Planning for a pay rise – could 'forward guidance' work for Britain’s low paid workers?

The Low Pay Commission should consider setting out how the minimum wage would increase over time if the recovery is sustained.

How will the low paid fare should the economy move into a period of steady growth? This question is already creating interest across all three parties and looks set to become ever more central to the 2015 election - especially if living standards continue to decline at the same time as growth picks up.

So we can expect there to be more interest in the nuts and bolts of how the minimum wage is set and whether it is likely to rise much over the medium term. Given that the wage floor has already fallen back below the level it was at in 2004, there are some who would favour an immediate hike, perhaps up to the level of the Living Wage, regardless of the fragility of the labour market. Many others worry about the impact of a higher minimum wage on unemployment (even if it is falling a bit) and future job growth. Faced with these competing pressures, policy-makers remain locked-in to the status quo in which the Low Pay Commission (LPC) takes an evidence-based, incremental, and typically cautious look at the level of the wage floor every 12 months.

One possible route through this bind would be to set out how the minimum wage would increase over time if, and only if, the recovery is sustained. If this sort of conditional approach towards policy-making sounds familiar it’s probably because it echoes the much hyped ‘forward guidance’ for monetary policy which has been introduced by Mark Carney at the Bank of England.

In relation to low pay, forward guidance could mean the LPC setting out the path of future increases in the minimum wage over a number of years so long as the recovery is maintained and unemployment falls. If, however, the economy weakens the LPC would revert to setting the minimum wage a year at a time. This approach would mean a shift from the established pattern of annual uplifts but it wouldn’t be wholly exceptional (the LPC has in the past set out its intention to increase the minimum wage above average earnings over a number of years).

What might be the upside of this sort of approach? Well, it could give the lowest paid workers some much needed confidence that they won’t be locked out of any recovery. It would also give employers far greater certainty over the size of the wage pressures they would need to absorb over the medium term. And, politically, it would be used as a way of demonstrating that the low paid will share in growth whilst also providing an escape route should the economy flat-line again.

Easy, then? No – this would be tricky to get right.

There would be wage-disappointment, or more likely wage-rage, if the economy under-performs and the promised increases in the wage floor fail to materialise. A broken promise (as it would be seen) of a pay-rise that fails to show up may well be worse than receiving no such promise in the first place. Employer groups would doubtless blanch at what will inevitably look like chunky increases over the medium term. And, as Mr Carney’s critics have pointed out in relation to monetary policy, there is no such thing as a perfect proxy measure which can reliably be used as a good guide as to whether or not the recovery is robust.

More specifically, if the LPC set out cash figures for the future level of the minimum wage over a number of years then this would effectively mean that the lowest paid workers in the land would be bearing the risk of inflation rising faster than forecast – hence the future increases might need to be set out as rises relative to inflation (which isn’t so easy to communicate). And, if it looked too much like the government was leaning on the Low Pay Commission, seeking to muscle it into increases that it didn’t want to make, then some members may walk away altogether, which could destabilise an institution that has served us well.

Yet for all these challenges, this and other ideas on how best to tackle low pay need to be very carefully looked at. Objections will be raised against any proposal that leads to an increase in the wage floor, many of them coming from the very same people who opposed its introduction in the first place. Fifteen years on, it’s time to consider where next for the minimum wage and to interrogate these and other ideas that could help make it relevant to the decade ahead (as a Resolution Foundation project is doing).

Despite the rhetoric coming from all sides, there is a real risk that interest in improving the plight of the low paid fails to translate into workable policy ideas that will improve the wages of many of those at the sharp end. As things stand, any recovery could all too easily pass them by. Maybe it’s time to plan for a pay-rise. 

Council workers from the Unison union picket outside Manchester Town Hall. Photograph: Getty Images.

Gavin Kelly is a former adviser to Downing Street and the Treasury. He tweets @GavinJKelly1.

