The Living Wage is much more than a more generous National Minimum Wage (NMW). Its innovation is embedding social justice and the notion of fairness – that everyone is entitled to a relative, basic standard of living – into the economy.
Although the NMW was a major step forward it is essentially a form of employment protection, such as redundancy pay or statutory sick pay. It is also part of the traditional welfare state model that sees redistribution in the form of tax credits, rather than better pay, as the key to protecting those on low incomes.
The Living Wage concerns one of the fundamental relationships at the heart of our economy and society; that between wage and labour.
Unlike the neoliberal economic era, the economy of the Living Wage believes pay should not based on purely hard-headed economic principles; just because employers can pay their employees the NMW is not necessarily a reason to do so.
In forming a part of the wider Responsible Capitalism narrative it can be considered another means of delivering social justice through the economy.
The Living Wage represents a major step on the road to a Responsible Capitalism. The basic principle of Responsible Capitalism is not, however, exclusive to the Labour Party; regardless of the Conservative Party’s ‘moral capitalism’ or the Liberal Democrat Party’s ‘John Lewis economy’, many of the changes that will ultimately drive its creation go beyond party politics.
However, by promoting policies such as the Living Wage Labour, we appear best placed to help bring about this transformation most successfully.
Advocacy alone cannot make it the new norm. The Living Wage can both drive, but also only flourish within, a successful economy and society that accepts a fairer distribution of income.
At the macro level, the share of GDP going into wages may have to increase, reversing the recent historic trend; at the micro level, businesses may adjust the way they operate – for example, reducing discretionary benefits as their wage bills increase. Corporation tax may fall as the Treasury saves money through reduced in-work benefits and an increased tax take. Consumer spending may be boosted if it delivers an overall increase in disposable income.
Clearly, these issues must all be reconciled if a Responsible Capitalism is to be realised.
The movement for a Living Wage reflects the quiet crisis over falling living standards and stagnating incomes. This process predates the crisis, which has subsequently increased concern over the prospects of future generations. It is, however, only one of a plethora of changes taking place around us that together could equate to significant change.
Since the crisis of 2007 and arguably even before this, a vast number of social, political and economic institutions have been in flux. The crisis of these institutions, norms and assumptions is predicated upon the financial and economic difficulties of our time, but the relationship does not necessarily imply a straightforward causation or economic determinism. The relationship is symbiotic; for example, the crisis may have led to an explosion in youth unemployment but it was not its only cause.
More importantly, many now believe we must change our economy to tackle the youth unemployment crisis, rather than wait for an upswing in economic output to reverse the trend. Thus the outcomes of the economic crisis are impacting upon how we view and manage the economy; as the economy changes new norms, institutions and assumptions will be created.
Another example is the City of London. Recent data from the Centre for Economic and Business Research suggests the bonus culture is shrinking, as are the number of ‘City’-type jobs; at the same time, entrepreneurship – particularly in places like the nascent technology hub of East London – is flourishing. This subtle rebalancing of the economy is partly a result of the changing culture within the financial sector, changing social attitudes, and regulation.
Crises abound elsewhere as we re-examine all areas of our political, social and economic life. The banking sector that underpins the economy remains in a state of change. We may not end up with a state-run business bank but they are beginning to operate differently and with different priorities.
The housing market, a pillar of the UK economy for 30 years, is also undergoing profound change. The number of home owners continues to fall, the age at which people buy their first home is increasing, and so is the size of the private rented sector.
If a society gets the press it deserves, then the Leveson Inquiry is evidence society is already moving on from the excesses of the pre-crash years. Technological advances such as Twitter and smartphones continue to drive changes in the way we interact with, and consume, news and entertainment.
The MPs’ expenses scandal and fears over our ‘broken politics’ – including proposed electoral and constitutional reform and continued low turnouts – suggest a political crisis too. My personal view is that this has yet to be played out in full.
The welfare state, universal benefits and the wider post-war settlement continue to be challenged. Intergenerational fairness has risen up the agenda as pensioners begin to enjoy living standards greater than those in their twenties. The challenge of funding elderly social care with a relatively shrinking workforce will present some challenging questions.
The list goes on.
Our relationship with the EU has already begun to unravel and it is unclear where the current debate will take us. Although poorly delivered, the Big Society reflects changing attitudes towards each other, individualism and the importance of civil society.
Predicting what all of this will look like in the end is nigh on impossible, though it’s likely to be very different from the political economy of pre-2007.
The Living Wage is no panacea – there is no reason to suspect that it will alone tackle problems such as income inequality – but its arrival in the mainstream political discourse represents another step towards a Responsible Capitalism.