James Plunkett

James Plunkett

James Plunkett is Director of Policy at Resolution Foundation.

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It’s often hard to anticipate shifts in policy direction, even when they’re at close range. Like the steady build-up before a mudslide, arguments accumulate slowly but can then move suddenly, leaving the political landscape changed. Today, there are signs that such a shift may be due on the issue of low pay. With one in five workers now earning below the Living Wage and low pay costing the Treasury over £2bn a year, commentators on left and right are starting to argue for a more assertive approach. The Tories would be wise to spot these signs early and act, making the Conservative case for a stronger and smarter version of the minimum wage.

This might sound like a hopeful suggestion. But a Conservative argument against low pay would not be unprecedented. Few politicians have advocated for a Living Wage more eloquently than Churchill, whose work to develop Wages Councils was followed in the 1950s by Rab Butler’s Workers’ Charter and even, in the 1970s, Thatcher’s little known speeches to the Conservative Trade Unionists. Today the party accepts that it strayed too far from the interests of low paid people in opposing the minimum wage in the late 1990s. David Cameron and George Osborne themselves changed position to support the policy. More interestingly, leading thinkers like Matthew Hancock have now begun to argue that a Conservative government should go further, acting to “strengthen” the minimum wage. Hancock’s may be a lonely voice. But his views reflect a wider argument, resonant on the right, that it is time to rebalance the responsibilities of employers and the state. It helps to explain why support for the Living Wage—ten years ago a leftie concern—now reaches such unusual suspects as Boris Johnson, Margaret Thatcher’s former head of policy and the Telegraph.

If these changing sentiments suggest a new politics of low pay, one reason they haven’t yet translated into policy is a lack of concrete ideas. The minimum wage crystallised low pay debates in the late 1990s, forcing politicians to back or oppose government action. Today the Living Wage campaign does the opposite, delegating the problem to civil society. Now, though, this situation may be changing. After 15 years of careful consolidation following the 1998 National Minimum Wage Act, the minimum wage is again getting on the front foot. As reported in today’s Guardian, Professor Sir George Bain, the chair of the first Low Pay Commission that helped create the minimum wage, is to come out of retirement to lead a major review of where the policy should go next. He argues that now is the time to “reflect on whether the design of the minimum wage is right for the next 15 years”. The review will take politicians at their word, fleshing out the key elements of a stronger approach.

Today a new report from the Resolution Foundation, which will host the review, sets out the case for new thinking. It confirms the clear academic consensus that the minimum wage did not cost jobs—in the words of the Financial Times, on this one “the jury is back in”. We also now understand why this is the case. Labour markets are less competitive than was thought and employers have also been smarter than the minimum wage’s opponents anticipated. Evidence shows that firms didn’t impulsively fire people when the minimum wage went up. Instead, they adapted. They reformed pay policies to narrow gaps between staff, tweaked pricing strategies and accepted lower profits. In low-paying sectors they even raised productivity by using their workforce better. The minimum wage reshaped behaviour in positive ways.

Yet for all its success, today’s new report also reflects on the limitations of the minimum wage as it works today. In doing so, it opens up a debate that is less about the level of the minimum wage and more about its design. A single, national wage-floor will always be an ill-fitting garment, pinching hard in some parts of the economy even while other sectors could pay more. Is there a case for varying the rate by sector like other countries do, pushing up pay where employers could afford it? We also now know that the impact of the minimum wage was surprisingly narrow, helping the very lowest paid but doing little for those on £7 or £8 an hour. Are there ways to share the benefits more broadly, for example by adding increments—a ‘NMW Plus’—for workers in London or for those with skills or experience? Finally, the real value of the minimum wage has now fallen for four years in a row and there is little clarity about whether or when it will be restored. Should the government be clearer about where it wants the minimum wage to go in future, and then pursue reforms that could allow the LPC to recommend a higher rate? Today’s report suggests it’s time for these debates.

Of course the Conservative answer to all these questions might be no. But the new politics of low pay makes them harder to ignore. Just one in seven people (14 per cent) now think the Tory party best represents low-paid private sector workers, compared to nearly half (44 per cent) for Labour. By limiting the party’s coalition of support, such figures help to explain why a 2015 majority still feels so elusive. In better times, of course, the ticket to such votes might have been a populist tax cut. That’s not so easy now. In straitened times there aren’t many policies with widespread support, that put money in people’s pockets and that save, rather than cost, the state money. For that reason alone, expect Labour to act when the time comes, cementing support among the low paid with new policy ideas as they did in 1997. This time around the Tories might be wise to get there first.

 


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