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Mister Lizard is not at home to bailiffs – he is eating salmon pâté by the river

Why is it that when people answer the question “What’s the worst thing anyone’s ever said to you?” in the Guardian questionnaire they never say, “You’ve been served”?

Summer’s nearly over. I look at the angle of the sunlight as it strikes the back terrace of the Hovel. I have been here long enough to use the terrace as a gnomon marking the passage of the year. I need, like the protagonists of Withnail and I, to go to the countryside to rejuvenate.

Last week when the Perseids were meant to be in full flow I asked frantically on a social medium for people to chum me along on a midnight walk on Hampstead Heath. In the end my new friends A— and her husband, C—, together with his new friend (whose initial I have forgotten, but he is Australian, if that helps), stepped up to the plate and after a couple at the Flask we went on a wide-ranging tour, which was a bust as far as seeing meteors – or my favourite tree – went, but was still hugely enjoyable. At about 2 am they packed me into an Uber and I went home happy, but I still felt as if I could do with more countryside.

The next few days made me even more anxious to get out of London. There are ominous signs that some serious roadworks are going to be taking place outside my bedroom window any day now. A bailiff came and rang the doorbell and I didn’t have the heart, or the nerve, to say that Nicholas Lezard was not at home at the moment and, is, in fact, on a walking tour of Patagonia now I come to think of it, due back some time next year. I just took the piece of paper into my hands as if it were a chicken come home to roost.

The previous day, presumably the same bailiff had come round and asked if Mr Lizard was in, and my housemate gallantly – and quite truthfully – said “no”. (Why is it that when people answer the question “What’s the worst thing anyone’s ever said to you?” in the Guardian questionnaire they never say, “You’ve been served”? Maybe it’s because they haven’t ever been.) In addition, as I said last week, the cleaning lady is on holiday and the Hovel is starting to look distinctly seedy.

So, then I get a call from a person who once featured quite prominently in this column, some time ago. This person is bored and wants me to go to his or her town and alleviate his or her boredom. This person and I parted company in circumstances that were far from ideal some time ago, and only recently have diplomatic relations been resumed.

It is too late, I say, for me to get on the train now; but when I have reviewed the book I am meant to be reviewing, I will hop on the train tomorrow around noon. And so I do, despite some monkey business from the departures board at King’s Cross, which tells passengers the 12:44 has been cancelled, then hasn’t been, then has, then hasn’t after all, while the 12:14 has slipped away like a thief in the night without telling anyone it was doing so.

I wonder if my return to the town of ——— is wise. As a dog returneth to its vomit, so doth a fool return to his folly. And the burnt hand fears the fire. Look, I say to myself, all we’re doing is going to have a picnic by the river. As we buy our supplies, the stallholder at the market asks if I am my companion’s husband. “No, he’s my picnic buddy,” he or she replies. “Never heard it called that before,” says the stallholder.

And the day passes perfectly pleasantly. We have two bottles of wine, cheese and smoked salmon pâté with crusty bread. People in punts drift past us, with varying degrees of competence. I remember it is A-level results day and call the eldest boy to ask how he’s done. He’s done well enough, it turns out, to get a place at university, though he feels obliged to point out that his results came in exactly a year ago. This is the kind of thing that happens when the number of children you have exceeds your mental bandwidth.

Later on, a porter from the college behind which we are picnicking asks me if I am a member, or an alumni. “Alumnus,” I correct him gently, hoping that this should establish my credentials. He asks for my name, and he radios the porters’ lodge to check my veracity. For some reason it takes him several goes to get my name right.

One of these goes is “Lizard”. We offer him some cheese, but he refuses, on the grounds that he has just had a banana and a cup of tea. I could live in a guest room here, I reflect, at not much higher rent than one pays in London. And the beauty of it is that the police, and presumably bailiffs, have to ask permission to go through the gates. 

Nicholas Lezard is a literary critic for the Guardian and also writes for the Independent. He writes the Down and Out in London column for the New Statesman.

This article first appeared in the 25 August 2016 issue of the New Statesman, Cameron: the legacy of a loser