So, just how radical is Labour’s ‘£8 by 2020’ minimum wage pledge?

At the weekend, on the eve of the Labour party conference in Manchester, Ed Miliband used an interview in the Observer to reveal that, if elected in May 2015, a Labour government will raise the National Minimum Wage (NMW) rate to £8.00 per hour “by 2020” – which most observers have interpreted to mean from 1 October 2019, when the last annual uprating under the next government will take place.

Reaction has been mixed. Conservative Central Office was quick to claim that the pledge amounts to a slower rate of increase than that between 1999 and 2007.  At a conference fringe meeting, the right-wing commentator Iain Dale suggested that “£8.00 by 2020 is hardly a radical policy”, and the Fabian Society’s Andrew Harrop tweeted that “we need to go further and faster than £8 per hour by 2020”. On the other hand, the move was welcomed by the TUC and the trade union UNISON.

On the question of the rate, I find myself agreeing strongly with Andrew Harrop and – quite possibly for the first and last time ever – Iain Dale. With the NMW at £6.50 per hour from next month, the pledge of £8.00 per hour by 2020 equates to a steady annual increase of 4.25 per cent. Which is not massively above this year’s increase of 3 per cent, or even (what I’m told is) the average annual increase since 2010 of 2.3 per cent.

As the following chart shows, if this year’s slightly more generous increase of 3 per cent were to be replicated in each of the next few years – that is, the sort of rate of increase that George Osborne has said he would be happy with – the NMW rate would be £7.54 from October 2019, just 46 pence per hour below what it would be under Labour’s new proposal. Indeed, at that rate of increase, the NMW rate would reach £8.00 per hour in October 2021, just two years later than Labour now proposes. And Labour’s proposal looks rather pathetic against the Green Party’s far more ambitious policy of an NMW rate of £10.00 per hour by 2020. (I don’t think anyone knows what the Liberal Democrats would like the NMW rate to be in 2020).

NMW2

So, while certainly nothing to be sniffed at, the ‘£8.00 per hour by 2020’ pledge is hardly radical. At least, not in terms of the NMW hourly rate.

However, Miliband’s announcement does represent a radical break away by Labour from the long-standing political consensus that the NMW rate is set not by politicians, but by the ‘independent’ Low Pay Commission. George Osborne crudely tossed this 15-year-old political pact aside in January, when he let it be known that he would be content with a rate of £7.00 per hour. But, presumably out of fear of upsetting the TUC and trade unions, Labour has stuck with it. Until now.

This more radical aspect of the move seems to have gone unnoticed by most commentators, with the notable exception of the CBI which, together with the TUC, has dominated the Low Pay Commission (and therefore the NMW rate) since 1999. “A move to a politicised US-style system is not in the interest of companies or workers”, said the CBI in its response. Well, that depends. But it’s probably fair to say that the move is not in the immediate best interests of the CBI, which would no longer have quite the say on the setting of the NMW rate that it does now.

Like Andrew Harrop, I’d like to see Labour go a lot further and faster than £8.00 per hour by 2020. More particularly, I’d like to see the NMW rate brought up to at least 60 per cent of median earnings by 2020 at the very latest, not some time afterwards (as the detail of Labour’s proposal suggests). And I’d like to see Statutory Maternity & Paternity Pay raised to parity with the NMW by 2020.

But at least now we are talking openly about what the NMW rate should be, rather than leaving it to be fixed by TUC and CBI officials behind closed doors. And, believe me, that is pretty radical. The TUC may have publicly welcomed Miliband’s announcement this week, but I suspect it did so through gritted teeth. Certainly, the CBI is by no means alone – as this blog post by the New Policy Institute illustrates.

So, over the coming months, Miliband and his team are likely to come under intense pressure – from both sides.

With many thanks to Ravi Subramanian of UNISON, whose tweet of his own graph prompted me to write this post.

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