The case for increasing wages to cut the welfare bill

Learning from Joseph and the Chocolate Factory.

Writing in today’s Times Philip Collins produces a powerful and eloquent article arguing that we should cut the welfare bill by increasing wages. What’s more, he argues for a more moral form of capitalism to underpin it.

So what’s brought this on? Well, today JRF published our annual Minimum Income Standards report. This research asks members of the public what are the goods and services every household needs to be able to afford in order to achieve a minimum acceptable standard of living in the UK. As Collins notes:

Whether or not you agree that a few pence a week for Blu-tack is necessary, most of the costlier items are hard to dispute and they come to quite a price.

And our research shows the cost of that decent standard of living is rising fast – up 25 per cent over the last five years, higher than the official rate of inflation, which was 17 per cent for the same period. This means people today need much higher earnings just to afford the same standard of living they had five years ago. As Collins argues:

The gap between the minimally decent life and reality is growing. People on low incomes are subject to a higher rate of inflation than those who are a little richer … The gap between the life that people think others should be able to afford, in a rich and lucky country, and the life that most people lead is huge.

So what would it take for people to afford a better standard of living? The research costs the basket of goods and services people say they need for a decent standard of living, and works out what that means for how much you need to earn, once tax and benefits have been factored in. The resulting hourly wage rates are substantially higher than the national minimum wage (which is currently £6.19 per hour). A single person would need to earn £8.16 an hour while a couple with two children would need to earn at least £9.91 an hour each. 

Collins argues employers have responded to this challenge before and they should do so again, learning from historical figures like Joseph Rowntree:

When he opened his chocolate factory in York in 1869, Rowntree established good pay, housing benefits and the first occupational pension scheme for his workers...

He understood that the corporation was and is a public entity, underpinned and given a license to operate by the laws of limited liability. He felt, as all the pioneers of the American joint stock company did too, that his private accumulation came with a public obligation, which he fulfilled by paying his people well.

Low paid jobs remain prevalent in the UK, and a fifth of the workforces is on low pay. This costs us all dear as the state subsidises low income working households through the tax credit system. 

For those employers not persuaded by the moral case for change Collins argues the rate of the minimum wage should be ratcheted up as a backstop, a view that is starting to gain more support. This undoubtedly has to be part of the solution, but alone will not solve the problem. Instead a more comprehensive strategy is required that looks at why we have such an endemic low pay problem in the UK; what is driving up the cost of essential like housing, childcare and energy; and yes, as unpopular as it is right now, how best to support people through the social security and tax systems.

Katie Schmuecker is a Policy and Research Manager at the Joseph Rowntree Foundation (JRF) 

Joseph Rowntree. Photograph: Getty Images
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Arsène Wenger: how can an intelligent manager preside over such a hollowed-out team?

The Arsenal manager faces a frustrating legacy.

Sport is obviously not all about winning, but it is about justified hope. That ­distinction has provided, until recently, a serious defence of Arsène Wenger’s Act II – the losing part. Arsenal haven’t won anything big for 13 years. But they have been close enough (and this is a personal view) to sustain the experience of investing emotionally in the story. Hope turning to disappointment is fine. It’s when the hope goes, that’s the problem.

Defeat takes many forms. In both 2010 and 2011, Arsenal lost over two legs to Barcelona in the Champions League. Yet these were rich and rewarding sporting experiences. In the two London fixtures of those ties, Arsenal drew 2-2 and won 2-1 against the most dazzling team in the world. Those nights reinvigorated my pride in sport. The Emirates Stadium had the best show in town. Defeat, when it arrived in Barcelona, was softened by gratitude. We’d been entertained, more than entertained.

