Work and Pay

Labour’s minimum wage plan is a mistake

  • Published: May 21, 2014
  • Author: Peter Kenway
  • Category: Work and Pay

In promising to subject the Low Pay Commission to central diktat, Ed Miliband risks damaging a body he should cherish.

The minimum wage was one of New Labour’s greatest successes. Instead of subjecting the body that sets it to central direction, Ed Miliband should be pointing to the Low Pay Commission as the kind of stakeholder institution that is needed to build a fairer Britain.

In charge of setting the National Minimum Wage since its introduction (at £3.60 an hour) in April 1999, the Low Pay Commission is one of New Labour’s greatest and most popular creations. It is also one of its most curious. Made up of equal numbers of employer and employee representatives, plus an independent chair and two experts, the LPC is a throwback to the era of negotiated consensus between the two sides industry and government. Pre-Thatcherite not post-, the LPC can be seen as a first attempt to build a modern institution that harks back in spirit to the post-war world that came to an end in Britain in 1979.

Labour’s announcement this week that it would set a statutory target for the minimum wage is at first sight an understandable. Low pay is certainly a huge problem in this country. In 2012, there were around 5 million low paid jobs in the UK. George Osborne had already signalled his belief that the NMW should be higher. Ed Miliband’s speech could just be seen as going one step further. But is it the right step?

Labour has not yet said how it would set the target, but it is likely to be in relation to median hourly pay. The graph below shows how the NMW has fared since its introduction 15 years ago against this yardstick. Coming in at 48% of median hourly pay in 1999, it fell (because held unchanged for 18 months) to 45% two years later. It then started a long, fairly steady rise all the way to 53% in 2007 before starting to slide back as the economy sank. Since 2010, with median pay flat or even falling, the NMW has actually risen a little further, to 54% or above, in the last three years. 



Two things can be said about this graph. One is that the LPC has proven itself capable in the past of engineering a sustained and substantial increase in the NMW relative to average pay (up 7.5 percentage points between 2001 and 2007). It seems unlikely that any target would be above 60% of the hourly median. So at least on the face of it, the LPC might be able to get there even as presently constituted, without explicit central direction.

The other is that the NMW – and the LPC – have evidently held up during the Coalition years. Although the weakness of median pay itself may have made this easier, there was no guarantee in advance that parity would be at least sustained. To those who favour a higher NMW, central direction to hurry that end sounds like a good idea, but such an approach could just as easily lead to the minimum wage being held down as increased.

The third criticism is different. It is not about the damage that this announcement may, or may not, do to the LPC and the NMW. It is, rather, about the lack of vision that the announcement represents. This is a land in which democratic accountability is weak and representative partnership bodies to negotiate over differences few.  The LPC is a striking exception. What is needed is more of them at national, regional and local levels. They will likely have to be brought into being by government. But if they are to endure and succeed, the parties represented will have to work together in a way that builds trust between them. Government is its many forms will always have a big say, even if covert, but nothing is more certain to stall negotiations than the belief that they are a sham and that government will impose its will regardless. Instead of seeking to dictate, Labour should be praising – and making it clear it would leave it alone.

Finally, in preferring diktat to negotiated partnership, Labour is forgetting its history. David Marquand wrote the following about Ernest Bevan in 'The Progressive’s Dilemma: from Lloyd George to Blair',

“Like all really good negotiators, moreover, he also realised instinctively that the point of negotiation is not to defeat the other side, but to find common interest with it, so that the whole notion of victory and defeat will be transcended. As a raw, young trade-union organiser in pre-1914 Bristol, one of his first actions, after organising the carters, was to organise their employers, so that he could set up an Arbitration Board to regulate future disputes.”

A hundred years later, this still looks like a good idea. The landscape of post-war Britain was forged in large part through these kinds of negotiations.  This is an approach that would surely sit at the heart of anyone with a One Nation Philosophy.


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