Wednesday, 22 October 2014

Wage ambitions

Last week’s spat over what government minister Lord Freud thinks about minimum pay rates for people with disabilities has rather over-shadowed debate about the National Minimum Wage itself.

This year marks the fifteenth anniversary of National Minimum Wage (NMW).  It boosted pay at the bottom without leading to a loss of jobs, and has had wide support from business as a result.

Before it was introduced, some people were paid as little as £1 an hour.  For example, the Low Pay Unit found someone working in a chip shop in Birmingham earning just 80p an hour. It also found a factory worker earning £1.22 an hour and a residential home worker earning £1.66 an hour.

The Conservatives and many Liberal Democrat MPs bitterly opposed the introduction of the minimum wage legislation. Critics of the NMW said before its introduction that it would lead to job losses. However, now, the widely accepted consensus is that those predictions have proved false.

Today the extremes of exploitation have been eliminated but the problem of low pay – people working hard and struggling to make ends meet – has actually grown. Low pay has got worse in the last 4 years and the value of the NMW has been eroded in real terms since 2010.  

Families are on average £1,600 a year worse off since David Cameron and Nick Clegg took office. The UK now has the one of the highest rates of low pay in the developed world, with more than five million workers paid less than the Living Wage in the UK. Low pay also represents a considerable cost to the Exchequer in the form of in-work benefits and foregone tax receipts.

That’s why I believe we need to see a more ambitious target for the NMW.  It won’t be quick and it won’t be easy, but that’s why we need to be determined.

There’s no reason why a goal of halving the number of people on low pay in our country by 2025 cannot be achieved if we have the commitment. A clear long term target will give businesses time to plan and adapt their business models to boost productivity to support higher wages.