Minimum wage, maximum impact?

After a period of will he or won’t he, following speculation among his cardinals, the Chancellor George Osborne has pronounced on the national minimum wage, suggesting that he would like the UK to have a rate of £7 per hour. Like any such long awaited and gnostic utterance, this one provides some interesting scope for interpretation.

1.    The choice of words is fascinating. The Chancellor said that Britain can now afford this increase. So he’s not making a bet on the future of UK productivity and suggesting that increases in this will create the scope to pay people more. Instead he’s saying that the minimum wage rose by less than inflation and now we can afford to let it catch up. The word ‘afford’ is critical, as is the sense that the increase is making a retrospective correction. In other words the Chancellor is still seeing the issue through the frame of austerity rather than using the opportunity of talking about this to project an image of future prosperity.

2.    The mode of announcing his policy view was not through a speech in front of an audience of the low-paid or in the context of a wider package of measures to help the low-paid. In fact the mode was tactical. This suggests that the Chancellor’s audience isn’t the low-paid themselves – in any case, less than 10% of workers are paid less than £7 per hour and the low-paid are probably among those least likely to vote in our democracy, so this isn’t a large electoral constituency. Instead the audience is more likely to be people paid comfortably above the minimum wage who should be persuaded by this announcement that compassionate conservatism is still active in politics.

3.    While the announcement may not have been targeted at the low-paid, nor was it aimed at bashing business. That is important and could mark the difference between how perhaps the Labour party might present a similar policy. In fact the case to make is that while increasing the minimum wage increases costs for business (albeit only in a few sectors and vis-à-vis a minority proportion of employees who currently earn below £7 per hour), the response by business should be to find ways to increase productivity so that the wage increases are paid for in that way rather than in increased prices or decreased profits. The best result from an increase in the minimum wage is that workers and businesses together produce more as well. This doesn’t have to be a zero sum game, everyone can win.

But what about the number itself, is £7 per hour, a 10% increase in the minimum wage, the right rate? The Low Pay Commission is likely to receive at least some evidence suggesting that a sudden increase will lead to a loss of jobs. What may be more likely is a reduction in the number of hours offered by employers rather than the number of jobs, but the effect is the same: no more money in the pockets of the low-paid despite a higher minimum wage.

Preventing that will require employers to hold their nerve, to pay the higher minimum wage and to keep their workforce constant, even growing it in response to stronger economic conditions. The retail sector has one of the highest concentrations of workers on the minimum wage, and their December sales are up by 5% on the previous year. So they might feel confident enough to do this. Perversely, it may be the social care sector, much of it publicly funded and under pressure, that finds it the hardest to deal with a higher minimum wage. But then that too is in the Chancellor’s hands. He’s right to be ambitious about the minimum wage, but he may before long have to set out a wider strategy for the low-paid as well.


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