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  1. Politics
30 September 2014

As Osborne ducks the issue of low pay, Labour can create a new dividing line

Ed Miliband has set himself an ambitious target to change the shape of the economy by 2025; he can create a new dividing line with the Tories on improving living standards for millions of low-paid workers.

By Cameron Tait Cameron Tait

As the BBC’s coverage of the Labour party conference cut away from Ed Miliband’s speech, Andrew Neil pressed Charlie Falconer for an instant reaction. “It’s a speech that will draw a lot of analysis over the coming days” Falconer offered. This turned out to be an accurate prediction, but probably not for the reasons Falconer imagined. In fact, while much scrutiny has been given to what was missing in Miliband’s speech, relatively little space has been awarded to the sections Miliband remembered to say.

While it may have been a flat speech by Miliband’s standards, and it may have missed crucial parts on immigration and the deficit, it was not an empty speech. Miliband set out a bold promise of halving the number of people in low pay by 2025. In contrast, George Osborne, once a proponent of a higher National Minimum Wage, abandoned this ground in his own conference speech yesterday. But Labour’s chief policy to deliver on this goal – increasing the National Minimum Wage to £8 an hour by 2020 – will not be enough.

Miliband’s goal of halving the number of people in low pay by 2025 is an adaptation of the top recommendation of the Living Wage Commission, which proposed a target of bringing 1 million people out of low pay by 2020. Miliband has effectively promised a payrise for twice the number of people over twice the amount of time. This is a bold and decidedly optimistic pledge to radically transform Britain’s labour market into a higher-pay, higher-productivity model over the course of a decade.

However, the means by which Miliband has so far set out how he will do this, increasing the National Minimum Wage to £8 an hour by 2020, will be nowhere near enough to do this on its own. In fact – and this underlines the criticism that Miliband is facing a challenge to deliver the radical policies that match his radical vision – it would do virtually nothing to affect the number of people in low pay.

The £8 an hour announcement is essentially a re-announcement of a previous policy: to link the National Minimum Wage to median earnings. If wages rise at the levels forecasted by the Office for Budget Responsibility, an £8 minimum wage in 2020 would be 54% of the level of median wages, the exact same proportion as the current minimum wage is to the current level of median pay. Crucially, this steady rise would do little to bring people out of ‘low pay’ as the low pay threshold is usually defined as two thirds of median pay – a markedly higher figure than Labour’s proposed minimum wage.

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If Miliband is to meet his target of halving the number of people in low pay by 2025, he needs to be much bolder than linking the National Minimum Wage to median earnings. Instead, he needs to find ways to tackle the root causes that lie behind our low wage economy.

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There are a variety of different issues – many sector specific – acting as a blocker to a higher National Minimum Wage. The UK retail sector has among the lowest productivity levels in Europe. Only 4 per cent of UK hospitality workers are members of a trade union. Social care budgets are being squeezed so tightly, some providers are struggling even to meet the current National Minimum Wage. And the Living Wage campaign has shown that there are a great many employers that can afford to pay higher wages to the lowest paid staff, but are not yet doing so. These are all issues that need to be resolved if Miliband is to deliver on his ambitious 2025 target.

George Osborne’s speech yesterday repeated one of the chief Conservative attack lines going into the next election – that Labour has no vision for the economy. But Miliband’s speech revealed a radical vision – an end to ‘low pay Britain’ by rebuilding a higher pay, higher productivity economy. The vision is there. What Ed Miliband needs between now and May is a proper plan to deliver it.

Cameron Tait is a senior researcher at the Fabian Society. He was previously head of research and secretary to the Living Wage Commission