Labour needs to be more radical on high pay and low pay

Miliband should should promise to link the minimum wage to a new top pay index.

When FTSE directors awarded themselves an average pay rise of 49 per cent the die was cast. Even the Conservatives had to concede to action. But this weekend, as the political parties scrambled to out-tough each other on boardroom pay, the net was spread narrowly. It was FTSE boardrooms, not top-earners more generally, who were the political lightening-rod. Good politics perhaps, but not enough to herald a better, fairer capitalism. Next Saturday's Fabian New Year Conference, 'The Economic Alternative' will be asking what it will take to build a responsible economy. Action on pay is part of the answer.

The left needs to take this week's unusual meeting of minds as a chance to broaden the argument, and demand a more general response to rampant top earnings, linked with new radicalism on low pay. This week's limp-wristed crack-down on the pay of 1,000-odd directors should be just the beginning. What about the rest of the 'one percent': the armies of corporate executives, bankers, lawyers, consultants and public sector leaders; the million-odd households taking home over £100,000 a year? Collectively their pay rises may not be so headline grabbing, but their much greater number means that economically and culturally they are the group that matter.

For three decades the income of top earners (in statistical terms actually the top two percent) has left everyone else behind. Since 1979 inflation-adjusted household income at the 98th percentile has increased by an average of 3 per cent per year, compared to 1.6 per cent for middle income families. So gradually, cumulatively, the top has drifted away from the rest. (In the Thatcher/Major era this was part of a general pattern of widening income inequality, but after 1997 it really was just the top; under Labour, incomes at the 20th percentile grew just as fast as those at the 96th thanks to tax credits and the minimum wage).

It can't go on like this. If the left is serious about forging a different economic path it must say 'thus far and no further' on the pay differential between the top and the rest. Even that would mean accepting today's unprecedented rates of inequality. It is a stark indication of how far to the right our politics has drifted that just calling for a freeze at the status quo seems a radical proposition.

Of course tethering top pay is easier said than done. Top earners as a collective have not consciously colluded to rip-off everyone else and they could not act in concert to change their ways, even if they wanted to. But one way or another, if the left wants fairer capitalism, the stable door must be shut.

Here's how it could be done. If Ed Miliband becomes Prime Minister he can't stop pay rises at the top, but he can impose them at the bottom. So he should promise to link the minimum wage to a new top pay index. The result would be a labour market where low pay always increased by at least the same as top earnings (say, those at the 99th percentile).

This idea isn't as economically mad as it sounds. The index would be based on pay near, not at, the top - in other words people earning six figures, not the multi-million pound directors who get away with double digit rises. The index could also be based on a rolling average to smooth out volatility. But most importantly, it makes sense because tackling low pay is in its own right an essential ingredient for economic rebalancing. This would be an automatic mechanism to ensure annual action.

The backdrop is that policy makers have lost their nerve on the Minimum Wage. In the years after its introduction, the NMW was raised much faster than rising prices or earnings. But in 2006 that all came to an end. Since then the NMW has lost value against inflation and only matched the UK's anaemic average earnings growth. It seems there is some unwritten understanding that the work of the minimum wage is done and that further action to reduce low pay would do more harm than good.

There is precious little evidence to support this case, however, even in the pages of the cautious annual reports of the Low Pay Commission. Their perhaps surprising finding is that raising low wages does not kill jobs. Indeed pardoxically higher wages are normally linked to lower unemployment. Perhaps it's because low paid jobs tend to entail hands-on tasks that can't be exported and which we prefer not to do without. It seems that how much we choose to pay at the bottom of the labour market is a cultural as much as an economic choice, with Denmark paying low-end employees three times more than the US, without any obvious consequences.

