Tag: Low Pay Commission

The Resolution Foundation’s review of the Conservative’s “Living Wage”

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The Conservatives’ summer budget saw a new national minimum wage set. However, it has been  re-branded as a “national living wage” as the Conservatives claim that it should be what people need to live on. Employers will no longer be allowed to pay the £6.70-an-hour rate, but will have to pay the new “national living wage” of £7.20 an hour to people over the age of 25. Call me a cynic, but the psychosemantic re-branding of a minimum wage increase of less than a pound an hour is a diversion because the government intend to stop subsidising low wages through tax credits. 

Increasing the minimum wage is simply not adequate to reduce poverty. Forty per cent of individuals earning between the minimum wage and the actual amount that would be the Living Wage campaigners want, are in households in the top half of the income distribution. They aren’t poor. Tax credits on the other hand are much more highly targeted at those in need of support. Whilst the public understand what the minimum wage was about, renaming this new policy the “National Living Wage” will inevitably create confusion, as many will incorrectly assume that the government are targeting the same rate as that advocated by the Living Wage campaign – a figure based on estimates in line with the cost of living. They aren’t.

The Living Wage Foundation say:

  • The current UK Living Wage ought to be £8.25 an hour
  • The current London Living Wage ought to be £9.40 an hour

However, the Resolution Foundation have issued a press release that says the Prime Minister should allow the in-built flexibility of the “national living wage” to “take its course.”

Conor D’Arcy, Policy Analyst at the Resolution Foundation, said: “Some businesses are unhappy about a higher minimum wage, particularly amid the post-referendum uncertainty. But backsliding on the government commitment is unnecessary given the in-built flexibility of the policy to adjust to changing economic circumstances. It would also be costly for millions of low paid workers, so the Prime Minister should stick to her guns.”

Backsliding on the so-called “National Living Wage” (NLW) could leave some full-time workers up to £1,000 a year worse off by 2020 – with women, the young and older workers most likely to lose out – according to the new analysis published yesterday (Wednesday) by the Resolution Foundation.

Earlier this year, the introduction of the NLW delivered an average 7.5 per cent pay rise to around 4.5 million workers aged 25 and over. Low-paid workers are set for another four years of above average pay rises as it approaches its target ‘bite’ of being worth 60 per cent of typical hourly pay by 2020.

More recently, May has put tackling squeezed living standards at the centre of her new government. However, some business organisations have called on the government to water down its plans following the EU referendum. In a letter to the Business Secretary Greg Clark, 16 trade associations called on government to “exercise caution” in light of “the economic uncertainties the country faces”.

Such calls are understandable given the challenge of a higher wage floor for some businesses. However the Foundation says that the in-built flexibility of the NLW – which automatically adjusts to economic shifts by being pegged to typical hourly pay, rather than the £9 cash figure that many people associate the policy with – means that there is no need to water down the policy.

The Foundation’s analysis, based on the latest summary of independent economic forecasts published by the Treasury, shows that the NLW is currently on track to rise to around £8.70 in 2020. That’s lower than the £9 forecast in the March 2016 Budget, due to expectations of weaker wage growth. The Foundation notes that the projected figure for 2020 is likely to rise and fall in coming years as wage forecasts are updated and the actual impact of implementing Brexit becomes clear.

The Foundation says the Prime Minister should therefore stick to her guns and press on with implementing a policy that will deliver a pay rise for six million workers – and support her vision for an economy that works for everyone, not just the privileged few.‎

Torsten Bell, Director of the Resolution Foundation, said:

“Theresa May is right to stick to her guns on the National Living Wage. Britain has a serious low pay problem and now of all times is not the moment to put off dealing with it.”

The Foundation adds that sticking to the current policy is very different to pursuing a cash target of £9 or higher in the face of weaker overall wage growth. That approach, which some advocate‎, could jeopardise the success of the NLW.

