fiscal policy. Fiscal space is a cornerstone of macroeconomic and financial stability. After years of loose fiscal policy in many countries, it is now time to stabilize debt dynamics and rebuild much-needed fiscal buffers.
While the decline in policy rates provides some fiscal relief by lowering funding costs, this will not be sufficient, especially as long-term real interest rates remain far above pre-pandemic levels. In many countries, primary balances (the difference between fiscal revenues and public spending net of debt service) need to improve.
For some, including the United States and China, current fiscal plans do not stabilize debt dynamics. In many others, while early fiscal plans showed promise after the pandemic and cost-of-living crises, there are increasing signs of slippage.
The path is narrow: delaying consolidation increases the risk of disorderly market-imposed adjustments, while an excessively abrupt turn toward fiscal tightening could be self-defeating and hurt economic activity.

Success requires implementing a sustained and credible multi-year adjustments without delay, where consolidation is necessary. The more credible and disciplined the fiscal adjustment, the more monetary policy can play a supporting role by easing policy rates while keeping inflation in check. But the willingness or ability to deliver disciplined and credible fiscal adjustments have been lacking.
The third pivot—and the hardest—is toward growth-enhancing reforms. Much more needs to be done to improve growth prospects and lift productivity, as this is the only way we can address the many challenges we face: rebuilding fiscal buffers; coping with aging and shrinking populations in many parts of the world; tackling the climate transition; increasing resilience, and improving the lives of the most vulnerable, within and across countries.
Unfortunately, growth prospects for five years from now remain lackluster, at 3.1 percent, the lowest in decades. While much of this reflects China’s weaker outlook, medium-term prospects in other regions, including Latin America and the European Union, have also deteriorated.
Faced with increased external competition and structural weaknesses in manufacturing and productivity, many countries are implementing industrial and trade policy measures to protect domestic workers and industries. But external imbalances often reflect macroeconomic forces: a weakening domestic demand in China, or excessive demand in the United States. Addressing these will require setting the macro dials appropriately.
Moreover, while industrial and trade policy measures can sometimes boost investment and activity in the short run—especially when relying on debt-financed subsidies—they often lead to retaliation and fail to deliver sustained improvements in standards of living. They should be avoided when not carefully addressing well-identified market failures or narrowly defined national security concerns.
Economic growth must come instead from ambitious domestic reforms that boost technology and innovation, improve competition and resource allocation, further economic integration and stimulate productive private investment.
Yet while reforms are as urgent as ever, they often face significant social resistance. How can policymakers win the support they need for reforms to succeed?
As Chapter 3 of our report shows, information strategies can help but can only go so far. Building trust between government and citizens—a two-way process throughout the policy design—and the inclusion of proper compensation to offset potential harms, are essential features.
Building trust is an important lesson that should also resonate when thinking about ways to further improve international cooperation and bolster our multilateral efforts to address common challenges, in the year that we celebrate the 80th anniversary of the Bretton Woods institutions.
—This blog is based on the October 2024 World Economic Outlook. For more, see blog posts on the report’s analytical chapters: Global Inflationary Episode Offers Lessons for Monetary Policy and Support for Economic Reforms Hinges on Communication, Engagement, and Trust.

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Tokenisation has the potential to offer benefits to the financial system, such as increased efficiency and transparency, but it may also have financial stability implications.
This report is focused on a subset of tokenisation initiatives – tokenisation based on distributed ledger technology (DLT) as the underlying technology platform – assessed to be the most relevant for financial stability based on recent market developments. In particular, the report focuses on the tokenisation of financial assets, such as tokenised money that may potentially be used as a settlement asset for payments and other financial assets. It does not examine tokenisation initiatives involving central bank digital currencies (CBDCs) or crypto-assets.
The report analyses recent developments in DLT-based tokenisation, including the potential uses of tokenised assets and their interaction with the traditional financial system.
The limited publicly available data on tokenisation suggest that its adoption is very low but appears to be growing. Owing to its small scale, tokenisation does not, therefore, currently pose a material risk to financial stability. Nevertheless, the report identifies several financial stability vulnerabilities associated with DLT-based tokenisation, which relate to liquidity and maturity mismatch; leverage; asset price and quality; interconnectedness; and operational fragilities. Tokenisation could have implications for financial stability if the tokenised part of the financial system scales up significantly, if increased complexity and opacity of tokenisation projects lead to unpredictable outcomes in times of stress, and if identified vulnerabilities are not adequately addressed through oversight, regulation, supervision, and enforcement.
The report reviews the financial stability implications of these identified vulnerabilities and sets out considerations for the FSB and relevant standard-setting bodies.
 
