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

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Let's seize our chance of a progressive alliance in Richmond - or we'll all be losers

Labour MPs have been brave to talk about standing aside. 

Earlier this week something quite remarkable happened. Three Labour MPs, from across the party’s political spectrum, came together to urge their party to consider not fielding a candidate in the Richmond Park by-election. In the face of a powerful central party machine, it was extremely brave of them to do what was, until very recently, almost unthinkable: suggest that people vote for a party that wasn’t their own.
Just after the piece from Lisa Nandy, Clive Lewis and Jonathan Reynolds was published, I headed down to the Richmond Park constituency to meet local Green members. It felt like a big moment – an opportunity to be part of something truly ground-breaking – and we had a healthy discussion about the options on the table. Rightly, the decision about whether to stand in elections is always down to local parties, and ultimately the sense from the local members present was that it would be difficult  not to field a candidate unless Labour did the same. Sadly, even as we spoke, the Labour party hierarchy was busily pouring cold water on the idea of working together to beat the Conservatives. The old politics dies hard - and it will not die unless and until all parties are prepared to balance local priorities with the bigger picture.
A pact of any kind would not simply be about some parties standing down or aside. It would be about us all, collectively, standing together and stepping forward in a united bid to be better than what is currently on offer. And it would be a chance to show that building trust now, not just banking it for the future, can cement a better deal for local residents. There could be reciprocal commitments for local elections, for example, creating further opportunities for progressive voices to come to the fore.
While we’ve been debating the merits of this progressive pact in public, the Conservatives and Ukip have, quietly, formed an alliance of their own around Zac Goldsmith. In this regressive alliance, the right is rallying around a candidate who voted to pull Britain out of Europe against the wishes of his constituency, a man who shocked many by running a divisive and nasty campaign to be mayor of London. There’s a sad irony in the fact it’s the voices of division that are proving so effective at advancing their shared goals, while proponents of co-operation cannot get off the starting line.
Leadership is as much about listening as anything else. What I heard on Wednesday was a local party that is passionate about talking to people and sharing what the Greens have to offer. They are proud members of our party for a reason – because they know we stand for something unique, and they have high hopes of winning local elections in the area.  No doubt the leaders of the other progressive parties are hearing the same.
Forming a progressive alliance would be the start of something big. At the core of any such agreement must be a commitment to electoral reform - and breaking open politics for good. No longer could parties choose to listen only to a handful of swing voters in key constituencies, to the exclusion of everyone else. Not many people enjoy talking about the voting system – for most, it’s boring – but as people increasingly clamour for more power in their hands, this could really have been a moment to seize.
Time is running out to select a genuine "unity" candidate through an open primary process. I admit that the most likely alternative - uniting behind a Liberal Democrat candidate in Richmond Park - doesn’t sit easily with me, especially after their role in the vindictive Coalition government.  But politics is about making difficult choices at the right moment, and this is one I wanted to actively explore, because the situation we’re in is just so dire. There is a difference between the Conservatives and the Lib Dems. Failing to realise that plays into the hands of Theresa May more than anyone else.
And, to be frank, I'm deeply worried. Just look at one very specific, very local issue and you’ll perhaps understand where I'm coming from. It’s the state of the NHS in Brighton and Hove – it’s a system that’s been so cut up by marketisation and so woefully underfunded that it’s at breaking point. Our hospital is in special measures, six GP surgeries have shut down and private firms have been operating ambulances without a license. Just imagine what that health service will look like in ten years, with a Conservative party still in charge after beating a divided left at another general election.
And then there is Brexit. We’re hurtling down a very dangerous road – which could see us out of the EU, with closed borders and an economy in tatters. It’s my belief that a vote for a non-Brexiteer in Richmond Park would be a hammer blow to Conservatives at a time when they’re trying to remould the country in their own image after a narrow win for the Leave side in the referendum.
The Green party will fight a passionate and organised campaign in Richmond Park – I was blown away by the commitment of members, and I know they’ll be hitting the ground running this weekend. On the ballot on 1 December there will only be one party saying no to new runways, rejecting nuclear weapons and nuclear power and proposing a radical overhaul of our politics and democracy. I’ll go to the constituency to campaign because we are a fundamentally unique party – saying things that others refuse to say – but I won’t pretend that I don’t wish we could have done things differently.

I believe that moments like this don’t come along very often – but they require the will of all parties involved to realise their potential. Ultimately, until other leaders of progressive parties face the electoral facts, we are all losers, no matter who wins in Richmond Park.


Caroline Lucas is the MP for Brighton Pavilion.