The New Statesman’s rolling politics blog

RSS

How will Labour respond to the Tories' minimum wage plans?

Many in the party would like Miliband to pledge to raise the minimum wage to the level of the living wage, but a large rise in the former is more likely.

Ed Miliband speaks at the Labour conference in Brighton last year. Photograph: Getty Images.

The idea of a significant increase in the minimum wage has been floating around Conservative circles for some months. It is one of the policies advocated by the influential Renewal group, led by David Skelton (a frequent NS contributor), which seeks to broaden the party's appeal among working class voters, and enjoys the support of Tory business minister Matthew Hancock, George Osborne's former chief of staff, who made a notable speech on the subject at the Resolution Foundation last year. 

I was told by several sources before the last Conservative conference to expect an announcement by Osborne himself, but for fear of incurring the wrath of the Low Pay Commission (LPC), which is responsible for setting the minimum wage rate, the Chancellor held back. Now, with the Tories desperate to counter Labour's "cost-of-living" offensive, the idea is back on the agenda, with David Cameron reportedly considering a rise of up to £1. 

The case for an increase in the minimum wage is both political and economic. A significant rise in the main rate, which currently stands at £6.31, would help to counter the charge that the Tories are only "for the rich" and would go some way to redressing the party's disastrous decision to oppose its introduction by Labour in 1999. As Skelton told the FT, "It was a mistake when the party opposed the introduction of the minimum wage and we are still paying for it politically. It made us seem like we were on the side of big business and the rich and it is a hard perception to shake off. This would help enormously." 

The economics are similarly attractive. A 50p rise in the minimum wage (viewed as one of the most likely outcomes), which is now worth no more in real-terms than in 2004, would reduce the benefits bill by around £1bn, improve low-earners' spending power (stimulating growth as a result), as well as increasing productivity, staff morale and employee retention. 

How far the Tories will go remains unclear. The FT reports that Osborne is still unwilling to override the recommendations of the LPC (which may recommend another below-inflation increase when it reports next month) and is concerned about the possible impact on employment (despite the absence of evidence that a rise would cost jobs). One source from the No. 10 policy unit tells the paper: "I think David Cameron would like to do it but he is cautious and I think he would defer to the chancellor on it.  Unemployment has been a good news story for the last two years and we don’t want to rock the boat a year out from the election." But after the briefing of the last few days, it will now be surprising if there is no significant change in the rate this year. 

While the Lib Dems are busy accusing the Tories of "nicking" their ideas, after Vince Cable called for an increase at the Lib Dem conference, many in Labour are feeling far more aggrieved. Is the party that introduced the minimum wage and that has championed it since, really about to allow the Tories to steal the initiative on low pay? 

Having emphasised the need to improve living standards, through lower prices and high pay, Ed Miliband and his team have been thinking hard about what the party can offer on wages. Many Labour MPs and activists (and, indeed, most voters) would like Miliband to pledge to raise the minimum wage to the level of the living wage (£7.65 nationwide and £8.80 in London) but with respected forecasters such as NIESR estimating that a stautory living wage would reduce labour demand by 160,000 jobs, the equivalent of a 0.5 per cent rise in unemployment, this is not on the party's agenda. At most, Miliband will pledge to ensure that all public sector contractors and government departments pay the living wage and provide incentives for private sector employers to do so. Alongside this, Labour figures are considering how best to increase the value of the minimum wage, with linking the main rate to inflation one option being closely examined. Policy is likely to be determined when Alan Buckle, the deputy chair of KPMG, concludes his low pay review for the party. 

But for now, at least, the party can take pride in having moved the centre ground to the left. Until recently, it was still to common to hear Tories warn that the minimum wage was destroying jobs; now they are competing with each other to see who can argue for the biggest rise. Moreover, if all the parties are prepared to engage in a sustained contest over who can best increase living standards, that is good news for all voters and for the economy.