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Washington, D.C. – October 21, 2024: The Principality of Liechtenstein became a member of the IMF today when Prime Minister Daniel Risch signed the Fund’s Articles of Agreement during a ceremony in Washington D.C.
Liechtenstein applied for IMF membership in May 2023 (See Press Release 23/190). Subsequently, an IMF team visited Vaduz during November 27-December 8, 2023 (See Press Release 23/430). The principality’s decision to join the IMF was confirmed by a majority in a national referendum conducted on September 22, 2024. The initial quota[1] for Liechtenstein is SDR 100 million (about US$134.7 million).
After the signing ceremony, IMF Managing Director Kristalina Georgieva met with Prime Minister Daniel Risch at IMF headquarters and issued the following statement:
“I am delighted to welcome Liechtenstein as the 191st member of our global IMF community. This membership signifies Liechtenstein’s commitment to upholding the highest standards of economic policy and cooperation on the international stage. The IMF will work closely with the authorities to support Liechtenstein’s efforts toward sustainable growth and further integration into the global economy.”
“Liechtenstein is joining the IMF at a time when our members and the global economy are navigating greater uncertainty and long-term challenges such as economic fragmentation and climate change. This accession reaffirms the important role entrusted to the IMF in fostering global economic cooperation and stability. Together, we will build a more inclusive and sustainable economic future for all members.”
Prime Minister Daniel Risch added: “The Government is very pleased that Liechtenstein was able to join the IMF as the 191st member, this Monday, October 21. As a small country with limited administrative resources, we reflect carefully before joining international organizations, evaluating not only the consequences and benefits of what the organization can bring us – but also what we can bring to the organization ourselves. Liechtenstein will be a committed and dedicated member of the Fund. We’re looking forward to engaging constructively to advance international economic resilience and stability.”
[1] A member’s quota in the IMF determines its capital subscription, voting power, access to IMF financing, and allocation of SDRs.
 
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Program will drive U.S. leadership in semiconductors as well as provide the critical technology and skilled workforce needed for U.S. semiconductor packaging
Today, the Biden-Harris Administration issued a Notice of Funding Opportunity (NOFO) funded by the CHIPS and Science Act to enable the United States semiconductor industry to adopt innovative new advanced packaging flows for semiconductor technologies. This investment comes as part of the President’s overarching Investing in America agenda, which is increasing American competitiveness and boosting manufacturing in industries of the future.
Semiconductor packaging allows multiple components to be brought together as a single electronic device. Advanced packaging brings those components together in novel ways that improves performance of chips while reducing cost and power consumption. CHIPS for America anticipates making available up to approximately $1.6 billion for funding multiple awards across five research and development (R&D) areas, with the potential for follow-on funding for prototyping activities. This funding opportunity furthers the National Advanced Packaging Manufacturing Program’s (NAPMP) mission to establish a vibrant, self-sustaining, and profitable, domestic advanced packaging industry in the United States.
“Securing domestic packaging capabilities is a key part of our mission to expand domestic semiconductor manufacturing. The Biden-Harris Administration’s investments in the NAPMP, including the advanced packaging piloting facility, expected to be announced later this year, will bring innovative and new technologies directly to American manufacturers and consumers – helping achieve the economic and national security goals of the CHIPS and Science Act,” said Secretary of Commerce Gina Raimondo.
Investing in R&D has never been more important to drive advances in semiconductor technology and establish leading-edge domestic capacity for semiconductor advanced packaging. Emerging artificial intelligence (AI)-driven applications are pushing the boundaries of current technologies like high performance computing and low power electronics, requiring leap-ahead advances in microelectronics capabilities, especially advanced packaging. Solving technical challenges in advanced packaging will help U.S. manufacturers compete globally.
“This ambitious funding opportunity is designed to fill key technology gaps in advanced packaging to ensure U.S. leadership in the global semiconductor ecosystem,” said Under Secretary of Commerce for Standards and Technology and National Institute of Standards and Technology (NIST) Director Laurie E. Locascio. “CHIPS for America is delivering on its mission to create a domestic packaging industry where advanced node chips manufactured in the U.S. and abroad can be packaged within the United States.”
“Under President Biden and Vice President Harris’ leadership, we have moved out to bring leading-edge semiconductor manufacturing back to the United States,” said Assistant to the President for Science and Technology and Director of the White House Office of Science and Technology Policy Arati Prabhakar. “CHIPS R&D is the next step to create fresh opportunities for semiconductor manufacturing and jobs here at home. Investments like this one in innovative advanced packaging R&D will help American companies create the transformative pathways that we need to win the future.”
This funding opportunity spans five R&D areas to address key challenges and technology gaps in advanced packaging detailed in the NAPMP Vision Paper:

