Why Labour should introduce a compulsory living wage

Requiring all employers to pay a living wage would stimulate the economy, save the state money and ensure that work always pays.

Ed Miliband has always stopped short of saying Labour would legislate for a living wage, preferring instead to throw his weight behind voluntary adoption of the scheme. But there’s no good reason to be afraid of making it compulsory for all employers to pay a wage large enough to meet the cost of living.

The unemployment costs would be relatively small

Before the National Minimum Wage (NMW) was introduced, it was said that it would significantly increase unemployment as firms would not be able to afford to take on workers. The idea of raising the NMW to a living wage has suffered from similar criticism. But modelling by the National Institute of Economic and Social Research (NIESR) suggests a mandatory living wage of £8.55 in London and £7.45 in the rest of the UK would reduce labour demand by 160,000 jobs. The report’s authors describe this effect as "surprisingly small" - in an active labour force of 32 million this amounts to around a 0.5 per cent increase in unemployment in exchange for millions of workers benefiting from higher wages.

It saves the state a lot of money

Low-wage employment has substantial costs to the public purse, which a living wage would reduce. Housing benefit, which accounts for 11 per cent of the total welfare spend, saw 90 per cent of its new claimants last year in work, and other in-work benefits like Working Tax Credit also effectively subsidise employers who pay a low wage. A living wage would mean the numbers who need these benefits would fall. The Resolution Foundation has calculated that paying all workers a living wage would bring in an extra £3.6bn to the Treasury each year in lower benefits and higher tax receipts. Since many of the workers affected would be in the public sector, the public wage bill would be £1.3bn higher, but there would still be a net increase in revenue of over £2bn to the Treasury, helping to reduce the deficit.

Any unemployment costs could be mitigated

Labour’s current policy to tackle unemployment is to subsidise private sector jobs to provide a compulsory jobs guarantee for all long-term unemployed workers. The stated cost of this policy is £1bn. But with a mandatory living wage bringing in an extra £2bn to the Treasury each year, this programme could be substantially extended – providing a real "employer of last resort" for people who are out of work for shorter periods as well. At the very least the £2bn would more than cover the cost of creating jobs for those projected to be priced out of the labour market, amounting to £12,500 for each of the 160,000 – a rather more extravagant subsidy than the one that would be needed.

It would provide an economic stimulus free to the public purse

One of the problems with the economy is that it is currently demand-constrained. Businesses are not investing, in part because there are fewer people with ready cash to buy their products, which rules out lower yield investment opportunities and dulls the profit motive central to capitalism. One of the reasons for this is depressed wages, which have continued to see substantial real-terms cuts, lagging behind inflation by eight per cent in the last five years. Substantial increases in wages could help lift domestic demand, and a living wage could thus act as a stimulus without a cost to the public purse.

It makes work pay

Political orthodoxy suggests that it’s important to make work pay, or people will opt to live on unemployment benefits. Whether this is true or not, at its core ‘making work pay’ seems a reasonable goal. But making people better off in work than out of work by reducing benefit rates cuts the incomes of the poorest in pursuit of this ideal. By contrast, higher wages incentivise work without harming the unemployed. Iain Duncan Smith’s Universal Credit is supposed to address this by reducing withdrawal rates of benefits, so those who take jobs don’t lose all their benefits instantly. But there are reports he has had problems getting as much Treasury money behind the plan as he’d like. A mandatory living wage, on the other hand, actually brings in money to the Exchequer and would present no such financial obstacles.

Ed Miliband addresses workers at Islington Town Hall on November 5, 2012 in London. Photograph: Getty Images.

Jon Stone is a political journalist. He tweets as @joncstone.

Photo: Getty Images
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I'll vote against bombing Isis - but my conscience is far from clear

Chi Onwurah lays out why she'll be voting against British airstrikes in Syria.

I have spent much of the weekend considering how I will vote on the question of whether the UK should extend airstrikes against Daesh/Isis from Iraq to Syria, seeking out and weighing the evidence and the risks.

My constituents have written, emailed, tweeted, facebooked or stopped me in the street to share their thoughts. Most recognised what a difficult and complex decision it is. When I was selected to be the Labour candidate for Newcastle Central I was asked what I thought would be the hardest part of being an MP.

I said it would be this.

I am not a pacifist, I believe our country is worth defending and our values worth fighting for. But the decision to send British Armed Forces into action is, rightly, a heavy responsibility.

For me it comes down to two key questions. The security of British citizens, and the avoidance of civilian casualties. These are separate operational and moral questions but they are linked in that it is civilian casualties which help fuel the Daesh ideology that we cannot respect and value the lives of those who do not believe as we do. There is also the important question of solidarity with the French in the wake of their grievous and devastating loss; I shall come to that later.

I listened very carefully to the Prime Minister as he set out the case for airstrikes on Thursday and I share his view that Daesh represents a real threat to UK citizens. However he did not convince me that UK airstrikes at this time would materially reduce that threat. The Prime Minister was clear that Daesh cannot be defeated from the air. The situation in Syria is complex and factionalised, with many state and non-state actors who may be enemies of our enemy and yet not our friend. The Prime Minister claimed there were 70,000 ground troops in the moderate Free Syrian Army but many experts dispute that number and the evidence does not convince me that they are in a position to lead an effective ground campaign. Bombs alone will not prevent Daesh obtaining money, arms and more recruits or launching attacks on the UK. The Prime Minister did not set out how we would do that, his was not a plan for security and peace in Syria with airstrikes a necessary support to it, but a plan to bomb Syria, with peace and security cited in support of it. That is not good enough for me.

Daesh are using civilian population as human shields. Syrians in exile speak of the impossibility of targeting the terrorists without hitting innocent bystanders. I fear that bombing Raqqa to eliminate Daesh may be like bombing Gaza to eliminate Hamas – hugely costly in terms of the civilian population and ultimately ineffectual.

Yet the evil that Daesh perpetrate demands a response. President Hollande has called on us to join with French forces. I lived in Paris for three years, I spent time in just about every location that was attacked two weeks ago, I have many friends living in Paris now, I believe the French are our friends and allies and we should stand and act in solidarity with them, and all those who have suffered in Mali, Kenya, Nigeria, Lebanon, Tunisia and around the world.

But there are other ways to act as well as airstrikes. Britain is the only G7 country to meet its international development commitments, we are already one of the biggest humanitarian contributors to stemming the Syrian crisis, we can do more not only in terms of supporting refugees but helping those still in Syria, whether living in fear of Daesh or Assad. We can show the world that our response is to build rather than bomb. The Prime Minister argues that without taking part in the bombing we will not have a place at the table for the reconstruction. I would think our allies would be reluctant to overlook our financial commitment.

We can also do more to cut off Daesh funding, targeting their oil wells, their revenues, their customers and their suppliers. This may not be as immediately satisfying as bombing the terrorists but it is a more effective means of strangling them.

The vast majority of the constituents who contacted me were against airstrikes. I agree with them for the reasons I set out above. I should say that I have had no experience of bullying or attempts at intimidation in reaching this decision, Newcastle Central is too friendly, frank, comradely and Geordie a constituency for that. But some have suggested that I should vote against airstrikes to ensure a “clear conscience” ’. This is not the case. There will be more killings and innocent deaths whether there are UK airstrikes or not, and we will all bear a portion of responsibility for them.

A version of this article was originally sent to Chi Onwurah's constituents, and can be read here