From the TUC

What will happen to next year’s NMW?

09 Jan 2014, by in Economics

The NMW has been hitting the headlines. As the recovery picks up, with further improvements forecast for next year, there finally appears to be at least some agreement across the political spectrum that change is needed if working people are to secure a fairer share of the rewards of growth.

Recent discussion was sparked of by Rachel Sylvester’s article in Tuesday’s Times where she set out that:

George Osborne, ever the political showman, is said to have been persuaded of the merits of a substantial increase [in the NMW].

The article also noted that:

According to an analysis produced for the Prime Minister in No 10, a 50p an hour increase in the minimum wage would save the Government £1 billion a year, because people in work would be less dependent on benefits as well as paying more tax.

On twitter, Sylvester also reported that ‘Government evidence to Low Pay Commission, submitted before Xmas, was supportive of a big rise in the NMW’.

Wednesday’s papers built the story further, albeit providing varied interpretations of the politics. The i proclaimed that ‘Osborne to approve rise in NMW rise’ while the FT set out that ‘Osborne refuses to back inflation busting minimum wage rise plan’. These headlines are not in fact contradictory – it would be quite possible for the Chancellor to approve an LPC recommended real terms rise, while not intervening to impose an uplift of the scale of 50p an hour.

By lunchtime a little more clarity was also provided by Treasury minister Sajid Javid, who popped up on the Daily Politics to say that that there was a strong case to look at increasing the NMW, but the decision was best left to the Low Pay Commission who were looking at the rate.  And today, the Chancellor has also gone on record defending the role of the LPC. Asked if a big rise was on the cards, Press Association report him as saying that:

I think everyone wants to see an increase in the minimum wage. I would like to see an increase in the minimum wage. But it has to be done in a way that doesn’t cost jobs, because that would be self-defeating.

We have a Low Pay Commission as a body that exists to make exactly that judgment.

So what does all this mean? Firstly, it appears that there is now broad agreement within the Conservatives that the NMW is sensible policy. From a party that spent the 90s telling us that any NMW would cost two million jobs, this acknowledgement is welcome. When Mark Reckless MP supports the NMW on Newsnight, it’s a good sign that the argument is won.

But there also appears to be disagreement within the party as to what to do next. It seems that senior Conservatives Ministers may now believe that the strengthening economy means a real terms NMW rise can be afforded without job loss, and that a larger rise than last year’s 1.9 per cent would be appropriate. Were the LPC to conclude that such a rise was necessary, Ministers would (as has generally always been the case with LPC conclusions) support it, taking the opportunity to spin themselves some good headlines at the same time.

But that doesn’t rule out parts of the Conservative party  pushing for more – either immediately or as a Manifesto priority. Indeed, the FT article cited above starts with the statement that:

Britain’s chancellor of the exchequer George Osborne is facing pressure from his own party to deliver an inflation-busting rise in the minimum wage in the face of business opposition, as the Conservatives try to win back working-class votes. A cross-section of the governing party is pressing the chancellor and Downing Street to commit to a big rise in the minimum wage ahead of the 2015 election to debunk a perception that the Tories are the party of the rich.

Of particular interest is that press reports strongly associate the Secretary of State for Work and Pensions with such calls. Perhaps the DWP has concluded that after most of their welfare cuts have made working people worse off this group should have a little back in return. Or that given the increasing meanness of Universal Credit higher pay will be vital if their policies are to work.

But of course it’s not just the Tories who are talking about low pay.

Let’s not forget that it was Lib Dem Business Secretary Vince Cable who extended the LPC’s remit earlier this year. As he told the press yesterday:

The National Minimum Wage strikes a key balance between protecting the low paid and making sure they can find work. But as the economy starts to recover, the benefits of growth must be shared fairly and equally by everyone. This is why last September I asked the independent Low Pay Commission what economic conditions would be needed to allow for significant rises in the National Minimum Wage without damage to employment.”

The Business Secretary is clearly interested in securing stronger rises in the rate, having asked the LPC to give specific consideration to how the NMW could ‘rise faster than current conditions allow over the medium term‘. The Commissions conclusions will be interesting reading, and no doubt spark further debate.

And Labour have also got a lot to say on pay. While also supportive of the LPC (strongly emphasised by Shadow Business Secretary Chuka Umunna in yesterday’s Daily Politics) a thorough investigation is underway  investigating new ways to tackle low pay, with KPMG’s Alan Buckle currently considering Labour’s policy options. The review will consider the causes of and solutions to low pay, with questions including:

  • what would be required to restore the minimum wage so that it catches up with where it was in 2010; and
  • which sectors or kinds of firms can afford to pay their staff at the bottom end of the pay scale more

The Review will also look at what more could be done to extend the living wage.

So discussion and debate will continue, both around next year’s NMW rate and future mechanisms to strengthen the NMW’s reach and reduce low pay.

TUC evidence to the Low Pay Commission has made the case for a significant increase next year, arguing that as the recovery takes hold and employment performance improves (particularly in the low paying sectors) that a substantial rise can be afforded now without negative impacts on jobs.

But we are also clear that while the LPC remains the best way to set the NMW, securing stronger pay growth as well as protecting jobs at the bottom of our labour market, far more action is needed across the economy if we are to secure fairer pay. Work at a sector level to secure the productivity and pay improvements which will generate both successful businesses and better jobs, wider support for collective bargaining and action to cut down on excessive executive remuneration at the top are just a few of the areas where change is needed.

The NMW is now at the forefront of political debate, and looks set to remain there during 2014 and into the election. But while it’s good that politicians recognise pay matters, let’s not forget that wherever the NMW goes next, achieving pay fairness needs action on a far wider agenda.

One Response to What will happen to next year’s NMW?

  1. What has the Chancellor announced on the minimum wage? | ToUChstone blog: A public policy blog from the TUC
    Jan 16th 2014, 6:19 pm

    […] I have previously written, the Conservative Party’s recognition of the importance of the NMW, and specifically the […]