Today I am leading a debate in parliament on the future of the national minimum wage – perhaps the most durable legacy of the last Labour government. Growing up in Glasgow, the real-life experiences of people paid less than a £1 an hour for security work were a scar on my conscience and a powerful spur to action on poverty pay.
The success of the minimum wage is shown by the fact that now even the Conservatives who opposed it, and the Liberal Democrats and SNP who did not support the legislation in the Commons fifteen years ago, now would not dare abolish it.
Indeed several ministers in the Department for Business, Innovation and Skills, including the Secretary of State, Vince Cable, claim they want to build upon its success. In opposition, Labour’s role is to campaign to hold them to their word, but to show that a Labour Government would offer the strongest commitment and the best solutions on improving the minimum wage to tackle Britain’s low pay crisis.
Despite employees working more hours than before the economic crisis, the recovery is not making its way into pockets of workers in the lower half of the income scale. The UK has the fifth worst recent record on low pay in the OECD.
Cost of living crisis
Recent research by the Resolution Foundation shows for many workers the low rate of the minimum wage can act as a ceiling rather than a springboard to higher living standards.
According to data from the ONS in response to a parliamentary question I recently submitted, the average gross median wage in the UK in 2012 at £405 a week was almost 7 per cent lower in real terms than in 2010. For the low paid the situation is even more desperate given that higher energy, housing and food costs impact upon them with even greater severity.
More worryingly, two thirds of the three million children in poverty in the UK today live in households where at least one adult is in work. October’s rise in the main rate of the minimum wage to £6.31 an hour was the fourth successive uprating below the rise in prices.
Under-employment, and the low skilled, low paid work created by the labour market over the last few years have made the cost of living crisis worse for millions of the working poor. The Resolution Foundation have established that 4.8 million people across the UK earn less the rate set by the Joseph Rowntree Foundation for the living wage in the UK – up by 1.4 million since 2009.
Other analysis I recently received from the ONS shows that in parts of the North East of England, around half to two-thirds of part-time workers earn less than the living wage. In parts of Northern Ireland, and the South and South West of England, poverty pay among part-time employees is equally endemic.
Even in Iain Duncan-Smith’s constituency over two part-time workers in every five earn pay which is less than a living wage. With women being more likely to be in part-time work than men, this is not just an issue of economic injustice, but of gender inequality too. Worse than that, the costs of poverty pay are creating an even larger burden for the state as one of the biggest drivers of the increasing cost of housing benefit and tax credits.
Policy across government on increasing pay will have to do more of the heavy lifting in tackling grinding poverty faced on a daily basis by too many people. While tax credits cushioned living standards particularly between 2003 and 2008 and remain an important means of improving work incentives now, the case for building upon the success of the national minimum wage has never been stronger. We should support councils and other parts of the public sector paying or using procurement rules with the voluntary and private to extend a living wage to more people, but we also need to understand that a rise in the national minimum wage will help substantially more workers than even a voluntary expansion of living wage employers will do.
Raising the minimum wage
We need better enforcement of the national minimum wage, to stop the exploitation of unpaid interns for months on end. It is shameful that the maximum penalty for fly-tipping is ten times that of not paying a worker the legal minimum rate for an hour’s work, and that the average fine per breach of the minimum wage rules was just over £1,000 in the last financial year.
Increasing the personal tax allowance does not end the crisis of low wages – many low paid workers do not earn enough to pay income tax, and so would not benefit from further rises in the personal allowance. We also need to be mindful that the proposed introduction of universal credit will mean that what low income taxpayers may gain from a higher personal allowance may be lost via its new tax credit system assessed on after-tax income. New Gingerbread research has shown that universal credit will make it far harder for lone parents to make work pay beyond twenty hours per week.
Ultimately, the best policy solution for the centre-left in boosting low pay in Britain is to change the remit of the Low Pay Commission through consulting employers, trades unions and workers on how best to do this while protecting jobs.
The best route to reversing the loss of value of the minimum wage appears to be adopting a sector by sector approach to raising minimum pay rates, while considering the implications of an across the board rise. The Resolution Foundation have established that for sectors like finance and banking, higher pay rates may be affordable now, whereas for hotels and restaurants a more phased approach may work best to preserve jobs.
The prize for employers would be higher productivity, higher job satisfaction, and reduced staff turnover. For workers, government, and society, tackling chronic low wages can restore the principle that work will pay, and that low-income Britain should share more fairly in the wealth that it generates for this country.