Friday, 24 January 2014

Minimum Wage

So, as predicted the Coalition Government is planning a big increase in the minimum wage in a move that will be widely seen as cutting the ground from under the Labour Party - while reinforcing a key political message that work pays.

Now this comes as no surprise and the Guardian newspaper, for one, is well aware of the threat this poses to Labour - which means the 2015 general election campaign is now in full swing.

George Osborne backs above-inflation rise in national minimum wage

Chancellor tries to outflank Labour by suggesting hourly wage should go up from £6.31 to £7, thus returning to pre-crash level

By Nicholas Watt and Patrick Wintour

George Osborne is obscured by a microphone as he addresses a conference on EU reform in London this week. Photograph: Toby Melville/Reuters

George Osborne has launched an audacious attempt to outflank Ed Miliband on the cost of living by calling for an above-inflation rise in the national minimum wage to restore it to its value before the financial crash in 2008.

On the eve of a major speech on the economy by Miliband the chancellor threw his weight behind a proposal to increase the minimum wage to £7 an hour by 2015. It currently stands at £6.13.

The increase would take place over two stages, in October 2014 and October 2015, to allow Osborne to fight the next general election on the basis that the coalition would have increased the minimum wage well above the rate of inflation and restored the value it lost in the recession.

The TUC welcomed the move, but the CBI claimed that an "unaffordable" rise would cost jobs and said that wage increases must be linked to improved productivity.

Mark Littlewood, the director general of the Institute of Economic Affairs, said: "Increasing the minimum wage is a triumph of political aspiration over economic reality."

Vince Cable, the business secretary, welcomed the chancellor's decision to endorse his call in his speech to the Liberal Democrat conference last year for the minimum wage to regain its value.

But Lib Dem sources said the business secretary had been specifically forbidden to use the words "restore" and "real value" in his speech last September. "I'm delighted to have the chancellor's endorsement of the position I set out back in September," Cable told Sky News.

Osborne said the return of growth in the economy meant it was now safe to increase the minimum wage. He told the BBC on Thursday: "Because we are fixing the economy – because we are working through our plan – I believe Britain can afford an above-inflation increase in the minimum wage so we restore its real value for people and we make sure we have a recovery for all and that work always pays."

The move, which follows a lengthy debate in Tory circles led by the chancellor's allies Matt Hancock and Jo Johnson over the need for a major increase in the minimum wage, came in the government's submission to the Low Pay Commission.

The Treasury made an assessment – though not technically a recommendation – of the impact of increasing the minimum wage to £7 over two years by October 2015. The commission is due to make a recommendation next month.

The Treasury modelling indicated that the increase would lead to a decrease in corporate tax receipts, thereby indicating a fall in company profits.

But it said there would be no overall impact on the public finances because this would be offset by higher income tax receipts and lower income-related benefits.

The chancellor said he believed businesses would be able to absorb the increase. "Of course we have got to make the exact calculation about what the rate should be. That's for the Low Pay Commission, created by a Labour government, supported by this government, to make the independent decision on the number itself.

"But when I look at the British economy I see the British economy expanding, I see jobs being created, I see the prospect of future jobs being created as well.

"I think Britain can afford a higher minimum wage. We have worked hard to get to this point and we can start to enjoy the fruits of all that hard work."

Gavin Kelly, the chief executive of the Resolution Foundation, which highlights the fall in wages for low-income workers, welcomed the increase, but cautioned that the two-stage rise might be slower than expected.

"If all it means is an above-inflation rise in the minimum wage then it could be no more than £6.45 [up from £6.31] in October this year," Kelly said.

"But if the chancellor has really set a target for the Low Pay Commission of restoring the full value of the minimum wage from before the crisis then it really is £7 by October 2015. That would be a very significant increase. We are not clear where in the spectrum it would fall."

Osborne hopes his move will wrongfoot Miliband, who on Friday was to announce plans to ensure that at least two new banks can flourish in Britain with a minimum 12% market share by the end of the next parliament.

The chancellor will also lay to rest ghosts from the Tory past after the party opposed the introduction of the minimum wage by the last Labour government in 1999.

In a major speech designed to show how a break-up of the domination of the 'big five' banks will help Britain pay its way in the world, Miliband will claim: "We need a reckoning with our banking system, not for retribution, but for reform."

The Labour leader will also propose the creation of a central register of business creditworthiness to ensure new banks have access to the same information as the big banks.

As the Guardian disclosed on Thursday, Labour will refer the issue of greater banking competition to the Competition and Markets Authority (CMA), with action within one year if Labour is elected in 2015.

