Labour must now clear a higher bar on the minimum wage

Vince Cable's announcements have allowed the Lib Dems to make the running on low pay but they still leave an opportunity to set out a tougher approach.

This year's pre-conference rumours gave unusual prominence to the minimum wage. After the consensus reached in the late 2000s, leading thinkers in all parties have begun to argue that it's time for the system to be strengthened. There were even suggestions that the Conservatives planned to announce an increase in the minimum wage at their conference. With as much as a fifth of the UK workforce now struggling on low pay, the problem has become too big to ignore.

So how is the battle shaping up now that party conferences are underway? Last week the Lib Dems fired the first shots with Vince Cable's announcement that he will strengthen today's minimum wage settlement in a number of ways. In Cable's speech itself there were few details, with the Business Secretary saying only that he had "asked the Low Pay Commission to advise how we might achieve a higher minimum wage without damaging employment". But later, at a Resolution Foundation event, he broke this down into three specific and interesting ideas. They raise the bar that Labour needs to clear next week if it is to show its commitment to tackling low pay.

Cable's first proposal is that the Low Pay Commission (LPC), which sets the minimum wage, should take a longer-term approach. In particular, he wants the LPC to say how, in an economic recovery, the minimum wage will recover the value it has lost in recent years. As Cable admits, he is walking a fine line here, taking the risk of undermining the LPC's independence, weakening a respected body that is vital to the minimum wage's success. But Cable is also right to say that the UK’s short-term approach to the minimum wage has become a limitation. It leaves business with little warning about future increases in the minimum wage and it leaves government with little advice on what it can do to tackle low pay over the long-term. Interestingly, it wasn’t always this way—in its early years, the LPC proposed future increase several years at a time. Getting this proposal right will mean finding a way to balance these downsides and upsides, for example through the 'forward guidance' model that Gavin Kelly has suggested on these pages.

The second of Cable's proposals is to ask the LPC to look into taking a sectoral approach to the minimum wage. This could mean, for example, publishing an assessment of the minimum wage that different sectors of the UK economy could afford to pay. Again, this isn't without risk. It would add complexity to a policy area in which simplicity is important. If the sectoral rates were to be made mandatory, this could make the minimum wage harder to enforce. It would also ask a lot of the LPC, which would likely need more resources and new structures to tackle such thorny judgments. But, again, Cable has identified a real limitation of today’s approach. As I argued earlier this year, the UK adult minimum wage is held back by the fact that it's a single rate, making it an inevitably ill-fitting garment. It pinches hard in some parts of the jobs market (for example, hospitality), and so has to be set with great care. Yet in other sectors, a higher rate would be possible without risking unemployment. A sectoral approach would sacrifice some simplicity in exchange for greater impact.

Finally, Cable says he'll ask the LPC to think about employer taxes when it makes its judgments about the minimum wage. The idea is that the LPC may be able recommend a higher minimum wage if, for example, the government said it would offset the costs to employers by cutting employer National Insurance at the same time. This is hard to get right; in particular, you'd need to find a way of cutting taxes that targets the employers who would genuinely struggle, rather than giving an expensive windfall to all. But again there are options worth looking into, for example a tax cut could be focused on small employers by raising the Employment Allowance the Chancellor recently introduced.

The delicacy of all of this demonstrates just how tricky it is to reform the minimum wage. Even with good intentions, it would be easy to wreck a system that has helped millions of low paid people, all while not costing jobs. Reform will mean trade-offs, giving up a bit of simplicity here in exchange for a greater impact there. This is why, when it comes down to it, Cable's proposals only amount to asking the LPC to look into these ideas, publishing its thoughts in its annual report next April.

For this reason, while Cable's announcements certainly raise the bar Labour has to clear at its conference next week, they still leave an opportunity to set out a tougher approach. Asking the LPC to review options is far from crazy — no organisation knows more about the challenges of setting the minimum wage. But it's also worth remembering that, if we'd asked a tripartite body like the LPC whether or not to introduce a minimum wage in the first place, we never would have had one. As evidence grows about the scale and costs of low pay, there may yet be an opening for a tougher approach.

Business Secretary Vince Cable delivers his speech at the Liberal Democrat conference in Glasgow on 16 September 2013. Photograph: Getty Images.

James Plunkett is director of policy and development at the Resolution Foundation

Photo: Getty
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The campaign to keep Britain in Europe must be based on hope, not fear

Together we can show the world a generous, outward-facing Britain we can all be proud of.

Today the Liberal Democrats launched our national campaign to keep Britain in Europe. With the polls showing the outcome of this referendum is on a knife-edge, our party is determined to play a decisive role in this once in a generation fight. This will not be an easy campaign. But it is one we will relish as the UK's most outward-looking and internationalist party. Together in Europe the UK has delivered peace, created the world’s largest free trade area and given the British people the opportunity to live, work and travel freely across the continent. Now is the time to build on these achievements, not throw them all away.

Already we are hearing fear-mongering from both sides in this heated debate. On the one hand, Ukip and the feuding Leave campaigns have shamelessly seized on the events in Cologne at New Year to claim that British women will be at risk if the UK stays in Europe. On the other, David Cameron claims that the refugees he derides as a "bunch of migrants" in Calais will all descend on the other side of the Channel the minute Britain leaves the EU. The British public deserve better than this. Rather than constant mud-slinging and politicising of the world's biggest humanitarian crisis since the Second World War, we need a frank and honest debate about what is really at stake. Most importantly this should be a positive campaign, one that is fought on hope and not on fear. As we have a seen in Scotland, a referendum won through scare tactics alone risks winning the battle but losing the war.

The voice of business and civil society, from scientists and the police to environmental charities, have a crucial role to play in explaining how being in the EU benefits the British economy and enhances people's everyday lives. All those who believe in Britain's EU membership must not be afraid to speak out and make the positive case why being in Europe makes us more prosperous, stable and secure. Because at its heart this debate is not just about facts and figures, it is about what kind of country we want to be.

The Leave campaigns cannot agree what they believe in. Some want the UK to be an offshore, deregulated tax haven, others advocate a protectionist, mean-hearted country that shuts it doors to the world. As with so many populist movements, from Putin to Trump, they are defined not by what they are for but what they are against. Their failure to come up with a credible vision for our country's future is not patriotic, it is irresponsible.

This leaves the field open to put forward a united vision of Britain's place in Europe and the world. Liberal Democrats are clear what we believe in: an open, inclusive and tolerant nation that stands tall in the world and doesn't hide from it. We are not uncritical of the EU's institutions. Indeed as Liberals, we fiercely believe that power must be devolved to the lowest possible level, empowering communities and individuals wherever possible to make decisions for themselves. But we recognise that staying in Europe is the best way to find the solutions to the problems that don't stop at borders, rather than leaving them to our children and grandchildren. We believe Britain must put itself at the heart of our continent's future and shape a more effective and more accountable Europe, focused on responding to major global challenges we face.

Together in Europe we can build a strong and prosperous future, from pioneering research into life-saving new medicines to tackling climate change and fighting international crime. Together we can provide hope for the desperate and spread the peace we now take for granted to the rest of the world. And together we can show the world a generous, outward-facing Britain we can all be proud of. So if you agree then join the Liberal Democrat campaign today, to remain in together, and to stand up for the type of Britain you think we should be.