Time to look again at the National Minimum Wage

One of the most inspirational people I ever worked for was Professor Sir George Bain. George was Vice-Chancellor of Queen’s University Belfast, and chair of the Low Pay Commission. He was in the chair 1999 when the national minimum wage was first established. At the time, it was seen as a turning point in labour economics, creating a floor below which people in employment could not fall.

The immediate impact of the policy was to redress the salary injustice faced by many who were being exploited by unscrupulous employers. But, as with many initiatives designed to improve people’s lives, the law of unintended consequences kicked in. Rather than liberating people from poverty, the national minimum wage has been used by some employers as a ‘going rate’ for low-paid jobs, allowing them to cover their nakedness with the ‘official endorsement’ of a legally-endorsed figure.

More than a million people are currently on the national minimum wage, currently £6.31 for people over 21. A further million are paid just 50p above it, and five million are deemed to be low-paid (receiving less than £7.71 an hour). Ironically, these levels are being subsidised by the state, as many of these people qualify for benefits. It’s a tangential issue, but it is little recognised that the bulk of the UK welfare budget goes to people in work or retirement, rather than those seeking work.

Sir George has now returned to the fray with a new report that looks at the impact of the national minimum wage some 15 years after it was first introduced. The findings are grim. The minimum wage has not been a bulwark against poverty, instead it has trapped people in it. Because of the limited remit of the Low Pay Commission, it cannot make recommendations on how to bridge the gap between the minimum wage and what is regarded as a living wage. In essence the UK has a Lowest Pay Commission.

For employers the wage bill is normally the highest expenditure they have, and managing the wage bill is critical if business is to make a contribution to growth, national wealth and jobs. But there is something wrong about a system where consumers demand more and more for less and less – at the expense of the poorest in society.

The future of the United Kingdom’s economy is to be found in high-value companies, employing skilled people who are properly rewarded. A low-wage economy will not create the type of society we all aspire to.

Sir George’s review is timely. We face the prospect of an election in 2015 where the focus is likely to be on quality of life issues – not least the erosion in living standards as a result of the economic downturn.

The likelihood is that the debate will descend into the ritualistic left-right battle. Ed Miliband is a proponent of the living wage initiative. But if the Coalition Government has any sense it will look seriously at Sir George’s report, and take steps now to address the points he makes.

The Low Pay Commission should be empowered to look at the broader issues of poverty of those within work. It might well be that breaking away from a single bottom line will be one of the consequences. Although trades unions resist regional variations in pay, an approach tailored to sectors and regions may well be in the best interests of employees (not least those living in the most expensive parts of the country). The Commission should also be able to challenge those sectors where the minimum wage has been treated as the going rate rather than a minimum rate.

The UK has ambitions to one of the world’s leading economies – with wealth driven by people who are fired up by imagination and a spirit of innovation. What better ambition could we have for our society than the eradication of poverty suffered by those in work.

A workforce earning the living wage is much more likely to be a successful one, than a workforce struggling to make ends meet. In daring to question the impact of the minimum wage he did so much to bring about, Sir George has opened a route to achieve just that.