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18 May 2014updated 19 May 2014 8:43am

Miliband makes his big offer on the minimum wage

The minimum wage will rise faster than median earnings over the next parliament. 

By George Eaton

There are two components of the living standards crisis that Ed Miliband has made it his defining mission to tackle. The first is excessive prices, the second is inadequate wages. Miliband has recently had much to say about the former, pledging to freeze energy bills, extend free childcare and cap rent increases. But he has had less to say about the latter. When George Osborne announced in January that he hoped to increase the national minimum wage to £7 by 2015-16, many in Labour complained that the party hadn’t pre-empted his offer. To date, Miliband has limited himself to an often vague-sounding pledge to “strengthen” the legal minimum. Labour MPs and activists, who want to see it substantially hiked, not merely better enforced, are critical of such moderation. 

But tomorrow he will go a long way to assuaging their concerns. At the launch of former KPMG deputy chairman Alan Buckle’s report on low pay for the party, he will endorse its central recommendation to increase the minimum wage faster than median earnings over the course of the next parliament, so that the gap between the two is significantly narrowed (the former currently represents 53 per cent of the latter). 

A Labour source told me: “We see this as taking the minimum wage from tackling the real bottom-end of the labour market, the worst cases of exploitation, which is what it was originally designed to do, to a whole new ballgame. We’re now saying we’re going to tackle low pay by having a minimum wage which is explicitly linked to median wages, so when the economy does well and median wages rise, so will the minimum wage. And in order to get that process started, we’re going to dramatically increase the proportion that the minimum wage represents.” From an instrument to tackle poverty pay, the minimum wage will be transformed into one to tackle long-term inequality. 

In recent years, the minimum wage has fallen back to its 2004 level, leaving 5.2 million people (one in five of all workers) stranded on low pay, up from 4.8 million in 2012 and 3.4 million in 2009. The cost to the state, in the form of lost tax revenue and higher benefit payments, is estimated at £3.23bn a year.

Were the policy to be implemented, it would represent the most significant change to the minimum wage since its introduction in 1999. At present, the independent Low Pay Commission (LPC) recommends an annual rate every 12 months. But under Labour’s plan, its mandate would be reformed to give it a legal duty to consider pay over a longer time frame, comparable to the Bank of England’s 2 per cent inflation target. Alongside this, it would be empowered to create taskforces with employers and employees to boost productivity and wages in low-paid sectors, and ensure that those sectors which can afford to pay more do so. Crucially, however, the LPC would retain the capacity to “take account of shocks to the economy”. 

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Many in Labour will continue to regard the new policy as inadequate. They, in common with most of the public, would like to see the minimum wage (currently £6.31 an hour) raised to the level of the living wage (£7.65 nationwide and £8.80 in London). But while Labour is unlikely to pledge to do so (owing to the 160,000 jobs that NIESR estimates the move would cost), Miliband will say in his speech tomorrow that he will set out his “precise ambition” closer to the general election. 

Alongside this, Labour sources emphasise that the party will promote the living wage by making it a condition of major government contracts and by offering temporary tax incentives to firms to raise pay (under the Make Work Pay contracts previously announced). 

Miliband will say tomorrow: 

Britain is still one of the lowest paid countries among the world’s advanced economies. So we have to go further, we have to write the next chapter in the history of Labour’s battle to make work pay. It is time to raise our sights again because Britain can do better than this.

The next Labour government will restore the link between hard work and building a decent life for your family. And today, Alan Buckle’s Report begins to tell us how: it means promoting a Living Wage which is what our fantastic Labour councils are already doing. But most of all it means setting new ambitions for our country.

That’s why today, I am proud to announce that the next Labour government will take new radical action against low pay: a new five-year ambition to restore the link between doing a hard day’s work and building a decent life for your family. A Labour government will establish a clear link between the level of the minimum wage and the scale of wages paid to other workers in our economy. We will say workers on the minimum wage must never be left behind because those who work hard to create our nation’s wealth should share in it. 

This mission to tackle low pay will be in England, Wales, Northern Ireland – and Scotland too – because social justice is best achieved by working together rather than competing against each other in a race to the bottom on wages, tax rates and aspirations for our country. And by helping to make work pay for millions we will chart a new course for Labour too, changing our economy to make work pay and tackle the cost of failure in our social security system too.

Just as when the last Labour government created the National Minimum Wage, the next Labour government will do this in partnership with business once again, allowing employers the certainty they need to plan ahead.

I will set out the precise ambition Labour will propose closer to the election. But today I want to welcome this central recommendation of Alan Buckle’s report and state plainly that, under the next Labour government, hardworking Britain will be better off.

How the Tories will respond is uncertain. In recent months, they have taken an “adopt or kill” approach to Labour’s policies: trashing proposals such as a cap on rent increases and living wage deals, while embracing others such as a limit on payday loan charges. But having made such play of their commitment to increase the minimum wage in real-terms and of their regret at their decision to oppose its introduction, they will surely seek to echo Miliband’s ambitions. 

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