Ahead of a crucial meeting of the Low Pay Commission in October to decide their recommendation for next April’s NLW rate, the analysis shows that should the government scale back its ambition over the next four years – for example by raising the NLW at a similar pace to the recent minimum wage increases applied after the 2008 financial crisis – its value would fall by around 55p per hour in 2020. This would lower the annual pay of a full-time worker on the NLW by around £1,000, relative to current plans. Should the current ‘bite’ of the NLW be maintained, rather than increased to 60 per cent by 2020, the annual pay would be reduced by £1,500.

Around one in five women and one in five workers aged 26-30 would lose out from any backsliding on the National Living Wage, as would over a quarter of workers aged 66 and over.

The Foundation says that the main focus for the government should now be on implementation. To do this, it is calling for the government’s upcoming industrial strategy and productivity plan to include a focus on the often unheralded low-paying sectors of the economy, and not just on areas like digital and high-value manufacturing. This will help employers handle the higher labour costs brought about by the NLW.

The analysis is part of the Foundation’s upcoming report Low Pay Britain 2016, which will be published later this month.

Conor D’Arcy, Policy Analyst at the Resolution Foundation, said:

“The National Living Wage is a hugely popular policy that is set to deliver a pay rise to six million of Britain’s lowest paid workers and play a pivotal role in the Prime Minister’s vision for an economy that works for everyone, not just the privileged few.

“Understandably some businesses are unhappy about a higher minimum wage, particularly amid the post-referendum uncertainty. But backsliding on the government commitment is unnecessary given the in-built flexibility of the policy to adjust to changing economic circumstances. It would also be costly for millions of low paid workers, so the Prime Minister should stick to her guns.

“The government’s attention should instead turn to the huge task of implementation. This should ensuring that its upcoming industrial strategy includes the less glamorous but hugely important sectors like retail and hospitality, which are at the coalface of Britain’s huge low pay challenge.”

Review recommendations

  • While the National Living Wage is a welcome boost to low earners, the Living Wage with its genuine link to an acceptable cost of living, remains as vital as ever.
  • But as we have made clear, improvements are possible in both methods and seeking alignment will inevitably lead to change. We believe the recommendations we have outlined in this review represent a genuine improvement over the current methods. The aligned method should be more representative, more robust and, most importantly, driven to a greater extent by changes in the cost of living.
  • Inevitably, calculating a Living Wage requires judgement calls. Policy changes like the introduction of Universal Credit would always have required judgements on how the new system is phased into the rate. Having a body like the Living Wage Commission to make such decisions when required in future can only be an asset to the Living Wage campaign as it moves forward.
  • The natural question which follows these recommendations is what impact is likely on the rates themselves. However, the next steps are for the Living Wage Commission to consider our recommendations. The options they choose will determine the extent to which the rates vary from their current levels.
  • Broadly speaking however, the aligned method we have recommended is likely to have an upward effect on the London Living Wage. We consider this to be an unavoidable consequence of a Living Wage rooted in an up-to-date basket of goods with a more diverse mix of family types. There is a clear discrepancy in the target income between London and the rest of the UK, and as highlighted by recent analysis on the size of London salary weightings[1] the differential between rates should be larger than at present. The exact size of the increase will depend on the Living Wage Commission and Mayor’s response to our review. They also have a role in setting out a how to implement and transition to the new rates in London and the rest of the UK.
  • The Living Wage Commission is expected to respond to our review in September 2016. With a strong, aligned methodology and an enhanced governance structure, we see no reason why the Living Wage cannot continue to raise the wages of workers across the UK, delivering more families an acceptable standard of living.

Notes 

  • The ‘bite’ of the National Living Wage – its value relative to typical hourly pay – is set to increase by 4.3 percentage points over the next four years. The ‘bite’ of the National Minimum Wage (NMW) increased 1.7 percentage points in the four years following the financial crisis. Should the NLW instead follow this path, rather than the one currently set out, its value in 2020 would fall to £8.17 an hour. That’s 55p an hour less than the latest economic forecasts imply, equivalent to £1,075 to a full-time worker on the NLW.
  • The Resolution Foundation forecasts that by 2020 around 12 per cent of workers will be earning the National Living Wage, including 19 per cent of women, 19 per cent of 26-30 year olds and 26 per cent of workers aged 66+. 

