The minimum wage at 15 – fully grown-up?

There is a strong consensus that the National Minimum Wage (NMW) has been a success yet, quite rightly, we are still worried about low pay. Can we do more with the NMW, or should we be thinking about a whole platter of policies to bring about fairer pay?

 By Paul Sellers, TUC minimum wage officer

There is a strong consensus that the National Minimum Wage (NMW) has been a success yet, quite rightly, we are still worried about low pay.

Can we do more with the NMW, or should we be thinking about a whole platter of policies to bring about fairer pay?

These are the sort of questions that we are invited to wrestle with as part of a new review of the NMW and the Low Pay Commission (LPC) launched today by the Resolution Foundation (RF).

George Bain, the founding chair of the LPC, will captain the RF initiative. This morning he reminded us that we should not take the NMW for granted. It was virulently opposed by business and most politicians before its inception and yet now it is a matter of almost complete consensus – and that includes the coalition leadership!

In fact, we on the left do rather tend to discount the NMW, perhaps forgetting that it helps about a million low paid people each year, and that it makes a strong contribution to gender pay equality.

The RF review intends to look at how the NMW can achieve more in the coming period whilst safeguarding the gains already made. RF was likely to pursue three strands of work.

First, it would look at whether the government is pushing, or being pushed, to take strong enough steps to tackle low pay. We want the next Labour government to have good ideas that enable it to do more on pay, so this is an important focus.

Second, Bain said that the balance of responsibilities between state and employer was not right, as the continued prevalence of low pay above the NMW meant that huge subsidies from the exchequer were needed, in the shape of tax credits and in-work benefits. Perhaps it is time to give the LPC a wider remit, which might include looking at the economic implications of low pay and making policy recommendations to deal with it.

Third, one of Bain’s maxims for the LPC was ‘KISS’, meaning ‘keep it simple, stupid’. This translated into setting a single adult rate for all trades, sectors, regions and levels of qualification, with no benefits in kind allowed except a limited amount of credit for employers who give their workers accommodation.

The RF will review whether this approach is still warranted or there could be higher rates in certain circumstances.

This is certainly worth looking at, although there are obvious risks as well as opportunities. Unions have just fought off an attempt to regionalise public sector pay, driven by the knowledge that it would be certain to make employees in the poorer regions and nations of the UK worse off.  Similar considerations may also apply to moving away from NMW simplicity, as rates might go down for some people.

Nicola Smith from the TUC said that this was food for thought for the TUC’s own campaigns. One of our goals is to spread the living wage, but that would not be sufficient to help those on, say, £8 or £9 an hour who have seen their pay squeezed in recent years.

It may be that it would be better to set up new, separate and additional social partners bodies in low paying sectors to set a range of rates that go beyond just the minimum. Perhaps post-2015 would be the right time to establish a modern version of the old wages councils in some industries, backed by some government incentives for employers to take part.

Pay floors will continue to be important, but only a revival of union involvement in broader wage setting can have the reach that is needed to bring about fair pay systems. The challenge will be to find more mechanisms like the LPC that give social partners this much needed input.

Get involved with the RF inquiry as it develops, and also with the TUC’s thinking on pay. We will be discussing how low wages hold back the economy at our ‘mind the income gap: growth from fair wages’ seminar, which will take place at congress house on 1 July at 2pm.

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