Frances O'Grady, the TUC general secretary, said: "We welcome George Osborne's acceptance of the TUC's case for an above-inflation rise in the minimum wage. But while this would help many, the chancellor should be more ambitious about achieving decent pay rises across the whole of the UK workforce.

"The government should work with unions and employers to increase the spread of the living wage, lift the cap on public sector pay and recognise that the wages of millions of workers across the economy have been falling in real terms and now need a decent increase."

John Cridland, the CBI director general, said: "Recommending the rate of the national minimum wage must be a matter for the Low Pay Commission, as the chancellor recognises.

"An unaffordable rise would end up costing jobs and hit smaller businesses in particular. Any increase in wages must reflect improved productivity."

But Chris Leslie, the shadow chief secretary to the Treasury, said: "George Osborne is flailing around under pressure but he has made no concrete announcement about the level of the minimum wage.

"Ed Miliband and Ed Balls said last year that we need above inflation rises in the minimum wage in order to catch up the lost value over the last few years.

"And both the Tories and Lib Dems voted against Labour's motion yesterday which called for action to make this happen.

"The Tories cannot hide from the fact that working people are on average £1,600 a year worse off since they came to office.

"We need action now to earn our way to higher living standards and tackle the cost of living crisis.

"That's why, as well as a higher minimum wage, Labour will make long-term reforms to our economy, freeze energy prices, expand free childcare, incentivise the living wage and build the homes Britain needs."

Art of the Possible (8 January 2014)

Here are two opinion pieces from the Times - the first, by the regular Times columnist Rachel Sylvester, talks up the likelihood of a big increase in the minimum wage (£6.31) while the second, by the former Labour adviser John McTernan, pours cold water on an even bigger jump to the levels of the so-called 'Living Wage' - £8.55 in London and £7.45 in the rest of the UK. 

My money is definitely on a a significant rise in the minimum wage - because not only does it make economic sense there's a general election in just over a year's time.

So that which has impossible up until now will suddenly become possible - desirable even.  

Minimum wage rise could be a Tory winner

By Rachel Sylvester

Cameron needs a surprise move to rebuild his party’s image. It may come with a boost for the low paid

Politics, like war, is the art of surprises. Ed Miliband confounded his critics last year with a startling announcement of an energy price freeze that scotched his reputation as a wimp. Nick Clegg astonished voters in the leaders’ television debates, prompting an extraordinary spike in the Liberal Democrats’ poll ratings.

David Cameron won the Tory leadership because he was a different kind of Conservative, who promised to jolt his party out of defeat. Whether he was hugging huskies or empathising with hoodies, supporting gay marriage or promoting greenery, the aim was to make voters think again about the Conservatives. Now, though, it is back to the same old tunes — immigration, welfare, crime, Europe and more money for pensioners even in the austerity age. Senior Conservatives are in despair as they see the hard-won changes in their reputation slipping away.

As Parliament returns this week after the Christmas break, the Prime Minister is being urged to find an eye-catching policy with “shock value” — what Andrew Cooper, his former director of strategy, calls a “10,000 volt initiative” — to reinvigorate the Conservative message. And the proposal winning support in an interestingly wide cross-section of the party is an above-inflation increase in the national minimum wage.

Certainly, this would have the necessary surprise factor: the Conservatives opposed the statutory minimum wage, introduced by Labour in 1999, on the ground that it would harm business and lead to job losses (threats that did not materialise.) Pledging a rise would also be a symbolic commitment to fairness for a party that has promised “we’re all in it together” — the minimum wage (currently £6.31 an hour for adults and £5.08 for 18 to-21-year-olds) has decreased by more than 10 per cent in real terms since the economic crash of 2008. “It’s a no-brainer,” says one senior Tory. “This counters the perception that the Conservatives are the party of the rich, supports the narrative of making work pay and rewarding those who do the right thing. It would also be a way of saving money from welfare.”

With the cost of living set to be a key theme of the general election, Tory ministers, backbenchers and advisers are agitating for Mr Cameron to seize the initiative on low pay, rather than playing catch up with Labour and the Liberal Democrats. Ed Miliband has already announced that he will seek to increase the rate if he wins power and introduce a year-long tax break for companies that pay the higher “living wage” (at which people are judged able to exist without additional support). The mood is also changing among business leaders. In his new year message, John Cridland, the Director-General of the CBI, said that the “prolonged squeeze” on workers’ wages must end as companies start to feel the benefit of a return to economic growth.

