Has the Low Pay Commission jumped the shark?

It is a truth not previously acknowledged that one way to unite the TUC and CBI in outrage is to suggest that the Low Pay Commission has outlived its original purpose, and that control of the national minimum wage (NMW) rate might now be best reclaimed by the people we elect to run the country.

I know this because, late on Tuesday evening, after a day of ever more surprising media reports of machinations within the Coalition over a possible ‘inflation-busting’ hike in the NMW rate, I was impertinent enough to make such a suggestion on Twitter.

Within a few minutes, my tweet had prompted sharp responses from both Nicola Smith, Head of Economic & Social Affairs at the TUC, and Neil Carberry, Director of Employment & Skills at the CBI.  This in itself was intriguing, as neither Nicola nor Neil had previously exhibited any great inclination to respond to anything I might have said or written.  But what most tickled my interest was the degree of solidarity Nicola and Neil showed in seeking to pour a large bucket of cold water over my impertinence.

Every year since 1999, the Low Pay Commission has laid waste to a small forest in producing an inch-thick report on the NWW that is read by few if any outside a small circle of NMW policy geeks (and the handful of unfortunate civil servants charged with drafting the government’s response).  In my last job I had a whole shelf of these reports, and laid across a road they would easily have stopped a marauding tank.

But have these hefty reports, and the existence of the Commission itself, done much in recent years to improve the plight of the five million or so workers in the UK economy who now languish on low pay?  The Commission is, after all, the Low Pay Commission, not the Minimum Wage Rate Commission.

Well, with all due respect to the hard work and undoubted integrity of the individual members of the Commission, I’m not sure that low paid workers have been terribly well served by the Commission in recent years.  A succession of paltry, below-inflation NMW rate increases since 2009 have resulted in an hourly rate some 45 pence below what it would be if it had risen with the cost of living since June 2010.  The critical issue of enforcement of the NMW has been woefully neglected.  And where has the Commission been in debate about the shocking growth of in-work poverty?

How dare I even think such heresy! “Over time NMW workers have done better than both inflation AND wages”, retorted Neil Carberry.  However, as the Low Pay Commission itself noted in its 2012 report, “most of the real and relative increases in the minimum wage occurred as a result of the comparatively large up-ratings from October 2001 to October 2006. Since that time, the adult rate of the minimum wage has risen more or less in line with average earnings, but has lagged price increases”.  The largest up-ratings were in 2001, 2003 and 2004, and those relative hikes were entirely justified given the excessively cautious (i.e. low) rate at which the NMW was introduced.

Nicola Smith, meanwhile, was even more extravagant about the recent influence of the Commission: “without the LPC would we even still have a NMW?”  Well, yes, I’m sure we would Nicola, as I don’t think even Nick Clegg could have convinced his MPs, let alone his party membership, to tolerate abolition of the NMW itself – always assuming that the Liberal Democrats would have needed to take such a stand.  Any mooting of abolition by deep blue Conservative ministers would have faced strong internal opposition from MPs and think tankers such as Matthew Hancock, Guy Opperman, Robert Halfon and Ryan Shorthouse.  And, as of this week, Conservative ministers and MPs of all shades of blue are madly trying to outbid each other both in their regret for their party’s past opposition to the NMW, and in their personal enthusiasm for a substantial hike (of as much as £1.00 per hour) in the NMW rate now.

So, given where we are now, with all three main parties scrabbling to position themselves as the shoutiest champion of the NMW, what are the “very big risks to ending the Commission approach” that so alarm the TUC and CBI?  Apart from, that is, the terrible risk of the TUC and the CBI having a tad less direct influence on government policy.

Well, I’m not sure that I can see any significant risks. The Commission and its plodding, bipartisan approach were products of the excessive caution and timidity of the first New Labour government in relation to any policy that might possibly fetter corporate power.  And, in the early years of the NMW, that approach undoubtedly served a valuable function: to take the politics out of the NMW whilst it bedded in.

But to my mind the NMW is now safely cemented into the UK’s labour market policy architecture.  In the words of the Conservative pressure group, Bright Blue, “there is now a strong academic consensus that a sensible minimum wage does not cause unemployment.  Firms adapt well: reducing profits or pay differentials, or boosting productivity”.  And, armed with data, analysis and advice from civil servants, advisory bodies and political advisers, our elected politicians routinely take positions on, and make decisions about, any number of economic issues at least as consequential as what the NMW rate should be.  In short, the Low Pay Commission has – just like the Happy Days of my youth and Sherlock last weekend – jumped the shark.

It’s time to put politics back into the National Minimum Wage.

One thought on “Has the Low Pay Commission jumped the shark?

  1. NMW has done more than match earnings across the downturn. Look at the decile data, compared to previous recessions. The relative performance of the low paid next others is strong, much more so than in previous downturns. At the same time the wage hasn’t had a strongly negative employment effect, which a higher rate would. By contrast, a politically set wage may well have been frozen. That’s the lesson of politically controlled wages – it is feast and famine on rises. Not good for businesses when it goes up when there isn’t money to pay for the rise, and not good for workers when it stagnates. None of this is CBI positioning. The employer reps make their own minds up.

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