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.

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"Michael Gove is a nasty bit of work": A Thatcherite's lonely crusade for technical colleges

Kenneth Baker, Margaret Thatcher's education secretary, has been in a war of words with one of his successors. 

When I meet Kenneth Baker, once Margaret Thatcher’s reforming education secretary, conversation quickly turns to an unexpected coincidence. We are old boys of the same school: a sixth-form college in Southport that was, in Baker’s day, the local grammar. Fittingly for a man enraged by the exclusion of technical subjects from the modern curriculum, he can only recall one lesson: carpentry.

Seven decades on, Lord Baker – who counts Sats, the national curriculum, league tables, and student loans among his innovations – is still preoccupied with technical education. His charity, the Baker Dearing Educational Trust, oversees university technical colleges (UTCs), the specialist free schools that work with businesses and higher education institutions to provide a vocational curriculum for students aged 14-19. He is also a working peer, and a doughty evangelist for technical education and apprenticeships in the upper chamber. 

But when we meet at the charity’s glass-panelled Westminster office at 4 Millbank, he is on the defensive – and with good reason. Recent weeks have been particularly unkind to the project that, aged 82, he still works full-time to promote. First, a technical college in Oldham, Greater Manchester, became the seventh to close its doors since 2015. In three years, not one of its pupils passed a single GCSE, and locals complained it had become a “dumping ground” for the most troubled and disruptive children from Oldham’s other schools (Baker agrees, and puts the closure down to “bad governorship and bad headship”). 

Then, with customary chutzpah, came Michael Gove. In the week of the closure, the former education secretary declared in his Times column that the UTCs project had failed. "The commonest error in politics," he wrote, quoting Lord Salisbury, "is sticking to the carcasses of dead policies". Baker is now embroiled in a remarkable – and increasingly bitter – war of words with his successor and one-time colleague.

It wasn't always this way. In 2013, with UTCs still in their infancy, he told the New Statesman the then education secretary was “a friend”, despite their disagreements on the curriculum. The bonhomie has not lasted. In the course of our hour-long conversation, Gove is derided as “a nasty bit of work”, “very vindictive”, “completely out of touch”, and “Brutus Gove and all the rest of it”. (Three days after we speak, Baker renews their animus with a blistering op-ed for The Telegraph, claiming Gove embraced UTCs about as warmly as “an undertaker”.)

In all of this, Gove, who speaks warmly of Baker, has presented himself as having been initially supportive of the project. He was, after all, the education secretary who gave them the green light. Not so, his one-time colleague says. While David Cameron (Baker's former PA) and George Osborne showed pragmatic enthusiasm, Gove “was pretty reluctant from the word go”.

“Gove has his own theory of education,” Baker tells me. He believes Gove is in thrall to the American educationalist E.D. Hirsch, who believes in focusing on offering children a core academic diet of subjects, whatever their background. "He doesn’t think that schools should worry about employability at all," Baker says. "He thinks as long as you get the basic education right, everything will be fine. That isn’t going to happen – it isn’t how life works!" 

Baker is fond of comparing Gove’s heavily academic English baccalaureate to the similarly narrow School Certificate he sat in 1951, as well as the curriculum of 1904 (there is seldom an interview with Baker that doesn’t feature this comparison). He believes his junior's divisive tenure changed the state sector for the worse: “It’s appalling what’s happening in our schools! The squeezing out of not only design and technology, but drama, music, art – they’re all going down at GCSE, year by year. Now children are just studying a basic eight subjects. I think that’s completely wrong.” 

UTCs, with their university sponsors, workplace ethos (teaching hours coincide with the standard 9-5 working day and pupils wear business dress), and specialist curricula, are Baker's solution. The 46 existing institutions teach 11,500 children, and there are several notable success stories. GCHQ has opened a cyber-security suite at the UTC in Scarborough, North Yorkshire, as part of a bid to diversify its workforce. Just 0.5 per cent of UTC graduates are unemployed, compared to 11.5 per cent of all 18-year-olds. 

But they are not without their critics. Teaching unions have complained that their presence fragments education provision and funding, and others point out that hard-up schools in disadvantaged areas have little desire or incentive to give up children – and the funding they bring – at 14. Ofsted rate twice as many UTCs as inadequate as they do outstanding. Gove doubts that the vocational qualifications on offer are as robust as their academic equivalents, or anywhere near as attractive for middle-class parents. He also considers 14 is too young an age for pupils to pursue a specialist course of vocational study.

Baker accepts that many of his colleges are seen as “useless, wastes of money, monuments to Baker’s vanity and all the rest of it”, but maintains the project is only just finding its legs. He is more hopeful about the current education secretary, Justine Greening, who he believes is an admirer. Indeed, UTCs could provide Greening with a trump card in the vexed debate over grammar schools – last year’s green paper suggested pupils would be able to join new selective institutions at 14, and Baker has long believed specialist academic institutions should complement UTCs.

Discussion of Theresa May’s education policy has tended to start and finish at grammar schools. But Baker believes the conversation could soon be dominated by a much more pressing issue: the financial collapse of multi-academy trusts and the prospect of an NHS-style funding crisis blighting the nation’s schools. Although his city technology colleges may have paved the way for the removal of more and more schools from the control of local authorities, he, perhaps surprisingly, defends a connection to the state.

“What is missing now in the whole education system is that broker in the middle, to balance the demands of education with the funds available," he says. "I think by 2020 all these multi-academy trusts will be like the hospitals... If MATs get into trouble, their immediate cry will be: ‘We need more money!’ We need more teachers, we need more resources, and all the rest of it!’."

It is clear that he is more alert to coming challenges, such as automation, than many politicians half his age. Halfway through our conversation, he leaves the room and returns enthusiastically toting a picture of an driverless lorry. It transpires that this Thatcherite is even increasingly receptive to the idea of the ultimate state handout: a universal basic income. “There’s one part of me that says: ‘How awful to give someone a sum for doing nothing! What are they going to do, for heaven’s sake, for Christ’s sake!’" he says. "But on the other hand, I think the drawback to the four-day working week or four-hour working day... I think it’s going to happen in your lifetime. If people are only working for a very short space of time, they will have to have some sort of basic income.” 

Predictably, the upshot of this vignette is that his beloved UTCs and their multi-skilled graduates are part of the solution. Friend and foe alike praise Baker’s indefatigable dedication to the cause. But, with the ranks of doubters growing and the axe likely to fall on at least one of its institutions again, it remains to be seen in what form the programme will survive.

Despite the ignominy of the last few weeks, however, Baker is typically forthright: “I sense a turning of the tide in our way now. But I still fight. I fight for every bloody one.”