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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The tale of Battersea power station shows how affordable housing is lost

Initially, the developers promised 636 affordable homes. Now, they have reduced the number to 386. 

It’s the most predictable trick in the big book of property development. A developer signs an agreement with a local council promising to provide a barely acceptable level of barely affordable housing, then slashes these commitments at the first, second and third signs of trouble. It’s happened all over the country, from Hastings to Cumbria. But it happens most often in London, and most recently of all at Battersea power station, the Thames landmark and long-time London ruin which I wrote about in my 2016 book, Up In Smoke: The Failed Dreams of Battersea Power Station. For decades, the power station was one of London’s most popular buildings but now it represents some of the most depressing aspects of the capital’s attempts at regeneration. Almost in shame, the building itself has started to disappear from view behind a curtain of ugly gold-and-glass apartments aimed squarely at the international rich. The Battersea power station development is costing around £9bn. There will be around 4,200 flats, an office for Apple and a new Tube station. But only 386 of the new flats will be considered affordable

What makes the Battersea power station development worse is the developer’s argument for why there are so few affordable homes, which runs something like this. The bottom is falling out of the luxury homes market because too many are being built, which means developers can no longer afford to build the sort of homes that people actually want. It’s yet another sign of the failure of the housing market to provide what is most needed. But it also highlights the delusion of politicians who still seem to believe that property developers are going to provide the answers to one of the most pressing problems in politics.

A Malaysian consortium acquired the power station in 2012 and initially promised to build 517 affordable units, which then rose to 636. This was pretty meagre, but with four developers having already failed to develop the site, it was enough to satisfy Wandsworth council. By the time I wrote Up In Smoke, this had been reduced back to 565 units – around 15 per cent of the total number of new flats. Now the developers want to build only 386 affordable homes – around 9 per cent of the final residential offering, which includes expensive flats bought by the likes of Sting and Bear Grylls. 

The developers say this is because of escalating costs and the technical challenges of restoring the power station – but it’s also the case that the entire Nine Elms area between Battersea and Vauxhall is experiencing a glut of similar property, which is driving down prices. They want to focus instead on paying for the new Northern Line extension that joins the power station to Kennington. The slashing of affordable housing can be done without need for a new planning application or public consultation by using a “deed of variation”. It also means Mayor Sadiq Khan can’t do much more than write to Wandsworth urging the council to reject the new scheme. There’s little chance of that. Conservative Wandsworth has been committed to a developer-led solution to the power station for three decades and in that time has perfected the art of rolling over, despite several excruciating, and occasionally hilarious, disappointments.

The Battersea power station situation also highlights the sophistry developers will use to excuse any decision. When I interviewed Rob Tincknell, the developer’s chief executive, in 2014, he boasted it was the developer’s commitment to paying for the Northern Line extension (NLE) that was allowing the already limited amount of affordable housing to be built in the first place. Without the NLE, he insisted, they would never be able to build this number of affordable units. “The important point to note is that the NLE project allows the development density in the district of Nine Elms to nearly double,” he said. “Therefore, without the NLE the density at Battersea would be about half and even if there was a higher level of affordable, say 30 per cent, it would be a percentage of a lower figure and therefore the city wouldn’t get any more affordable than they do now.”

Now the argument is reversed. Because the developer has to pay for the transport infrastructure, they can’t afford to build as much affordable housing. Smart hey?

It’s not entirely hopeless. Wandsworth may yet reject the plan, while the developers say they hope to restore the missing 250 units at the end of the build.

But I wouldn’t hold your breath.

This is a version of a blog post which originally appeared here.

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