Equipment, Tools, Processes, and Process Integration
Power Delivery and Thermal Management
Connector Technology, Including Photonics and Radio Frequency (RF)
Chiplets Ecosystem
Co-design/Electronic Design Automation (EDA)

This multilayered approach targets R&D efforts that are complementary to one another, and will ultimately translate into results that can be integrated collectively and seamlessly into existing advanced packaging manufacturing processes for semiconductors. Expected outcomes from R&D efforts include new prototypes and innovative advanced packaging flows suitable for adoption by the U.S. semiconductor industry.
CHIPS for America anticipates making available up to approximately $1.6 billion in funding across multiple awards of varying size and scope. Anticipated amounts will vary by R&D area and range from approximately $10 million to approximately $150 million in Federal funds per award, with awards being made over a five-year period of performance. Additionally, CHIPS for America anticipates reserving up to $50 million to support awardees’ future prototyping activities, to be conducted at the anticipated National Semiconductor Technology Center (NSTC) Prototyping and NAPMP Advanced Packaging Piloting Facility.
 
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Five international organisations today released a landmark report that outlines pathways for co-ordinated approaches on climate action, carbon pricing, and the cross-border effects of climate change mitigation policies with a view to achieving global climate goals.
The report was presented on 23 October by the Joint Task Force on Climate Action, Carbon Pricing, and Policy Spillovers, convened by the World Trade Organization and joined by the International Monetary Fund, the Organisation for Economic Co-operation and Development, United Nations Trade and Development (UNCTAD), and the World Bank.
Entitled Working Together for Better Climate Action: Carbon Pricing, Policy Spillovers, and Global Climate Goals, the report arrives at a time when countries around the world are scaling up actions to curb climate change. Mitigation policies are on the rise, including carbon pricing policies, with 75 carbon taxes and emission trading schemes currently in effect worldwide, covering approximately 24 per cent of global emissions.
The report stresses that climate action needs to be stepped up to meet global emission reduction targets, while contributing to broader development goals. It also makes four important contributions to that end:

The report provides a common understanding of carbon pricing metrics to improve transparency on how countries are shifting incentives for decarbonisation.

The report examines the composition of climate change mitigation policies, emphasising the important role of carbon pricing as a cost-effective instrument that also raises revenues.

It outlines how international organisations can support the co-ordination of policies to foster positive and limit negative cross-border spillovers from climate change mitigation policies. The report also analyses the advantages and disadvantages of carbon border adjustment policies, including their impact on developing countries.

It shows how such co-ordination can help to scale up climate action by closing the transparency, implementation and ambition gaps.

