Labour should beat George Osborne at his own game with a living wage employment allowance

Cutting the "jobs tax" was the best move the Chancellor made, but Labour should go further, writes Nick Pecorelli.

In George Osborne’s budget politics triumphed over economics and bravado over honesty. But in amidst the cauldron of denial, downgrades and general gloom there was one interesting policy proposal that small businesses should celebrate and progressives should build on.

George Osborne announced a new employer’s national insurance employment allowance of £2000 for all businesses; a cut in the “jobs tax”. This is a much better approach to supporting small businesses than cuts in corporation tax because so many small businesses are too hand to mouth to make a profit. Moreover, a flat rate allowance helps the smallest businesses most.

Using national insurance to promote employment goals is not new. But what is new is the decoupling of total employers' national insurance payments from individual pay rates, and this opens the door to a very different way of using national insurance to support progressive values.

One of the last Labour government’s defining policies was the implementation of the national minimum wage. Over one and a half million low paid workers received a pay rise and instantly there was a wage floor set in statute below which no one could be legally paid. 

The national minimum wage has been a success not just because Labour made the moral case but because it made an economic one. Higher pay floats workers off benefits, saves taxpayers money and puts cash into the hands of those who are most likely to spend it rather than save it.

But Labour also bound in business by setting up a Low Pay Commission, on which both sides of industry and experts are represented. The Low Pay Commission’s job has been to agree the minimum wage annually at a rate which is affordable and does not damage job creation. 

Today, the minimum wage is set at £6.19 an hour for those aged 21 and over. That’s better than a world where employers could legally pay £2 an hour but certainly not a decent wage.

Hence, the campaign for a living wage of £7.45 an hour (or £8.55 in London), launched by London Citizens over a decade ago. The Living Wage campaign is energised and has had many successes, but these are mainly amongst larger corporations and the public sector.  Larger corporations can typically afford to see paying a living wage as part of their corporate social responsibility agenda. Councils can make the political choice to pay a living wage (and for that matter stipulate that their contractors must also pay it). But for many small businesses, predominantly those in certain sectors, it’s simply tough to do it and make the sums add up, particularly when your competitors aren’t paying it.

Many of these businesses only employ a few people – restaurants, hairdressers, small independent retailers, niche textile operations and so on. So a simple way for Labour to adapt George Osborne’s employment allowance into a policy that not only promotes employment but employment on a decent wage, is to argue that it should become a Living Wage Employment Allowance and only be available to businesses who pay a living wage (a lower youth rate would be needed to encourage employers to take on inexperienced workers). 

This will help fill the policy void between the compulsion of the national minimum wage and the exaltation of the campaign for a living wage.

By giving most help to the smallest businesses it will help create a new wage norm. Once a first, second and third employee are paid a living wage it becomes more challenging for an employer to offer a lower wage to a subsequent employee. Slightly larger businesses will also be more likely to pay a living wage even if the financial inducement of the Living Wage Employment Allowance does not fully cover the cost, partly because their employees would now be able to earn a higher wage elsewhere and partly simply because paying a living wage should become the new norm.

Over time when entrepreneurs are thinking of setting up new ventures the Living Wage Employment Allowance will help focus minds on sectors and business propositions where a living wage is affordable.

As wages for low paid workers increase more people will be floated off benefits and the taxpayer will gain. Some local areas where poverty is rife will get a spending boost, providing not only a direct benefit to economically depressed areas but a further boost to government coffers. A future Labour government could commit to use these proceeds to increase the Living Wage Employment Allowance and create a virtuous circle of more jobs, better wages, and higher tax revenues. A target of £10,000 might be achievable in the next parliament.

Compliance should also be relatively easy to monitor because wage information is automatically gathered through the national insurance system.

Britain cannot afford a low pay economy but neither can it expect small businesses struggling to make ends meet to pay decent wages without some support. A chancellor who has pursued some of the most regressive policies in recent history has unwittingly opened the door to progress. Labour should seize the opportunity George Osborne has presented with both hands and argue for a new approach that will make Britain’s economy both stronger and fairer.

Photograph: Getty Images

Nick Pecorelli is Associate Director of The Campaign Company

Getty Images.
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Voters are turning against Brexit but the Lib Dems aren't benefiting

Labour's pro-Brexit stance is not preventing it from winning the support of Remainers. Will that change?

More than a year after the UK voted for Brexit, there has been little sign of buyer's remorse. The public, including around a third of Remainers, are largely of the view that the government should "get on with it".

But as real wages are squeezed (owing to the Brexit-linked inflationary spike) there are tentative signs that the mood is changing. In the event of a second referendum, an Opinium/Observer poll found, 47 per cent would vote Remain, compared to 44 per cent for Leave. Support for a repeat vote is also increasing. Forty one per cent of the public now favour a second referendum (with 48 per cent opposed), compared to 33 per cent last December. 

The Liberal Democrats have made halting Brexit their raison d'être. But as public opinion turns, there is no sign they are benefiting. Since the election, Vince Cable's party has yet to exceed single figures in the polls, scoring a lowly 6 per cent in the Opinium survey (down from 7.4 per cent at the election). 

What accounts for this disparity? After their near-extinction in 2015, the Lib Dems remain either toxic or irrelevant to many voters. Labour, by contrast, despite its pro-Brexit stance, has hoovered up Remainers (55 per cent back Jeremy Corbyn's party). 

In some cases, this reflects voters' other priorities. Remainers are prepared to support Labour on account of the party's stances on austerity, housing and education. Corbyn, meanwhile, is a eurosceptic whose internationalism and pro-migration reputation endear him to EU supporters. Other Remainers rewarded Labour MPs who voted against Article 50, rebelling against the leadership's stance. 

But the trend also partly reflects ignorance. By saying little on the subject of Brexit, Corbyn and Labour allowed Remainers to assume the best. Though there is little evidence that voters will abandon Corbyn over his EU stance, the potential exists.

For this reason, the proposal of a new party will continue to recur. By challenging Labour over Brexit, without the toxicity of Lib Dems, it would sharpen the choice before voters. Though it would not win an election, a new party could force Corbyn to soften his stance on Brexit or to offer a second referendum (mirroring Ukip's effect on the Conservatives).

The greatest problem for the project is that it lacks support where it counts: among MPs. For reasons of tribalism and strategy, there is no emergent "Gang of Four" ready to helm a new party. In the absence of a new convulsion, the UK may turn against Brexit without the anti-Brexiteers benefiting. 

George Eaton is political editor of the New Statesman.