Today I visited Birmingham with Ed Miliband. We met Rachel Palmer, a single mum who was made redundant and now works in retail on the minimum wage. Rachel has a 19 month old son and has to pay £40 a day for childcare. She travels seven miles to work. She told Ed and me about her struggle to ensure there’s enough food to feed her family and to pay the cost of rising bills. Rachel wasn’t asking for luxuries, just the basics to enable her to get by.
Stories like hers are far too common today, with the number of people earning less than a living wage soaring from 3.4 million people in 2009 to 5.2 million today. As Alan Buckle argues compellingly in his report on Britain’s low pay challenge published today, this isn’t just a problem for increasing numbers of low paid workers and their families. It’s a cost to the Treasury for which taxpayers pick up the bill – with low pay now costing us an estimated £3.23bn a year in lost revenue and extra expenditure on benefits and tax credits. So making work pay is essential to dealing with the deficit in a fair way and getting the costs of social security under control.
And low pay is a barrier to building the high-skill, high-investment, high-productivity economy we need to compete in a global "race to the top". The UK economy is more reliant on low paid workers than most others in the OECD. And this is especially true of service sectors such as retail and care where people often assume low pay is inevitable, but where training levels and progression pathways are often inferior to those seen in other countries
We can and must do better than this. That’s why Ed Miliband and I asked Alan Buckle to look at options for strengthening the minimum wage and promoting the living wage, learning from and building on the brilliant work of the Low Pay Commission which the last Labour government established, and the inspiring campaigns for the living wage we have seen from progressive businesses, trade unions and campaigns like Citizens UK.
At its heart is a compelling argument for setting a medium-term target for the minimum wage that the Low Pay Commission would be asked to aim for over a five year period. This would be consistent with maintaining the partnership and evidence-based approach that has worked so well in the past, as well as the flexibility needed to safeguard jobs and the economy. It would be the Low Pay Commission’s job to meet this target with recommendations year to year on the cash level of the National Minimum Wage. If they believe that the target cannot be met they would be expected to write to the Secretary of State for Business, Innovation and Skills with compelling reasons for that judgement.
Ed Miliband confirmed today that Labour will set an ambitious target for the minimum wage over the length of the next parliament, so we set the nation’s sights clearly on the goal of an economy that works for working people and work together with employers and employees to make the progress we need. Alan Buckle’s powerful report contains much valuable analysis and further persuasive recommendations which we will also consider carefully as part of Labour’s policy review.
He suggests new powers for the Low Pay Commission to address variations in productivity and the affordability of pay increases across the economy. We know there are some sectors that could easily afford a higher minimum wage, but in others a large increase in the minimum wage would pose significant challenges to their business models. At present, there is nothing in the remit of the Low Pay Commission to address either case. Alan’s report proposes empowering the Commission to set up partnership-based taskforces that could draw up plans to tackle productivity problems that make it hard for some sectors to make progress, while considering higher rates for those sectors that could afford them.
Another critical part of the package is a tougher enforcement framework. It is estimated that as many as a quarter of a million workers aren’t even paid the current legal minimum wage. Alan Buckle proposes stronger tools for the HMRC and a new role for local authorities in monitoring compliance.
The report argues that the legal minimum wage should remain distinct from the living wage, which has proved to be such a powerful idea precisely because it is a voluntary commitment that has galvanised and empowered working people, consumers and communities. But that doesn’t mean that government has no part to play in the movement for a living wage. Ed Miliband has already proposed that if employers commit to paying the living wage in the first year of the next parliament, government should share some of the initial fiscal savings that result through "Make Work Pay" contracts.
Alan suggests that in addition to this government could require greater transparency of large companies so that campaigners can see which don’t pay the living wage, and what it would cost them to do so. And he suggests that government could lead the way and set an example through its own employment and procurement policies. Analysis shows that if central government departments required contractors to pay staff working on government contracts a living wage, about 30,000 workers would benefit.
Of course, any these measures, would have to go hand-in-hand with the full raft of policies Labour has been setting out to strengthen our economy and support the creation of more high-skilled jobs paying decent and rising wages, from ending the abuse of zero hours contracts to strengthening vocational pathways and improving infrastructure planning. There has to be a joined-up effort across government to build an economy that competes globally not on the basis of cutting costs and increasing insecurity but through investment and innovation to drive up quality and productivity. But the best economic evidence as well as the experience of other countries shows that effective wage floors can have a positive and complementary role to play in such strategies, as well as ensuring that all workers can share fairly in their success.
A constituent of mine in Leeds West reminded me of an astonishing advert for a security guard job advertised in the mid-1990s. It said "£1 an hour, 100 hours a week. Supply your own dog." In 1999 the National Minimum Wage brought in by a Labour government made a huge difference, for the first time putting a legal floor on wages, putting an end to this sort of exploitation. But today we need to go further and as Ed Miliband set out today, a strong and rising National Minimum Wage will be a critical component of Labour’s plan to earn our way out of the cost of living crisis and raise living standards for the next generation.
Rachel Reeves is shadow work and pensions secretary