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

Photo: Getty
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The Future of the Left: trade unions are more important than ever

Trade unions are under threat - and without them, the left has no future. 

Not accepting what you're given, when what you're given isn't enough, is the heart of trade unionism.

Workers having the means to change their lot - by standing together and organising is bread and butter for the labour movement - and the most important part? That 'lightbulb moment' when a group of workers realise they don't have to accept the injustice of their situation and that they have the means to change it.

That's what happened when a group of low-paid hospital workers organised a demonstration outside their hospital last week. As more of their colleagues clocked out and joined them on their picket, thart lightbulb went on.

When they stood together, proudly waving their union flags, singing a rhythmic chant and raising their homemade placards demanding a living wage they knew they had organised the collective strength needed to win.

The GMB union members, predominantly BAME women, work for Aramark, an American multinational outsourcing provider. They are hostesses and domestics in the South London and Maudsley NHS Trust, a mental health trust with sites across south London.

Like the nurses and doctors, they work around vulnerable patients and are subject to verbal and in some cases physical abuse. Unlike the nurses and doctors their pay is determined by the private contractor that employs them - for many of these staff that means statutory sick pay, statutory annual leave entitlement and as little as £7.38 per hour.

This is little more than George Osborne's new 'Living Wage' of £7.20 per hour as of April.

But these workers aren't fighting for a living wage set by government or even the Living Wage Foundation - they are fighting for a genuine living wage. The GMB union and Class think tank have calculated that a genuine living wage of £10ph an hour as part of a full time contract removes the need for in work benefits.

As the TUC launches its 'Heart Unions' week of action against the trade union bill today, the Aramark workers will be receiving ballot papers to vote on whether or not they want to strike to win their demands.

These workers are showing exactly why we need to 'Heart Unions' more than ever, because it is the labour movement and workers like these that need to start setting the terms of the real living wage debate. It is campaigns like this, low-paid, in some cases precariously employed and often women workers using their collective strength to make demands on their employer with a strategy for winning those demands that will begin to deliver a genuine living wage.

It is also workers like these that the Trade Union Bill seeks to silence. In many ways it may succeed, but in many other ways workers can still win.

Osborne wants workers to accept what they're given - a living wage on his terms. He wants to stop the women working for Aramark from setting an example to other workers about what can be achieved.

There is no doubting that achieving higher ballot turn outs, restrictions on picket lines and most worryingly the use of agency workers to cover strikers work will make campaigns like these harder. But I refuse to accept they are insurmountable, or that good, solid organisation of working people doesn't have the ability to prevail over even the most authoritarian of legislation.

As the TUC launch their Heart Unions week of action against the bill these women are showing us how the labour movement can reclaim the demands for a genuine living wage. They also send a message to all working people, the message that the Tories fear the most, that collective action can still win and that attempts to silence workers can still be defeated.