Boris Johnson, the Conservative London Mayor, has backed the introduction of the living wage in the capital. Now his brother Jo, head of the Downing Street policy unit, is examining ways to increase the national minimum rate. The Prime Minister’s advisers are considering the pros and cons of regional, or sectoral, rises, as well as a blanket increase. One idea being worked up by Policy Exchange, the think-tank with close links to the Cameroons, is a cut in employers’ national insurance so companies can afford to pay workers more.

Oliver Letwin, the Prime Minister’s Whitehall policy enforcer, is keen to include a high-profile pledge on the minimum wage in the Conservative manifesto to show that they are not just “posh boys who don’t know the price of milk”. The promise would be supported by Matthew Hancock, the Skills Minister, who last year overruled the independent Low Pay Commission, which sets the rate, and increased the amount paid to apprentices rather than freezing it. This is a totemic issue — as significant in voters’ minds as the NHS, according to Robert Halfon, the Tory MP for Harlow. Ryan Shorthouse, the director of the modernising Bright Blue think-tank, says: “The Tory Party needs something big and counter-cultural to show that it is on the side of ordinary people. A significant rise in the minimum wage is morally as well as politically the right thing to do.”

What is significant is that George Osborne, ever the political showman, is said to have been persuaded of the merits of a substantial increase. In fact, I am told that he almost included an announcement on the minimum wage in last year’s Autumn Statement, backing away only at the last minute when the Low Pay Commission warned him that it was not the Chancellor’s job to set rates.

He may return to the issue after the Commission publishes its recommendation for this year’s increase — or save a proposal for the manifesto. There is an economic, as well as a political, case for greater generosity. According to an analysis produced for the Prime Minister in No 10, a 50p an hour increase in the minimum wage would save the Government £1 billion a year, because people in work would be less dependent on benefits as well as paying more tax.

Iain Duncan Smith, the Work and Pensions Secretary, is convinced that wages for the lowest paid must rise to bring the welfare bill down. Now facing Treasury demands for an additional £12 billion of cuts, he wants to stop the axe falling only on the unemployed. Having introduced the living wage in his department, he thinks that businesses must now pull their weight and reduce the burden on taxpayers.

“Employers at the moment are being subsidised by the welfare budget because they are not paying people enough,” says a Department for Work and Pensions source. “Some of these companies have very high profits. It’s their responsibility to pay higher wages so people can stand on their own two feet.”

A powerful coalition is building in the Tory party for increasing the minimum wage. It will not be such a surprise if Mr Cameron decides to act.

It’s a nice idea but the Living Wage would destroy jobs
Many decent people support this campaign but they are misguided

By John McTernan

Keith Joseph was right. There are men and women who aren’t earning enough to live decently and bring up a family. It’s not their fault: the economic value of their labour just can’t justify higher wages. But, he argued, they are doing the right thing and government should help them. The Family Income Supplement, then Family Credit and finally Working Tax Credit were born — benefits which “made work pay”.

This was a considered opinion, not an emotional spasm like the campaign for a “Living Wage”. Joseph’s correct judgment — like Gordon Brown’s in turn — was that it is wrong to intervene in the market to artificially raise wages. Better to let wages settle and then top them up.

It’s “Living Wage Week” and Ed Miliband kicked it off yesterday with the idea of a short-term tax break for firms which pay £8.55 per hour in London or £7.45 in the rest of the UK.

The dirty secret at the heart of the Living Wage concept is that it is a classic Trotskyist “transitional demand”. It is not intended to reform capitalism but to expose its contradictions. The value of the demand is that it appears reasonable but can never be met. That, comrade, is the point.

Many decent people support this campaign. But they are wrong. Remember the arguments about the introduction of the National Minimum Wage? Employers feared that it would destroy jobs. In the end it didn’t. Not because the greedy plutocratic boss class were wrong, but because of careful design. The Labour Government created a Low Pay Commission to model the impact of a minimum wage. The level that was set was not arbitrary, but scientific. Hence, all gain, no pain.

So what about the Living Wage? This has been modelled by the Resolution Foundation and the Institute for Public Policy Research. Their conclusions? 300,000 young people would lose their jobs if it was implemented across Britain. Ah, but it wouldn’t be across the whole economy, I hear proponents say, just for firms who can afford it. Seriously?

The Living Wage is run as a moral crusade. It argues that “it’s wrong for government to subsidise low wages… wrong for employers to pay them…” Well, if it’s wrong for some workers, it’s surely wrong for all?

Once you concede it’s OK for some workers to be subsidised by taxpayers — because otherwise they’d lose their jobs — then you’re back in the world of pragmatism. A world in which Sir Keith Joseph was right. Work is the best form of welfare and government has to make work pay.