The case for tethering top and bottom pay is even more compelling now, as we add public spending cuts into the mix. In recent years the incomes of poorer groups in the UK have kept up with GDP growth mainly due to fiscal transfers not the 'trickle down' of rising wages (and the story is similar in other OECD countries). With the option of more spending on tax credits clearly unavailable, pay has to take the strain; if low income groups are to benefit when the UK's economic motor begins to revive, it will have to be through the pay packet not transfers. In other words, with no new public money, we will need to become more like Denmark and less like the US if we are to avoid inequality rising between the low paid and the mainstream.

So what would happen if a government increased the minimum wage in line with top earnings - say 3 per cent after inflation each year? Directly, it certainly wouldn't be an economic revolution. It would take three years to match Australia's minimum wage and six years to touch the UK Living Wage, at the levels at which they stand today. But gradually, over the tough decade ahead, it would make for a fairer economy. Women would benefit more than men, and the north more than the south - two important correctives to Government austerity. Low paying sectors would need to think about productivity improvements; incentives to move from benefits into work would improve; and the state would spend less subsidising low paid work (though a little more paying its own employees and contractors). If the economic literature is to be believed, the impact on unemployment would be marginal, except perhaps for young people, who sadly might need to be exempted from the scheme to start with, while reducing youth unemployment remains the priority.

Looking wider, perhaps pegging top and bottom wages would set in motion more far reaching change. The middle three-quarters of the labour market would not be directly affected, but would start asking questions if their earnings weren't keeping up. The 'Top Pay Index' would be a subtle prop in pay negotiations everywhere. Employees in the middle would try their utmost to keep ahead of the bottom and keep up with the top - while bosses would need just that little bit more chutzpah to award themselves more than the shopfloor or middle management. Feistier, better informed private sector employees might just be the key to unwinding the ever rising share of GDP ending in the hands of shareholders and top earners. A Government can't make median pay keep up with economic growth, but perhaps it can create the architecture for workers can do the job for themselves?

That thought leads back to the weekend's announcements on boardroom pay. For the new measures on enterprise-level transparency which Labour has endorsed could be transformative. Forcing listed companies to publish data on both workforce and boardroom pay, in clear, comparable terms has been pitched as an aide for institutional shareholders. In fact it is likely to be used far more doggedly by employees themselves. Armed with details of their own firm's policies, a league table comparing them to their corporate peers, and the figures from the national Top Pay Index, it would be over to the employees of UK PLC to take up the fight for fair pay for themselves.

Andrew Harrop is General Secretary of the Fabian Society. Twitter: @andrew_harrop

'The Economic Alternative', the Fabian Society's New Year Conference takes place on Saturday 14th January at the Institute of Education. Find out more by visiting the Fabian Society website.

Andrew Harrop is general secretary of the Fabian Society.

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In the 1980s, I went to a rally where Labour Party speakers shared the stage with men in balaclavas

The links between the Labour left and Irish republicanism are worth investigating.

A spat between Jeremy Corbyn’s henchfolk and Conor McGinn, the MP for St Helens North, caught my ear the other evening. McGinn was a guest on BBC Radio 4’s Westminster Hour, and he obligingly revisited the brouhaha for the listeners at home. Apparently, following an interview in May, in which McGinn called for Corbyn to “reach out beyond his comfort zone”, he was first threatened obliquely with the sack, then asked for a retraction (which he refused to give) and finally learned – from someone in the whips’ office – that his party leader was considering phoning up McGinn’s father to whip the errant whipper-in into line. On the programme, McGinn said: “The modus operandi that he [Corbyn] and the people around him were trying to do [sic], involving my family, was to isolate and ostracise me from them and from the community I am very proud to come from – which is an Irish nationalist community in south Armagh.”

Needless to say, the Labour leader’s office has continued to deny any such thing, but while we may nurture some suspicions about his behaviour, McGinn was also indulging in a little airbrushing when he described south Armagh as an “Irish ­nationalist community”. In the most recent elections, Newry and Armagh returned three Sinn Fein members to the Northern Ireland Assembly (as against one Social Democratic and Labour Party member) and one Sinn Fein MP to Westminster. When I last looked, Sinn Fein was still a republican, rather than a nationalist, party – something that McGinn should only be too well aware of, as the paternal hand that was putatively to have been lain on him belongs to Pat McGinn, the former Sinn Fein mayor of Newry and Armagh.