The report also makes clear that international organisations’ future work can help fill important knowledge gaps. These include a need for more granular and better data on embedded carbon prices and embedded emissions, the design of border adjustment policies and their interoperability, and other approaches to enhance co-operation to increase ambition and ensure a just transition for all.
OECD Secretary-General Mathias Cormann said: “Countries currently take different approaches to reduce emissions, but achieving net zero requires us to align these efforts for a truly global impact. The OECD’s Inclusive Forum on Carbon Mitigation Approaches, now with 59 members, is bringing together national perspectives and building a common understanding of climate policies and their effects. More coherent and better-co-ordinated global mitigation policies can help prevent negative cross-border impacts such as carbon leakage or trade distortions, while maximising opportunities for innovation, cost savings and shared benefits from the climate transition.”
WTO Director-General Ngozi Okonjo-Iweala said: “Trade-related climate policies are on the rise, with over 5 500 measures linked to climate objectives notified to the WTO from 2009-22. Such policies lead to cross-border spillovers which can increase trade tensions and retaliatory trade actions. Future work by international organisations should focus on concrete ways to come to the co-ordination of more ambitious carbon pricing policies which help to close the climate action gap and address their cross-border spillovers. This may require a framework to ensure interoperability between carbon pricing and other climate mitigation policies.”
IMF Managing Director Kristalina Georgieva said: “This joint report of the five institutions highlights why carbon pricing and equivalent policies are important to scale up climate action. Global emissions need to be cut urgently to put the world on track to achieve the Paris goals and global ambition needs to be doubled to quadrupled. Carbon pricing should be an integral part of a well-designed policy mix, complemented with public investment support and sectoral policies, and international co-ordination on mitigation action could unlock progress.”
UNCTAD Secretary-General Rebeca Grynspan stated: “To ensure a just and green transition, UNCTAD encourages and supports developing countries in crafting the right policy mix to advance climate mitigation. We are strengthening our research and providing a safe space for dialogue to ensure that climate-related measures, including Border Carbon Adjustments mechanisms (BCAs) are evidence based and minimize negative spillovers on developing countries and other sustainable development goals. This is especially critical for less advanced economies, which often have limited productive capacity, infrastructure for monitoring, verification, reporting, and fiscal space. We are committed to helping developing countries decarbonise and diversify their economies by seizing environmental-related export opportunities and working with our member states to reduce the compliance and trade costs associated with these transitions.”
Axel van Trotsenburg, World Bank’s Senior Managing Director (SMD), said: “Through its technical assistance and financing, the World Bank helps countries make sure climate policies are tailored to each country’s context, capacities, political constraints, and development priorities. We think carbon pricing can play a central role in these policies, because it provides the right incentive for the private sector and creates public revenues to support broad development progress and help vulnerable populations manage the green energy transition. But with every country introducing their own climate policies, there is also a growing need for more co-operation and co-ordination. The product of in-depth exchanges across five international organisations, this report provides concrete ideas to make sure climate policies are designed in ways that benefit lower-income economies and help them accelerate their development, create jobs, and participate in global value chains.”
The report is available here.
 
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Non-Technical Summary
One of the most dramatic trends in financial markets over the last decade has been the rise of sustainable investing. Many prominent institutions, such as the European Central Bank, now publicly support sustainable investing. It is often argued that sustainable investing can incentivize firms to act more sustainably by decreasing the cost of capital firms have to pay for their green investments.
Despite the prominence of this idea, it is unclear whether sustainable investing influences firm behavior through a cost of capital channel. So far, it has been difficult to estimate firms’ cost of capital reliably using financial market data, leading to conflicting results and uncertainty about the impact of sustainable investing. Moreover, even if sustainable investing influences the cost of capital in financial markets, this influence may not be incorporated into firms’ perceptions of their cost of capital, eliminating potential real effects of sustainable investing through the cost of capital channel.
We directly study how firms’ perceptions of their cost of capital have responded to the rise of sustainable investing. We use data from corporate conference calls (meetings between firm managers, financial analysts, and investors). Our measures of firms’ perceived cost of capital directly capture an input into firms’ investment decisions and allow us to produce relatively precise estimates of how the cost of capital differs between green and brown firms.
Our main finding is that the perceived cost of capital has dropped substantially for green firms since the rise of sustainable investing. Up until 2016, the perceived cost of capital of green firms was close to that of brown firms. But as sustainable investing surged after 2016, the perceived cost of capital of green firms fell substantially relative to that of brown firms. On average, the perceived cost of capital of green firms is 1 percentage point lower than that of brown firms between 2016 and 2023.
We also find that some of the largest energy and utility firms have started applying a lower perceived cost of capital and discount rate to their greener divisions, such as renewable energy divisions, after 2016. Finally, firms facing a higher spread between the cost of green and brown capital in their sector have pledged to reduce emissions by more, consistent with changes in the cost of capital affecting real outcomes. Together, the results are consistent with the view that sustainable investing is associated with reductions in the perceived cost of green capital and with capital reallocation toward green investments.
Read the working paper here.
 
