Minimum wage: The only way is up?

On Britain’s low paid workers.

Tomorrow sees a 15 pence per hour pay rise for Britain's lowest paid workers. Of course, every penny helps, but don't expect to hear much gratitude. With RPI inflation running at 5.2 per cent, this year's VAT increase still being absorbed, tax credits being stripped back and any number of other pressures on the cost of living, this year's increase won't allow Britain's low paid to stand still, never mind move forward. The best that can be said is they will be getting poorer (given inflation) at about the same rate as those on average pay.

But before we rush to judgement on this apparently stingy increase, bear in mind that the Low Pay Commission (LPC), which oversees increases in the minimum wage, had a truly tricky job on its hands. Given anaemic growth and rising unemployment it's no surprise that they decided to err on the side of caution -- they couldn't risk making a tough labour market worse.

Whether or not precisely the right balance was struck this year, now is a good moment to consider the role the minimum wage has played in lifting living standards to date, and what more it might do in the future. Turn back the clock fifteen years and there were of course plenty of doom mongerers predicting the devastating impact on jobs if workers were unlucky enough to be afforded protection through a legal wage floor. Things turned out differently. As an authoritative study of the experience of the minimum wage to date concluded: "there is little or no evidence of any employment effects". Even those groups who were thought to be most vulnerable don't appear to have experienced a negative effect -- indeed the National Institute for Economic and Social Research recently found that employment rates are actually higher for those aged 22 (who get the full minimum wage) compared to those who are 21 (who get a lower rate), as the higher wage appears to have drawn more of them into work.

Nor can we put these findings down to the fact that the minimum wage has been pegged at rock-bottom levels. If we look at the period from its inception in 1999 up to 2010 it went up by around 65 per cent; massively outstripping CPI inflation (25 per cent) and RPI inflation (37 per cent), as well as out-performing median pay (hence the gap between those on low pay and those in the middle has fallen modestly).

At a time when most forces in our economy have been serving to squeeze the share of income going to the bottom, the minimum wage has pushed back in the other direction.

And there is evidence that the minimum wage may have benefited many people who actually get paid above the legal rate. A pay raise at the bottom can have a knock-on effect on those slightly higher up the earnings ladder, as these workers seek to protect their earnings relative to those below them. The implication is that many modestly paid workers may indirectly (and probably unknowingly) have benefited from the minimum wage.

We also know following a recent study that those firms and sectors most affected by the minimum wage have experienced significant increases in productivity as a result. Businesses don't just meekly absorb higher wages: they seek to change working patterns and investment decisions to enable them to succeed given higher costs (though admittedly larger firms find this easier than smaller ones). The Low Pay Commission was pipped to the post in arriving at this finding by a certain Sidney Webb who had precisely this insight a century ago -- armed with little more than economic intuition and precise prose, rather than today's econometric models.

In a world where few policies have a straightforwardly positive impact -- where even apparently benign measures often have malign side effects -- the minimum wage stands out as something of an exception. Its success is all the more noteworthy given that it embodies many of the attributes that, according to the current zeitgeist, make for Bad Policy. Regulation not de-regulation. National not local. Top-down not bottom up. Overseen by corporatist committee not small platoon. It has all the perfect characteristics to make it the pantomime villain in today's Whitehall.

Yet given its record, all parties feel the need to proclaim support (even if there is some sniping from the Conservative right).

Despite this apparent consensus there are still questions to ask about its future role. Over recent years the level of the minimum wage has fallen backwards relative to that of median earnings. Indeed, as the chart below shows, if we wanted the lowest paid in Britain simply to recover the ground they've lost relative to the "middle" since 2007, we'd need to see a steep climb in minimum pay over the next few years -- and all this in a period when overall wages are not expected to go up by much.

 

Whether or not this is remotely tenable obviously depends in large part on what happens in the wider economy. If we slip into another recession then calls for a rapidly rising minimum wage will be given short shrift. But if that doesn't happen, and the jobs market gradually recovers, this will itself prompt an important question: should the minimum wage really just be about maintaining a wage-floor in the difficult decade ahead, or should it seek to ensure that, at the least, Britain's low paid workers don't fall further behind everyone else? This question is likely to grow in salience.

For in an era of mounting cuts to tax credits for those in work, if the minimum wage doesn't play this wider role, it's not clear what else will.

Gavin Kelly is a former adviser to Downing Street and the Treasury. He tweets @GavinJKelly1.

