A living wage alone won't stop runaway inequality

As well as boosting pay for low earners, we need to tackle excessive pay at the top.

It is encouraging to see a growing number of businesses and local authorities adopting the living wage and this week's piece by Jeremy Warner, assistant editor of the Daily Telegraph, is proof that the movement has reached far and wide. In his article, Warner considers the adverse effects of low pay but, more importantly, identifies that pay levels are threatening to become more about PR than social justice.

For example, some of the living wage’s most prominent private sector advocates (KPMG, Barclays, HSBC) are unlikely to have a significant number of low-paid staff who would benefit from the policy and many cleaning and catering jobs are still outsourced. Only when we see organisations with large numbers of low-paid staff implementing the living wage will we know that the movement has truly arrived.

Warner also touches on a problem highlighted by the TUC last year: that an increasing proportion of companies’ money is going to profits, rather than wages. And it seems that the shift from wages to profits is hurting those at the bottom of the income scale much more than those at the top.

We cannot ignore the fact that some Goldman Sachs staff (the subject of Warner’s article) are still set to receive average bonus payments of £250,000. This reflects the findings of last year’s Incomes Data Services Directors’ Pay Report, which showed that the average wage rise for FTSE 100 directors was 27 per cent in 2011. With bank bonus season nearly upon us, there are undoubtedly more stories of astronomical rewards in the financial sector to come.

Meanwhile, at the other end of the income scale, the majority are feeling the effects of real-terms reductions in take-home pay (with 2012 seeing an increase in national average earnings of just 1.6 per cent on 2011). The consequent lack of demand does not bode well for the long term health of the economy and, as an increasing number of academics and commentators have illustrated, it is in fact inequality of income  rather than low pay alone, that leads to so many of the economic and social ills we associate with poverty.

It would be naïve, then, to think that we can negate the effects of income inequality merely by promoting policies like the living wage while turning a blind eye to runaway high pay. In order to tackle the negative effects of income inequality, the welcome enthusiasm to promote the living wage must be met with a willingness to tackle pay at the top.

A protestor marches down Market Street during a day of action in support of the Occupy Wall Street movement on December 2, 2011 in San Francisco, California. Photograph: Getty Images.

John Wood is policy and campaigns officer at One Society

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Brexit is teaching the UK that it needs immigrants

Finally forced to confront the economic consequences of low migration, ministers are abandoning the easy rhetoric of the past.

Why did the UK vote to leave the EU? For conservatives, Brexit was about regaining parliamentary sovereignty. For socialists it was about escaping the single market. For still more it was a chance to punish David Cameron and George Osborne. But supreme among the causes was the desire to reduce immigration.

For years, as the government repeatedly missed its target to limit net migration to "tens of thousands", the EU provided a convenient scapegoat. The free movement of people allegedly made this ambition unachievable (even as non-European migration oustripped that from the continent). When Cameron, the author of the target, was later forced to argue that the price of leaving the EU was nevertheless too great, voters were unsurprisingly unconvinced.

But though the Leave campaign vowed to gain "control" of immigration, it was careful never to set a formal target. As many of its senior figures knew, reducing net migration to "tens of thousands" a year would come at an economic price (immigrants make a net fiscal contribution of £7bn a year). An OBR study found that with zero net migration, public sector debt would rise to 145 per cent of GDP by 2062-63, while with high net migration it would fall to 73 per cent. For the UK, with its poor productivity and sub-par infrastructure, immigration has long been an economic boon. 

When Theresa May became Prime Minister, some cabinet members hoped that she would abolish the net migration target in a "Nixon goes to China" moment. But rather than retreating, the former Home Secretary doubled down. She regards the target as essential on both political and policy grounds (and has rejected pleas to exempt foreign students). But though the same goal endures, Brexit is forcing ministers to reveal a rarely spoken truth: Britain needs immigrants.

Those who boasted during the referendum of their desire to reduce the number of newcomers have been forced to qualify their remarks. On last night's Question Time, Brexit secretary David Davis conceded that immigration woud not invariably fall following Brexit. "I cannot imagine that the policy will be anything other than that which is in the national interest, which means that from time to time we’ll need more, from time to time we’ll need less migrants."

Though Davis insisted that the government would eventually meet its "tens of thousands" target (while sounding rather unconvinced), he added: "The simple truth is that we have to manage this problem. You’ve got industry dependent on migrants. You’ve got social welfare, the national health service. You have to make sure they continue to work."

As my colleague Julia Rampen has charted, Davis's colleagues have inserted similar caveats. Andrea Leadsom, the Environment Secretary, who warned during the referendum that EU immigration could “overwhelm” Britain, has told farmers that she recognises “how important seasonal labour from the EU is to the everyday running of your businesses”. Others, such as the Health Secretary, Jeremy Hunt, the Business Secretary, Greg Clark, and the Communities Secretary, Sajid Javid, have issued similar guarantees to employers. Brexit is fuelling immigration nimbyism: “Fewer migrants, please, but not in my sector.”

The UK’s vote to leave the EU – and May’s decision to pursue a "hard Brexit" – has deprived the government of a convenient alibi for high immigration. Finally forced to confront the economic consequences of low migration, ministers are abandoning the easy rhetoric of the past. Brexit may have been caused by the supposed costs of immigration but it is becoming an education in its benefits.

George Eaton is political editor of the New Statesman.