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The budget: from trickle-down to falling down, whilst holding hands with Herbert Spencer.

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“We are moving Britain from a high welfare, high tax economy, to a lower welfare, lower tax society.”
George Osborne, 8 July 2015

The pro-wealthy and anti-humanist budget indicates clearly that the Conservatives are preoccupied with highlighting and cutting the state cost of sustaining the poorest citizens rather than the costs of subsidising the rich.

I’ve pointed out before that the Conservatives operate a perverse, dual logic: that wealthy people need support and encouragement – they are offered substantial financial incentives – in order to work and contribute to the economy, whereas poor people apparently need to be punished – by the imposition of financial cuts – in order to work and contribute to the economy.

That Osborne thinks it is acceptable to cut the lifeline benefits of sick and disabled people to pay for government failures, whilst offering significant cuts to corporation tax rates; raising the tax-free personal allowance and extending inheritance tax relief demonstrates very clearly that the myth of trickle-down is still driving New Right Conservative ideology, and that policy is not based on material socio-economic conditions and public need. (And Cameron is not a one-nation Tory, despite his claims.)

Research by the Tax Justice Network in 2012 indicates that wealth of the very wealthy does not trickle down to improve the economy, but tends to be amassed and sheltered in tax havens with a detrimental effect on the tax bases of the home economy.

A more recent report – Causes and Consequences of Income Inequality : A Global Perspective by the International Monetary Fund concluded in June this year that there is no trickle-down effect –  the rich simply get richer:

“We find that increasing the income share of the poor and the middle class actually increases growth while a rising income share of the top 20 percent results in lower growth—that is, when the rich get richer, benefits do not trickle down.”

It’s inconceivable that the Conservatives fail to recognise such policy measures will widen inequality. Conservatives regard inequality and social hierarchy as inevitable, necessary and functional to the economy. Furthermore, Conservatives hail greed and envy as emotions to be celebrated, since these drive competition.

Since the emergence of the New Right, from Thatcher to Cameron, we have witnessed an increasing entrenchment of Neoliberal principles, coupled with an aggressive, authoritarian brand of social conservatism that has an underpinning of crude, blunt social Darwinist philosophy, as carved out two centuries ago by the likes of Thomas Malthus and Herbert Spencer.

Spencer is best known for the expression “survival of the fittest,” which he coined in Principles of Biology (1864), after reading Charles Darwin’s work. Spencer extended natural selection into realms of sociology, political theory and ethics, ultimately contributing to the eugenics movement. He believed that struggle for survival spurred self-improvement which could be inherited. Maslow would disagree. All a struggle for survival motivates is just a struggle for survival.

Spencer’s ideas of laissez-faire; a survival-of-the-fittest brand of competitive individualism; minarchism – minimal state interference in the processes of natural law – and liking for private charity, are echoed loudly in the theories of 20th century thinkers such as Friedrich Hayek,  Milton Friedman and Ayn Rand who each popularised Spencer’s ideas, whilst Neoliberal New Right Conservatives such as Ronald Reagan, Margaret Thatcher and David Cameron have translated these ideas into policies.

Ideology has considerable bearing on policies, and policies may be regarded as overt, objective statements of political intent. I’ve said many times over the past five years that Conservatives have forgotten that democracy is based on a process of dialogue between the public and government, ensuring that the public are represented: that governments are responsive, shaping policies that address identified social needs. Conservative policies are quite clearly no longer about reflecting citizen’s needs: they are increasingly authoritarian, and all about telling us how to be.

Conservatives have always coldly conceived society as a hierarchy of human value, and they have, from their pinnacle of supremacist, self-appointed authority, historically cast the vulnerable and the poorest as the putative “enemies of civilization.” Social Darwinism is written in bold throughout their policies.