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Is defeat in Stoke the beginning of the end for Paul Nuttall?

The Ukip leader was his party's unity candidate. But after his defeat in Stoke, the old divisions are beginning to show again

In a speech to Ukip’s spring conference in Bolton on February 17, the party’s once and probably future leader Nigel Farage laid down the gauntlet for his successor, Paul Nuttall. Stoke’s by-election was “fundamental” to the future of the party – and Nuttall had to win.
 
One week on, Nuttall has failed that test miserably and thrown the fundamental questions hanging over Ukip’s future into harsh relief. 

For all his bullish talk of supplanting Labour in its industrial heartlands, the Ukip leader only managed to increase the party’s vote share by 2.2 percentage points on 2015. This paltry increase came despite Stoke’s 70 per cent Brexit majority, and a media narrative that was, until the revelations around Nuttall and Hillsborough, talking the party’s chances up.
 
So what now for Nuttall? There is, for the time being, little chance of him resigning – and, in truth, few inside Ukip expected him to win. Nuttall was relying on two well-rehearsed lines as get-out-of-jail free cards very early on in the campaign. 

The first was that the seat was a lowly 72 on Ukip’s target list. The second was that he had been leader of party whose image had been tarnished by infighting both figurative and literal for all of 12 weeks – the real work of his project had yet to begin. 

The chances of that project ever succeeding were modest at the very best. After yesterday’s defeat, it looks even more unlikely. Nuttall had originally stated his intention to run in the likely by-election in Leigh, Greater Manchester, when Andy Burnham wins the Greater Manchester metro mayoralty as is expected in May (Wigan, the borough of which Leigh is part, voted 64 per cent for Brexit).

If he goes ahead and stands – which he may well do – he will have to overturn a Labour majority of over 14,000. That, even before the unedifying row over the veracity of his Hillsborough recollections, was always going to be a big challenge. If he goes for it and loses, his leadership – predicated as it is on his supposed ability to win votes in the north - will be dead in the water. 

Nuttall is not entirely to blame, but he is a big part of Ukip’s problem. I visited Stoke the day before The Guardian published its initial report on Nuttall’s Hillsborough claims, and even then Nuttall’s campaign manager admitted that he was unlikely to convince the “hard core” of Conservative voters to back him. 

There are manifold reasons for this, but chief among them is that Nuttall, despite his newfound love of tweed, is no Nigel Farage. Not only does he lack his name recognition and box office appeal, but the sad truth is that the Tory voters Ukip need to attract are much less likely to vote for a party led by a Scouser whose platform consists of reassuring working-class voters their NHS and benefits are safe.
 
It is Farage and his allies – most notably the party’s main donor Arron Banks – who hold the most power over Nuttall’s future. Banks, who Nuttall publicly disowned as a non-member after he said he was “sick to death” of people “milking” the Hillsborough disaster, said on the eve of the Stoke poll that Ukip had to “remain radical” if it wanted to keep receiving his money. Farage himself has said the party’s campaign ought to have been “clearer” on immigration. 

Senior party figures are already briefing against Nuttall and his team in the Telegraph, whose proprietors are chummy with the beer-swilling Farage-Banks axis. They deride him for his efforts to turn Ukip into “NiceKip” or “Nukip” in order to appeal to more women voters, and for the heavy-handedness of his pitch to Labour voters (“There were times when I wondered whether I’ve got a purple rosette or a red one on”, one told the paper). 

It is Nuttall’s policy advisers - the anti-Farage awkward squad of Suzanne Evans, MEP Patrick O’Flynn (who famously branded Farage "snarling, thin-skinned and aggressive") and former leadership candidate Lisa Duffy – come in for the harshest criticism. Herein lies the leader's almost impossible task. Despite having pitched to members as a unity candidate, the two sides’ visions for Ukip are irreconcilable – one urges him to emulate Trump (who Nuttall says he would not have voted for), and the other urges a more moderate tack. 

Endorsing his leader on Question Time last night, Ukip’s sole MP Douglas Carswell blamed the legacy of the party’s Tea Party-inspired 2015 general election campaign, which saw Farage complain about foreigners with HIV using the NHS in ITV’s leaders debate, for the party’s poor performance in Stoke. Others, such as MEP Bill Etheridge, say precisely the opposite – that Nuttall must be more like Farage. 

Neither side has yet called for Nuttall’s head. He insists he is “not going anywhere”. With his febrile party no stranger to abortive coup and counter-coup, he is unlikely to be the one who has the final say.