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The Commission has adopted today the first implementing rules on cybersecurity of critical entities and networks under the Directive on measures for high common level of cybersecurity across the Union (NIS2 Directive). This implementing act details cybersecurity risk management measures as well as the cases in which an incident should be considered significant and companies providing digital infrastructures and services should report it to national authorities. This is another major step in boosting the cyber resilience of Europe’s critical digital infrastructure.
The implementing regulation adopted today will apply to specific categories of companies providing digital services, such as cloud computing service providers, data centre service providers, online marketplaces, online search engines and social networking platforms, to name a few. For each category of service providers, the implementing act also specifies when an incident is considered significant.*
Today’s adoption of the implementing regulation coincides with the deadline for Member States to transpose the NIS2 Directive into national law. As of tomorrow, 18 October 2024, all Member States must apply the measures necessary to comply with the NIS2 cybersecurity rules, including supervisory and enforcement measures.
Next Steps
The implementing regulation will be published in the Official Journal in due course and enter into force 20 days thereafter.
Background
The first EU-wide law on cybersecurity, the NIS Directive, came into force in 2016 and helped to achieve a common level of security of network and information systems across the EU. As part of its key policy objective to make Europe fit for the digital age, the Commission proposed the revision of the NIS Directive in December 2020. After entering in force in January 2023, Member States had to transpose the NIS2 Directive into national law by 17 October 2024.
The NIS2 Directive aims to ensure a high level of cybersecurity across the Union. It covers entities operating in sectors that are critical for the economy and society, including providers of public electronic communications services, ICT service management, digital services, wastewater and waste management, space, health, energy, transport, manufacturing of critical products, postal and courier services and public administration.
The Directive strengthens security requirements imposed on the companies and addresses the security of supply chains and supplier relationships. It streamlines reporting obligations, introduces more stringent supervisory measures for national authorities, as well as stricter enforcement requirements, and aims at harmonising sanctions regimes across Member States. It will help increase information sharing and cooperation on cyber crisis management at a national and EU level.
For more information, please contact:

Thomas Regnier, Spokesperson

Roberta Verbanac, Press Officer

 
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Proposals around unfair dismissal and probationary periods not planned to come into force until autumn 2026

The government has today “unveiled” its Employment Rights Bill, as it looks to deliver “economic security and growth to businesses, workers and communities across the UK“.
Many of the proposed reforms have been heavily trailed in Labour’s Make Work Pay plan and in the media after the government’s election, but there has been increasing speculation as to what may or may not be included in this bill, the form the proposals will take and what measures will be immediate or subject to consultation and secondary regulations.
Indications are that some reforms are unlikely to have an impact in practice for some time, with the government expressly stating that the proposals around unfair dismissal and probationary periods will not come into force until autumn 2026.
The bill was presented before Parliament on 10 October and is stated to bring forward 28 individual employment reforms which cover a broad range of employment reforms.
 
Family-friendly rights
The bill makes a number of changes to support working families with caring responsibilities; while these are descried as “immediate” changes, this is qualified by the statement that the government feels “it is important to take account of a range of views, and… will develop the detail of the approach in consultation and partnership with business, trade union and third sector bodies“.
Flexible working
As expected, amendments are proposed to the existing statutory right to request flexible working. Despite it being stated that flexible working will become “the default for all“, there does not appear to be a substantial shift from the current statutory right: an employer remains able to refuse a request on commensurate statutory grounds but these are now subject to a statutory reasonableness requirement and an employer must explain to an employee in writing why any request is refused and why the refusal is reasonable.
Bereavement leave
The bill amends existing statutory provisions to provide that employees will be entitled to “protected time off work” of one week on a bereavement. Entitlement will be by reference to the employee’s relationship with the person who has died. Detail will be provided for in regulations. This sits alongside the existing right to statutory parental bereavement leave.
Paternity and parental leave
Paternity and parental leave to become day one rights.
Protections for those who are pregnant and new mothers
The government is proposing to provide stronger protections against dismissing those who are pregnant, on maternity leave and within six months of returning to work.
 
Fair pay
National minimum wage
The government is progressing plans for all adults to be entitled to the same minimum wage by removing discriminatory age bands. The national minimum wage is set to increase to take account of the cost of living.
Statutory sick pay
The bill also removes the lower earnings limit for statutory sick pay and cuts out the waiting period before statutory sick pay kicks in.
 
