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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Calum Kerr on Governing the Digital Economy

With the publication of the UK Digital Strategy we’ve seen another instalment in the UK Government’s ongoing effort to emphasise its digital credentials.

As the SNP’s Digital Spokesperson, there are moves here that are clearly welcome, especially in the area of skills and a recognition of the need for large scale investment in fibre infrastructure.

But for a government that wants Britain to become the “leading country for people to use digital” it should be doing far more to lead on the field that underpins so much of a prosperous digital economy: personal data.

If you want a picture of how government should not approach personal data, just look at the Concentrix scandal.

Last year my constituency office, like countless others across the country, was inundated by cases from distressed Tax Credit claimants, who found their payments had been stopped for spurious reasons.

This scandal had its roots in the UK’s current patchwork approach to personal data. As a private contractor, Concentrix had bought data on a commercial basis and then used it to try and find undeclared partners living with claimants.

In one particularly absurd case, a woman who lived in housing provided by the Joseph Rowntree Foundation had to resort to using a foodbank during the appeals process in order to prove that she did not live with Joseph Rowntree: the Quaker philanthropist who died in 1925.

In total some 45,000 claimants were affected and 86 per cent of the resulting appeals saw the initial decision overturned.

This shows just how badly things can go wrong if the right regulatory regimes are not in place.

In part this problem is a structural one. Just as the corporate world has elevated IT to board level and is beginning to re-configure the interface between digital skills and the wider workforce, government needs to emulate practices that put technology and innovation right at the heart of the operation.

To fully leverage the benefits of tech in government and to get a world-class data regime in place, we need to establish a set of foundational values about data rights and citizenship.

Sitting on the committee of the Digital Economy Bill, I couldn’t help but notice how the elements relating to data sharing, including with private companies, were rushed through.

The lack of informed consent within the Bill will almost certainly have to be looked at again as the Government moves towards implementing the EU’s General Data Protection Regulation.

This is an example of why we need democratic oversight and an open conversation, starting from first principles, about how a citizen’s data can be accessed.

Personally, I’d like Scotland and the UK to follow the example of the Republic of Estonia, by placing transparency and the rights of the citizen at the heart of the matter, so that anyone can access the data the government holds on them with ease.

This contrasts with the mentality exposed by the Concentrix scandal: all too often people who come into contact with the state are treated as service users or customers, rather than as citizens.

This paternalistic approach needs to change.  As we begin to move towards the transformative implementation of the internet of things and 5G, trust will be paramount.

Once we have that foundation, we can start to grapple with some of the most pressing and fascinating questions that the information age presents.

We’ll need that trust if we want smart cities that make urban living sustainable using big data, if the potential of AI is to be truly tapped into and if the benefits of digital healthcare are really going to be maximised.

Clearly getting accepted ethical codes of practice in place is of immense significance, but there’s a whole lot more that government could be doing to be proactive in this space.

Last month Denmark appointed the world’s first Digital Ambassador and I think there is a compelling case for an independent Department of Technology working across all government departments.

This kind of levelling-up really needs to be seen as a necessity, because one thing that we can all agree on is that that we’ve only just scratched the surface when it comes to developing the link between government and the data driven digital economy. 

In January, Hewlett Packard Enterprise and the New Statesman convened a discussion on this topic with parliamentarians from each of the three main political parties and other experts.  This article is one of a series from three of the MPs who took part, with an  introduction from James Johns of HPE, Labour MP, Angela Eagle’s view and Conservative MP, Matt Warman’s view

Calum Kerr is SNP Westminster Spokesperson for Digital