The minimum wage has been cut, not increased

Vince Cable rightly noted that "cuts in real wages depress consumption" but the 12p increase in the minimum wage to £6.31 is a real-terms cut.

After recent speculation that the minimum wage could be frozen or cut in cash terms, Vince Cable used his speech at The Institute of Directors to announce that the adult rate would increase by 1.9 per cent (12p) to £6.31 an hour, the under-21s rate by 5p to £5.03 and the under-18s rate by 4p to £3.72. 

In justifying the increase, against those on the right who argue that the minimum wage prices workers out of employment, Cable cited the Keynesian insight that "cuts in real wages depress consumption and demand and thereby cause unemployment." Cable is right; low earners are forced to spend, rather than save, what little they receive (their "marginal propensity to consume" is greater) and stimulate growth as a result.

It's worth noting, then, that the minimum wage has just been cut in real-terms. CPI inflation was 2.8 per cent in February and RPI inflation was 3.2 per cent. The former is forecast by the Office for Budget Responsibility to average 2.8 per cent this year. Indeed, as the Resolution Foundation's James Plunkett recently noted, in real-terms, the minimum wage has already fallen back to its 2004 level. 

Today's decision will by described by most of the media as an "increase" but by the best measure economists have - the cost of living - it's a cut. 

In this area, as elsewhere, the coalition would do well to follow the example of Barack Obama, who has pledged to increase the minimum wage to $9 an hour, from $7.25, and to peg annual increases to inflation thereafter. 

Business Secretary Vince Cable announced today that the adult minimum wage would rise by 12p to £6.31 an hour. Photograph: Getty Images.

George Eaton is political editor of the New Statesman.

Photo: Getty
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Scotland's vast deficit remains an obstacle to independence

Though the country's financial position has improved, independence would still risk severe austerity. 

For the SNP, the annual Scottish public spending figures bring good and bad news. The good news, such as it is, is that Scotland's deficit fell by £1.3bn in 2016/17. The bad news is that it remains £13.3bn or 8.3 per cent of GDP – three times the UK figure of 2.4 per cent (£46.2bn) and vastly higher than the white paper's worst case scenario of £5.5bn. 

These figures, it's important to note, include Scotland's geographic share of North Sea oil and gas revenue. The "oil bonus" that the SNP once boasted of has withered since the collapse in commodity prices. Though revenue rose from £56m the previous year to £208m, this remains a fraction of the £8bn recorded in 2011/12. Total public sector revenue was £312 per person below the UK average, while expenditure was £1,437 higher. Though the SNP is playing down the figures as "a snapshot", the white paper unambiguously stated: "GERS [Government Expenditure and Revenue Scotland] is the authoritative publication on Scotland’s public finances". 

As before, Nicola Sturgeon has warned of the threat posed by Brexit to the Scottish economy. But the country's black hole means the risks of independence remain immense. As a new state, Scotland would be forced to pay a premium on its debt, resulting in an even greater fiscal gap. Were it to use the pound without permission, with no independent central bank and no lender of last resort, borrowing costs would rise still further. To offset a Greek-style crisis, Scotland would be forced to impose dramatic austerity. 

Sturgeon is undoubtedly right to warn of the risks of Brexit (particularly of the "hard" variety). But for a large number of Scots, this is merely cause to avoid the added turmoil of independence. Though eventual EU membership would benefit Scotland, its UK trade is worth four times as much as that with Europe. 

Of course, for a true nationalist, economics is irrelevant. Independence is a good in itself and sovereignty always trumps prosperity (a point on which Scottish nationalists align with English Brexiteers). But if Scotland is to ever depart the UK, the SNP will need to win over pragmatists, too. In that quest, Scotland's deficit remains a vast obstacle. 

George Eaton is political editor of the New Statesman.