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

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Even before Brexit, immigrants are shunning the UK

The 49,000 fall in net migration will come at a cost.

Article 50 may not have been triggered yet but immigrants are already shunning the UK. The number of newcomers fell by 23,000 to 596,000 in the year to last September, with a sharp drop in migrants from the EU8 states (such as Poland and the Czech Republic). Some current residents are trying their luck elsewhere: emigration rose by 26,000 to 323,000. Consequently, net migration has fallen by 49,000 to 273,000, far above the government's target of "tens of thousands" but the lowest level since June 2014.

The causes of the UK's reduced attractiveness are not hard to discern. The pound’s depreciation (which makes British wages less competitive), the spectre of Brexit and a rise in hate crimes and xenophobia are likely to be the main deterrents (though numbers from Romania and Bulgaria remain healthy). Ministers have publicly welcomed the figures but many privately acknowledge that they come at a price. The OBR recently forecast that lower migration would cost £6bn a year by 2020-21. As well as reflecting weaker growth, reduced immigration is likely to reinforce it. Migrants pay far more in tax than they claim in benefits, with a net contribution of £7bn a year. An OBR study found that with zero net migration, public sector debt would rise to 145 per cent of GDP by 2062-63, while with high net migration it would fall to 73 per cent.

Earlier this week, David Davis revealed the government's economic anxieties when he told a press conference in Estonia: "In the hospitality sector, hotels and restaurants, in the social care sector, working in agriculture, it will take time. It will be years and years before we get British citizens to do those jobs. Don’t expect just because we’re changing who makes the decision on the policy, the door will suddenly shut - it won’t."

But Theresa May, whose efforts to meet the net migration target as Home Secretary were obstructed by the Treasury, is determined to achieve a lasting reduction in immigration. George Osborne, her erstwhile adversary, recently remarked: "The government has chosen – and I respect this decision – not to make the economy the priority." But in her subsequent interview with the New Statesman, May argued: "It is possible to achieve an outcome which is both a good result for the economy and is a good result for people who want us to control immigration – to be able to set our own rules on the immigration of people coming from the European Union. It is perfectly possible to find an arrangement and a partnership with the EU which does that."

Much depends on how "good" is defined. The British economy is resilient enough to endure a small reduction in immigration but a dramatic fall would severely affect growth. Not since 1997 has "net migration" been in the "tens of thousands". As Davis acknowledged, the UK has since become dependent on high immigration. Both the government and voters may only miss migrants when they're gone.

George Eaton is political editor of the New Statesman.