Ending ‘one-sided flexibility’
Zero-hours and low hours contracts
The bill seeks to address “exploitative” zero-hours contracts, while recognising that some individuals will wish to retain the right to remain on these arrangements where that is their preference.
It sets out detail on these proposals, including that workers on zero-hours contracts and workers with a “low” number of guaranteed hours, who regularly work more than these hours, will have the ability to move to guaranteed hours contracts which reflect the hours they regularly work over a 12-week reference period and ensure that workers get reasonable notice of any change in shifts or working time, with proportionate compensation for any shifts cancelled or curtailed at short notice. It is stated that these measures will also be adapted and applied to agency workers.
The government has stated that it will consult on these measures, including how review periods should work, what constitutes “low hours” and how they will apply to agency workers. Its intention is that workers on full-time contracts who occasionally pick up overtime hours are not affected and that where work is genuinely temporary, there will be no expectation on employers to offer permanent contracts. Those who are offered guaranteed hours will also be able to remain on zero-hours contracts if they wish.
Fire and rehire
The bill includes new statutory obligations around the use of “fire and rehire” to introduce a contractual variation.
A dismissal will be automatically unfair unless it falls within a very limited exception permitting this practice where the reason for the variation is to “eliminate, prevent or significantly reduce or significantly mitigate the effect of, any financial difficulties” which threaten the employer’s ability “to carry on the business as a going concern or otherwise to carry on the activities constituting the business” and it was reasonable in the circumstances. The employer must also adhere to a prescribed consultation process.
Unfair dismissal
The bill will remove the two year qualifying period for protection from unfair dismissal so that all workers have a right to this protection “from day one on the job“.
Probationary periods
The bill will allow employers to operate probationary periods by providing an initial period during which there will be “a lighter-touch and less onerous approach for employers to follow to dismiss an employee who is not right for the job“.
The government will consult on the length of that initial statutory probation period; its preference is nine months: “We will also engage further during the passage of the Bill on how we can ensure the probation period has meaningful safeguards to provide stability and security for business and workers”.
As a starting point, the government is inclined to suggest it should consist of holding a meeting with the employee to explain the concerns about their performance (at which the employee could choose to be accompanied by a trade union representative or a colleague). The government will consult extensively, including on how it interacts with Acas’ Code of Practice on Disciplinary and Grievance procedures. It also intends to consult on what a compensation regime for successful claims during the probation period will be, with consideration given to tribunals not being able to award the full compensatory damages currently available.
Existing day one rights that provide protection for employees from unfair dismissal will not be affected by the statutory probation period.
The government has committed to a full consultation on the detail of the proposals. Before the measures come into force there will be a substantial period – once the detailed rules in secondary regulations are confirmed – to allow employers to prepare and adapt: “To provide sufficient time for this, we are making clear now that the reforms to unfair dismissal will not come into effect any sooner than Autumn 2026, and until then the current qualifying period will continue to apply”.
The government hopes that this will give “more people confidence to re-enter the job market or change careers” and which in turn should improve their living standards. While detail is not included in the government’s press release, it has been reported that the proposed probationary period will be nine months following pressure from businesses to lengthen the six months sought by trade unions.
Collective redundancy consultation
As foreshadowed in Make Work Pay, the bill removes the “one establishment” requirement from collective redundancy consultation obligations meaning that 20 or more proposed redundancies within 90 days across a whole business will trigger the collective consultation requirements.
 
Equality at work
Harassment
While reforms around harassment law were not set out in the government’s press release, the bill does seek to take forward, reforms around protection from harassment in Make Work Pay.
It provides that the new duty on employers to take reasonable steps to prevent sexual harassment will be amended to provide for an employer to have to take “all” reasonable steps.
It also introduces liability for third party harassment extending to all the protected characteristics currently covered by harassment (age, disability, gender reassignment, race, religion or belief, sex, and sexual orientation) in the course of employment, unless an employer has taken all reasonable steps to prevent the third party from harassing them.
Regulations may also be introduced specifying what may be “reasonable steps” for these purposes including, among others, carrying out assessments of a specified description; publishing plans or policies of a specified description; steps relating to the reporting of sexual harassment; steps relating to the handling of complaints.
The bill also amends the existing statutory provisions on whistleblowing to explicitly include sexual harassment as a relevant failure in relation to disclosures qualifying for protection.
Equality action plans
The bill provides for regulations to introduce a requirement for large employers to produce equality action plans on how to address their gender pay gap and supporting employees through the menopause.
 
Enforcing rights at work
The government will establish the Fair Work Agency which will bring together existing enforcement functions, including minimum wage and statutory sick pay enforcement; the employment tribunal penalty scheme; labour exploitation and modern slavery; as well as introducing the enforcement of holiday pay policy.
 