Furthermore, such a combination of Neoliberal and Conservative political theory, explicitly opposes democratic goals and principles. Neoliberalism was originally used by academics on the Left as a pejorative to capture the policies of imposed exploitation, privatisation, and inequality.

Neoliberalism is now characterised by the use of international loans and other mechanisms to suppress unions, squash state regulation, elevate corporate privilege, privatise public services, and protect the holdings of the wealthy. The term became widely recognised shorthand for rule by the rich, authoritarianism and the imposition of limits on democracy.

Banks, corporations, the financial sector, and the very wealthy are exercising power and blocking any attempt to restructure the economic system that brought about the crash.

Meanwhile, the free market is a market free for powerful interests; the profit motive has transformed the organising value of social life, and those who the Conservatives evidently regard as collateral damage of this socio-economic dogma made manifest are paying the price for the global crash, with Osborne and the Conservatives constructing narratives that problematise welfare support, generating moral panic and folk devils to demonise the poorest citizens in need of support.

Growing social inequality generates a political necessity for cultivating social prejudices.

Such Othering narratives divert public attention from the fact that the right to a fair and just legal system, a protective and effective safety net for the poorest, free healthcare – all of the social gains of our post-war settlement – are all under attack.

I have said elsewhere that Conservative ideology is incompatible with our legal commitments to human rights. The United Nations declaration of Human Rights is founded on the central tenet that each and every human life has equal worth. The Conservatives don’t agree, preferring to organise society into hierarchies of worth and privilege.

Conservative austerity measures and further impending welfare cuts are not only a deliberate attack on the poorest and most vulnerable social groups; the range of welfare cuts do not conform to a human rights standard; the “reforms” represent a serious failure on the part of the government to comply with Britain’s legal international human rights obligations.

The cuts announced by the chancellor include a further reduction to the benefits cap – not only from £26,000 to £23,000, as promised in the Conservative Party’s 2015 manifesto, but down even further to £20,000 outside of London.

Child tax credit, housing benefit and working tax credit will be reduced, with child tax credit only being paid for the first two children. Presumably this is, to quote Iain Duncan Smith, to “incentivise behavioural change,” placing pressure on the poorest to “breed less,” though personally, being the direct, blunt, no-nonsense sort, I prefer to call it a nudge towards “eugenics by stealth.”

The Social Mobility and Child Poverty Commission say that any cuts to tax credits will cut the incomes of 45 per cent of working families. These cuts are particularly controversial, since the benefits cap was partly justified as a way of “making work pay”  – a Conservative narrative that echoes the punitive 1834 New Poor Law Principle of less eligibility – see: The New New Poor Law.

The Government asserts that its welfare “reform” strategy is aimed at breaking the cycle of “worklessness” and dependency on the welfare system amongst the poorest families. It’s more punitive Poor Law rhetoric.

There’s no such thing as “worklessness”, it’s simply a blame apportioning word, made up by the Tories to hide the fact that they have destroyed the employment market, just as Thatcher did, and as the Conservatives always do.

Punishing the low paid, cutting the income of families who work for low wages directly contradicts the claim that the Conservatives are “making work pay.”

Yet Osborne has framed his welfare cuts with the “The best route out of poverty is work” mantra, claiming that slashing the social security budget by £46 billion in the next five years, (including cutting those benefits to disabled people, who have been assessed as unfit for work and placed in the Work Related Activity Group (WRAG), and cutting in-work benefits, such as tax credits) is needed to make sure “work pays” and that: “we give a fair deal for those on welfare and a fair deal to the people, the taxpayers of this country who pay for it.”

The Conservatives always conveniently divide people into an ingroup of taxpayers and an outgroup of stigmatised others – non-tax payers. However, most people claiming benefits are either in work, and are not paid enough, through no fault of their own, to pay tax, or are pensioners who have worked most of their lives; or are unemployed, but have previously worked and contributed tax.

Most people claiming disability benefits have also worked and contributed tax, too.