According to the Irish News, a “close friend” of the McGinns poured this cold water on the mini-conflagration: “Anybody who knows the McGinn family knows that Pat is very proud of Conor and that they remain very close.” The friend went on to opine: “He [Pat McGinn] found the whole notion of Corbyn phoning him totally ridiculous – as if Pat is going to criticise his son to save Jeremy Corbyn’s face. They would laugh about it were it not so sinister.”

“Sinister” does seem the mot juste. McGinn, Jr grew up in Bessbrook during the Troubles. I visited the village in the early 1990s on assignment. The skies were full of the chattering of British army Chinooks, and there were fake road signs in the hedgerows bearing pictograms of rifles and captioned: “Sniper at work”. South Armagh had been known for years as “bandit country”. There were army watchtowers standing sentinel in the dinky, green fields and checkpoints everywhere, manned by some of the thousands of the troops who had been deployed to fight what was, in effect, a low-level counter-insurgency war. Nationalist community, my foot.

What lies beneath the Corbyn-McGinn spat is the queered problematics of the ­relationship between the far left wing of the Labour Party and physical-force Irish republicanism. I also recall, during the hunger strikes of the early 1980s, going to a “Smash the H-Blocks” rally in Kilburn, north London, at which Labour Party speakers shared the stage with representatives from Sinn Fein, some of whom wore balaclavas and dark glasses to evade the telephoto lenses of the Met’s anti-terrorist squad.

The shape-shifting relationship between the “political wing” of the IRA and the men with sniper rifles in the south Armagh bocage was always of the essence of the conflict, allowing both sides a convenient fiction around which to posture publicly and privately negotiate. In choosing to appear on platforms with people who might or might not be terrorists, Labour leftists also sprinkled a little of their stardust on themselves: the “stardust” being the implication that they, too, under the right circumstances, might be capable of violence in pursuit of their political ends.

On the far right of British politics, Her Majesty’s Government and its apparatus are referred to derisively as “state”. There were various attempts in the 1970s and 1980s by far-right groupuscules to link up with the Ulster Freedom Fighters and other loyalist paramilitary organisations in their battle against “state”. All foundered on the obvious incompetence of the fascists. The situation on the far left was different. The socialist credentials of Sinn Fein/IRA were too threadbare for genuine expressions of solidarity, but there was a sort of tacit confidence-and-supply arrangement between these factions. The Labour far left provided the republicans with the confidence that, should an appropriately radical government be elected to Westminster, “state” would withdraw from Northern Ireland. What the republicans did for the mainland militants was to cloak them in their penumbra of darkness: without needing to call down on themselves the armed might of “state”, they could imply that they were willing to take it on, should the opportunity arise.

I don’t for a second believe that Corbyn was summoning up these ghosts of the insurrectionary dead when he either did or did not threaten to phone McGinn, Sr. But his supporters need to ask themselves what they’re getting into. Their leader, if he was to have remained true to the positions that he has espoused over many years, should have refused to sit as privy counsellor upon assuming his party office, and refused all the other mummery associated with the monarchical “state”. That he didn’t do so was surely a strategic decision. Such a position would make him utterly unelectable.

The snipers may not be at work in south Armagh just now – but there are rifles out there that could yet be dug up. I wouldn’t be surprised if some in Sinn Fein knew where they are, but one thing’s for certain: Corbyn hasn’t got a clue, bloody or otherwise. 

Will Self is an author and journalist. His books include Umbrella, Shark, The Book of Dave and The Butt. He writes the Madness of Crowds and Real Meals columns for the New Statesman.

This article first appeared in the 25 August 2016 issue of the New Statesman, Cameron: the legacy of a loser