Voice at work
The bill reflects a number of the proposals on trade union rights and industrial action set out in Make Work Pay and a number of which will be subject to consultation. The government is looking to simplify the union recognition process, bringing in a new right of access – with a transparent framework and clear rules designed in consultation with unions and business – for union officials to meet, represent, recruit and organise members. Proposals also include a requirement for section 1 statements to include a statement regarding union rights.
The government has already committed to repealing ineffective anti-union legislation, including the Strikes (Minimum Service Levels) Act
The above highlights some of the main provisions; the bill also contains a number of other specific measures, including measures around public-sector outsourcing and addressing sector-wide collective bargaining relating to school and adult social care workers.
The government’s ‘Next Steps’ document
Alongside the bill, the government has published a Next Steps document outlining reforms “it will look to implement in the future“. Subject to consultation, the specific proposals referred to include:

a Right to Switch Off, preventing employees from being contacted out of hours, except in exceptional circumstances.
ending pay discrimination by expanding the Equality (Race and Disparity) Bill to make it mandatory for large employers to report their ethnicity and disability pay gap.
a move towards a single status of worker and transition towards a simpler two-part framework for employment status.
reviews into the parental leave and carers leave systems “to ensure they are delivering for employers, workers and their loved ones“.

What does this mean for employers?
While the headline announcements in today’s press release do not contain any real surprises for businesses, the bill itself is detailed and encompasses many of the proposals set out by Labour in Make Work Pay.
Notably, the government has indicated that it will be consulting on a large number of the proposals with trade unions, employers and other interested parties and many of the proposed reforms will ultimately be implemented through secondary regulations. While there is no firm time-frame, we can expect the government to push forward with consultations on a number of proposals. It has also stated that it expects to begin consulting on these reforms in 2025 and anticipates therefore that “the majority of reforms will take effect no earlier than 2026” with reforms of unfair dismissal taking effect “no sooner than Autumn 2026“. There are also indications that a number of the proposals will be supported by codes of practice and government guidance.
The government’s intention is that the bill will “help drive growth in the economy and support more people into secure work” providing “flexibility for workers and businesses alike“. While the extension of workers’ rights in relation to family leave, pay, working conditions and protection from dismissal is likely to result in a shift in employment practices from employers; it remains to be seen whether in practice the government will achieve these aims.
The additional day one rights provided for by the bill will be additional costs for employers which could be substantial, particularly for those employers engaging lower paid workers. As employers seek to manage these changes, they will need to reassess staffing levels to reconcile the wage costsfor their businesses and adapt their existing policies and procedures to reflect these new rights – for example, the removal of the statutory sick pay waiting period may require careful management of short-term sickness absence through policies, line-management and return to work interviews to address any issues. In the short-term these changes may result in hiring freezes and workforce reorganisations before the measures come into force.
We may also see more cautious recruitment practices in light of the introduction of day one unfair dismissal rights (subject to a statutory probationary period); there is a risk that this could inadvertently drive practices of those who are not an obvious fit for their organisation which could work to the detriment of inclusivity, affecting those with protected characteristics.
Employers will also need to consider the potential repercussions where there is increased movement between competing employers within the same sectors, including how sensitive business information will protected. To address the risk of additional day one rights increasing job mobility, employers will need to consider what loyalty incentives can be provided to control attrition, for example, through share incentive arrangements or retention bonuses.
Much focus has been placed on the proposed changes to flexible working giving employees greater determination over their working arrangements, yet what is proposed appears to be existing rights in a different wrapper. For example, employees currently have a day one right to request a flexible working arrangement which can only be refused on specific statutory grounds and are already able within this right to request working arrangements such as compressed hours, part-time working, term-time working. The government’s emphasis appears to be premised on a flexible working arrangement being accepted unless it is not reasonably feasible – practically speaking this reflects the same grounds on which an employer is able to refuse a flexible working request under the current regime. While the announcement may raise awareness of the right to request flexible working, we do not anticipate this change making any substantial difference, subject to further detail being provided.
We are also expecting the Autumn Statement on 30 October 2024 to contain announcements of relevance to employers; for example, it has been reported that the prime minister may look to increase employer national insurance contributions, alongside other employment-related measures.
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Compliments of Osborne Clarke – a member of the EACCNY
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