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7 May 2015

The problem of low pay requires more than simply electing a Labour government

The problem of poverty pay and weak income rises won't be solved just by putting Ed Miliband in Downing Street.

By Dan Holden

You would be forgiven for thinking, from the way that it’s been discussed by politicians and the media, that low pay is a recent phenomenon. Ed Miliband has accused David Cameron of presiding over the expansion of a low wage economy and likewise Cameron has been attacking Miliband over the stagnation of wages which began under the last Labour government. The problem is though, that the percentage of people in low pay has been solid for over twenty years; it’s a systemic problems that the biggest two party leader’s cannot pin on each other.

Currently, the percentage of the UK’s workforce which is stuck on low pay is around the 20% mark; a joint Smith Institute/Living Wage Commission report has shown that this has been pretty consistent rate since the mid-1990s. The UKs low pay rate is higher than the OECD average and four times the proportion of that of Belgium; a trend that has been continuing since an increase from the 15% of workers in low in the 1970s.

You could argue, and you would be right, that the minimum wage was a success story when it came to tackling low pay. The percentage of those earning below half the median wage dropped after the minimum wage was introduced, but this success is not mirrored further up the scale. For those earning below two thirds of the median wage, a good (and comparable) proxy for the Living Wage, there was no such improvement.

How can this be the case? The big drop and low level of low pay around the end of the 1960s and into the 70s was as a result of legislation targeted at helping those in low pay, such as the Social Contract of the 1970s and equal pay legislation. The big spike in low pay at around 1993 was as a result of the abolition of wage councils, a spike that was only really addressed around the time of the minimum wage (including anticipatory measures ahead of its introduction). Although the minimum wage was successful, it did not substantially lower the numbers in low pay and nothing to address the sudden increase in numbers earning below the Living Wage in the aftermath of the financial crisis.

The Labour party plans to increase the minimum wage to above £8 an hour by 2019; a policy that is at the heart of their offer on the economy and the world of work, but is also a minimum wage rate that will still be below the projected Living Wage. It’s a great start, but minimum wage policy is no guarantee of tackling low pay. In the same way that the Coalition government’s personal tax allowance reforms have only addressed a part of the issue of how much money people have, Labour needs to look at the underpinning factors and systemic forces which forcing low pay onto certain sectors and groups of people. The minimum wage was one of the shining jewels of New Labour’s achievements, and no one can ever take that away, but the same coalition of opinion support that has been built around the minimum and living wage must be applied across wage policy if we are ever going to tackle low pay. 

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