Labour’s Britain: Tackling low pay culture

Over the last couple of years I’ve campaigned with MPs and charities to regulate unscrupulous payday lending, and with some success.  But we haven’t tackled the underlying problem. The harsh truth is that too many people simply can’t make it from one payday to the next. The economic model introduced by Margaret Thatcher, with reducing labour costs at its heart, reversed a century-long movement to fairer wages.

Over the last generation, 5-7% of the wealth produced by the people of this country, measured by GDP, has moved from wages to profits. And from profits to dividends. Billions that were once paid as wages now goes to shareholders, driving wealth inequality to levels not seen since Victorian times. Britain has become a low pay economy and the next Labour Government has to change a culture in which reducing pay and conditions goes unchallenged.

In its recent report “Unequal Opportunities”, the Centre for Cities highlighted the huge shift towards low paid jobs, which now account for over 20% of our workforce. It’s even worse for young workers, with 30% on low pay according to the Resolution Foundation.  As Ed Miliband recently said; “it is a basic belief of the British people that if you work all the hours God sends, you should at least be able to make ends meet. In one of the richest countries in the world, this is simply not the case today”.

The problem doesn’t stop with pay levels. As many as 40% of part-time workers want longer hours and the uncertainty of zero-hours contracts has replaced a regular income for too many. There’s also the growth of bogus self-employment to cut costs, which UCATT estimate affects over half of the construction workforce alone, while for others ‘being your own boss’ is as much a sign of desperation as growing entrepreneurialism, according to a recent Observer feature.

Poor pay and conditions isn’t just a problem for those forced to turn to payday lenders or foodbanks. We’re all paying the price. Public funds are increasingly diverted to prop up our low wage economy and support rewards for those at the top. Under this Government, while public services have been cut, housing benefit paid to working people has increased by 60% and, in his review of low pay, Alan Buckle estimated that the cost to the public purse of paying workers below the living wage is £3.23billion in benefits and lost taxes.

So what’s to be done? Labour has already committed to increasing the Minimum Wage so it’s closer to average earnings, incentivising employers to pay the living wage through tax breaks, ending exploitative zero-hours contracts and strengthening the enforcement of the National Minimum Wage (NMW) by giving local authorities a bigger role. Our strategy for growth will also create higher quality jobs, backed by greater investment in skills. But let’s not stop there.

Many Labour Councils have set an example by paying the living wage. We should ensure all public bodies are living wage employers and use the power of procurement to enforce it more widely. Local Labour Parties can live their values by putting themselves at the heart of living wage campaigns, and use consumer pressure to encourage its use. We could improve our already strong policy offer for young people by ending the lower rate of the NMW for the under-22’s.

Enforcement is crucial too. While around 250,000 people are paid below the NMW, and abuses like the non-payment of travelling time to care workers are common, cases opened by the NMW Inspectorate fell by nearly two-thirds between 2007-08 and 2012-13, and there was just one criminal prosecution for failure to pay minimum wage in 2010-2011 and one in 2012-13. So new powers will need to be matched by extra resources, which can then be recovered in penalties. Tougher regulation would also include strengthening the Gangmasters’ Licensing Authority and extending its remit into the construction, care, hospitality and cleaning sectors.

The drift to a low pay culture was reinforced by Margaret Thatcher’s attack on trade unions which was designed to weaken the bargaining power of working people. It’s no coincidence that economic inequality was at its lowest when 58% of workers were in unions and 82% of wages were set by collective bargaining – while now those numbers have fallen to 26% and 23% respectively. So let’s talk positively about the role of trade unions and work to increase their membership and recognition by employers. Let’s also legislate for worker representation on remuneration committees, linked to the publication of pay ratios.

Through these sort of measures, and more, we can reverse the culture of the last thirty years, give people the wages they deserve, ensure taxpayers’ money goes on the right priorities, and we can begin to end the growing inequality that is poisoning our country.

Paul Blomfield is Labour MP for Sheffield Central, Secretary of the All-Party Group on Debt and Personal Finance, and a member of the Business Innovation and Skills Select Committee.