What does it mean to make work pay?

Increasing the amount of better quality jobs in the UK is key to addressing low pay.

Photograph: Getty Images

A key argument in the welfare debates this week has centred on ‘making work pay’. The Government argues that changes to tax and welfare will improve the lot of low and middle income working households. Though curiously, this came as suggestions surface the minimum wage could be frozen or cut.

Alongside others, we have shown that the increase in the personal tax allowance is roughly cancelled out by reductions in tax credits and other benefits. But there is a more fundamental flaw in the way this argument has been conducted.  It has focused purely on the role of the tax and benefit system with no discussion of how to make work itself pay.

This flaw was also evident in two other inputs into the debate in the last couple of weeks, both of which were otherwise useful and interesting.

First, a report on Improving Progression in the UK labour market by Policy Exchange. It’s encouraging to see work addressing the core issue of how we support people to not only get work but keep it and progress in it. This will let them end up earning enough to live decently, ideally without needing tax credits. The introduction of Universal Credit gives the opportunity for the Welfare to Work system to address this issue for the first time.  The report estimates that, under the new system, around 1.3 million people will become subject to some kind of in work requirements and support. 

This is a diverse group, with a mixture of ages and family types. Most work between 15 and 24 hours a week and over half are in fairly stable employment. Some have characteristics which will restrict the amount of work they can do: around a third have dependent children, over half are over 45, some are likely to have some health or caring related issues. Nearly 45% also have relatively low or no formal qualifications.  Most are apparently not actively looking for more or better work, although the reasons for this are not clear. The report makes some very sensible recommendations for improving the incentives for Jobcentre Plus and Work Programme providers to give real attention to progression in work. It also suggests piloting various other measures, including greater sanctions, to persuade more people to actively try to increase their hours and pay. 

However, the report seems to assume that there are abundant opportunities for more hours and progression, if people could only be motivated to look for them. This contrasts with our research showing that there are already 1.4 million people who want to work full time but are working part time because no full time job is available, the highest figure in 20 years.

At a Resolution Foundation seminar, Conservative MP and Skills Minister Matthew Hancock set out his agenda for tackling low pay. He argued that actively tackling low pay was vital and set out three ways of doing so: defending and strengthening the minimum wage; creating a tax system which supports low paid workers; and increasing productivity - by freeing businesses to compete, having good matching of jobs to applicants and increasing skills and human capital.

Both Mr Hancock and the seminar respondents (Allister Heath, City AM editor, Nicola Smith of the TUC and Ryan Shorthouse of Bright Blue) agreed that increasing the amount of better quality jobs in the UK was key to addressing low pay. But there was almost no discussion about how to do this. The debate was all about supply-side measures – tax, benefits, skills. All this is vitally important, but is highly unlikely to work without getting to grips with the demand side.

Only then can work truly pay – giving the ‘hard working families’ politicians talk so much about a real chance for independence and security.