Unemployment and in-work benefit claims are generally a measure of how well or poorly the government is handling the economy, not of how “lazy” or “incentivised” people are.

And only the Tories have the cheek to claim that raising the minimum wage (long overdue, especially given the hikes in the cost of living) is the introduction of a living wage. The basic idea is that these are the minimum pay rates needed so that workers have an acceptable standard of living. Over the last few years, wages have very quickly fallen far behind the ever-rising cost of living.

The increase is at a rate of £7.20 an hour for people over the age of 25.  Housing benefit will be withdrawn from those aged between 18 and 21, while tax credits and universal credits will be targeted at people on lower wages by reducing the level at which they are withdrawn.

The chancellor’s announcement amounted merely to an increase in the minimum wage, and the curbs on tax credits would hit low-paid workers in other ways, unfortunately.

Whilst the announcement of a phased increase in the minimum wage is welcome, it is difficult to see how this will reverse the increasing inequality that will be extended as a further consequence of this budget without a matching commitment to improving the structural framework – the quality and stability of employment available. As it is, we are now the most unequal country in EU.

If the government were sincerely interested in raising wages to make work genuinely pay, ministers would be encouraging rather than stifling trade unionism and collective bargaining. But instead we see further cuts to public sector pay in real terms year after year and the raising of the legal bar for industrial action so that strikes will be effectively outlawed in public services. And let’s not forget the grubby partisan policy of two years ago – the Let Lynton Lobby Gagging Act.

Rhys Moore, director of the Living Wage Foundation, said:

“Is this really a living wage? The living wage is calculated according to the cost of living whereas the Low Pay Commission calculates a rate according to what the market can bear. Without a change of remit for the Low Pay Commission this is effectively a higher national minimum wage and not a living wage.”

Those most affected by the extreme welfare cuts are those groups for which human rights law provides special protections. The UK government has already contravened the human rights of women, children, and disabled people.

The recent report of the UK Children’s Commissioner to the UN Committee on the Rights of the Child, published in July this year, says:

“Response to the global economic downturn, including the imposition of austerity measures and changes to the welfare system, has resulted in a failure to protect the most disadvantaged children and those in especially vulnerable groups from child poverty, preventing the realisation of their rights under Articles 26 and 27 [of the UN CRC] … Reductions to household income for poorer children as a result of tax, transfer and social security benefit changes have led to food and fuel poverty, and the sharply increased use of crisis food bank provision by families.”

The parliamentary Joint Committee on Human Rights recently reported on the UK’s compliance with the United Nations Convention on the Rights of the Child (CRC), and found it woefully lacking:

“Welfare cuts will ensure that the government is not in compliance with its international human rights obligations to realise a right to an adequate standard of living under Article 11 of the International Covenant on Economic and Social Rights (ICESR) and a child’s right to an adequate standard of living under Article 27 of the UN CRC. Further it will be in breach of the statutory target to eliminate child poverty contained in the Child Poverty Act 2010.”

Just in case you missed it, there has been a very recent, suspiciously timed change to the definition of child poverty, and a proposed repeal of the Child Poverty Act – something that Iain Duncan Smith has been threatening to bring about since 2013.

It’s yet another ideologically directed Tory budget, dressed-up in the rhetoric of economic necessity, detached from public needs.

And Conservative ideology is all about handouts to the wealthy that are funded by the poor.

Related:

George Osborne’s Political Masterstroke – A View from the Attic

Osborne’s class spite wrapped in spin will feed a backlash – Seumas Milne

Budget 2015: what welfare changes did George Osborne announce, and what do they mean? – New Statesman: The Staggers

How Osborne’s new cuts breach the UK’s human rights obligations – , Lecturer in Law at Lancaster University

Osborne’s Autumn statement reflects the Tory ambition to reduce State provision to rubble

Osborne’s razor: the Tory principle of parsimony is applied only to the poorest

The BBC expose a chasm between what the Coalition plan to do and what they want to disclose

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Thanks to Robert Livingstone