Arsenal’s 5-1 surrender to Bayern Munich on 15 February was very different. In this capitulation by instalments, the fascination was macabre rather than dramatic. Having long given up on discerning signs of life, we began the post-mortem mid-match. As we pored over the entrails, the curiosity lay in the extent of the malady that had brought down the body. The same question, over and over: how could such an intelligent, deep-thinking manager preside over a hollowed-out team? How could failings so obvious to outsiders, the absence of steel and resilience, evade the judgement of the boss?

There is a saying in rugby union that forwards (the hard men) determine who wins, and the backs (the glamour boys) decide by how much. Here is a footballing equivalent: midfielders define matches, attacking players adorn them and defenders get the blame. Yet Arsenal’s players as good as vacated the midfield. It is hard to judge how well Bayern’s playmakers performed because they were operating in a vacuum; it looked like a morale-boosting training-ground drill, free from the annoying presence of opponents.

I have always been suspicious of the ­default English critique which posits that mentally fragile teams can be turned around by licensed on-field violence – a good kicking, basically. Sporting “character” takes many forms; physical assertiveness is only one dimension.

Still, it remains baffling, Wenger’s blind spot. He indulges artistry, especially the mercurial Mesut Özil, beyond the point where it serves the player. Yet he won’t protect the magicians by surrounding them with effective but down-to-earth talents. It has become a diet of collapsing soufflés.

What held back Wenger from buying the linchpin midfielder he has lacked for many years? Money is only part of the explanation. All added up, Arsenal do spend: their collective wage bill is the fourth-highest in the League. But Wenger has always been reluctant to lavish cash on a single star player, let alone a steely one. Rather two nice players than one great one.

The power of habit has become debilitating. Like a wealthy but conservative shopper who keeps going back to the same clothes shop, Wenger habituates the same strata of the transfer market. When he can’t get what he needs, he’s happy to come back home with something he’s already got, ­usually an elegant midfielder, tidy passer, gets bounced in big games, prone to going missing. Another button-down blue shirt for a drawer that is well stuffed.

It is almost universally accepted that, as a business, Arsenal are England’s leading club. Where their rivals rely on bailouts from oligarchs or highly leveraged debt, Arsenal took tough choices early and now appear financially secure – helped by their manager’s ability to engineer qualification for the Champions League every season while avoiding excessive transfer costs. Does that count for anything?

After the financial crisis, I had a revealing conversation with the owner of a private bank that had sailed through the turmoil. Being cautious and Swiss, he explained, he had always kept more capital reserves than the norm. As a result, the bank had made less money in boom years. “If I’d been a normal chief executive, I’d have been fired by the board,” he said. Instead, when the economic winds turned, he was much better placed than more bullish rivals. As a competitive strategy, his winning hand was only laid bare by the arrival of harder times.

In football, however, the crash never came. We all wrote that football’s insane spending couldn’t go on but the pace has only quickened. Even the Premier League’s bosses confessed to being surprised by the last extravagant round of television deals – the cash that eventually flows into the hands of managers and then the pockets of players and their agents.

By refusing to splash out on the players he needed, whatever the cost, Wenger was hedged for a downturn that never arrived.

What an irony it would be if football’s bust comes after he has departed. Imagine the scenario. The oligarchs move on, finding fresh ways of achieving fame, respectability and the protection achieved by entering the English establishment. The clubs loaded with debt are forced to cut their spending. Arsenal, benefiting from their solid business model, sail into an outright lead, mopping up star talent and trophies all round.

It’s often said that Wenger – early to invest in data analytics and worldwide scouts; a pioneer of player fitness and lifestyle – was overtaken by imitators. There is a second dimension to the question of time and circumstance. He helped to create and build Arsenal’s off-field robustness, even though football’s crazy economics haven’t yet proved its underlying value.

If the wind turns, Arsène Wenger may face a frustrating legacy: yesterday’s man and yet twice ahead of his time. 

Ed Smith is a journalist and author, most recently of Luck. He is a former professional cricketer and played for both Middlesex and England.

This article first appeared in the 24 February 2017 issue of the New Statesman, The world after Brexit