Labour’s minimum wage announcement is much weaker than it seems – alittleecon

Immediately following Vox Political‘s praise of Ed Miliband’s minimum wage announcement comes this critique by Alex Little. Usually this site has great respect for alittleecon but he seems to have come a little unstuck here. Let’s see what he has to say, and then explain why he’s probably mistaken:

“Ed Miliband goes into this week’s Labour Party Conference with another ‘big’ announcement. He is pledging to raise the minimum wage to £8 an hour. The minimum wage will be £6.50 an hour from October 1st this year, so on the face of it, that looks like a big rise,” he writes.

“However, the £8 figure is what it will be in 2020. Labour want to raise it in stages in consultation with business. £8 an hour would be 23% rise on the current rate, but that doesn’t take inflation into account. To keep the minimum wage fixed in real terms, it must rise by inflation each year. So if Labour were to simply fix the minimum wage in real terms up to 2020, what would its value be?

“If we assume inflation of 2% a year, by 2020, the minimum wage would be £7.32 an hour. With 3% it would be £7.76. So all Labour are actually promising is to raise the minimum wage in real terms by between 3% and 9%, which while better than nothing, will not give the low paid that much of an increase in spending power at all.”

This assumes that a Conservative government – or any government not including Labour – would want to raise the minimum wage in line with inflation. This is something we have never seen before.

Remember, if the lowest amount people are paid had risen in line with inflation since 1986, the minimum wage would now be £18.89. It isn’t. The main premise of Alex’s article is that governments raise the minimum wage in line with inflation so his argument must fall.

A Labour plan for any real-terms increase in the minimum wage must be better than anything the Conservatives have offered since the 1980s (and also better than anything offered by neoliberal New Labour).

“Labour also want to link the minimum wage to median wages, which seems inappropriate to me. They should be linked to the cost of living, with the wage set at a level that allows workers an acceptable standard of living,” Alex continues. Isn’t that the Living Wage?

“Over the next nine months we’ll see Labour desperately trying to differentiate themselves from the Tories. If you look beyond the headlines though, you’ll see that the material differences between the two parties is infinitesimal.”

Not accurate. Labour is putting distance between both the Conservatives and its ‘New Labour’ incarnation. That is a change that should be welcomed.

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12 thoughts on “Labour’s minimum wage announcement is much weaker than it seems – alittleecon

  1. alittleecon

    Hi Mike, thanks for responding to my post. There’s a couple of points I would make. The first is that it’s not correct that the minimum wage would by over £18 an hour today if it had kept up with inflation. I think if wages at the bottom had grown as fast as those of the top 1%, they may be that high, but that is not the same thing.

    The minimum wage was introduced in 1999 at a rate of £3.60. In the 15 years since then, it has grown to £6.50, which is actually above inflation whichever method of inflation you use.

    Would the Tories raise the minimum wage with inflation after 2015? I don’t know, but they have during this parliament, and have made noises about continuing to do this.

    Regardless though, I think we could do a lot better than what Labour are offering, and we shouldn’t be satisfied with preserving what we already have just because we are scared another party would try to erode what we have now.

    1. Mike Sivier Post author

      I was taking the minimum wage from lowest pay rates in 1986, according to an article I reposted here yesterday. It seems ’86 was when Labour committed itself to a statutory minimum wage. If you have better figures from that time I’ll be happy to see them and forward them to the other writer; I am having extreme difficulty finding any official figures.
      The Tory attitude to the minimum wage is simple: Lower-than-inflation rises for most of the Parliament, then a boost in time for the general election. Based on this behaviour it is extremely unlikely that we will see above-inflation rises from them if a Conservative government is returned in May 2015.
      It is wrong for you to suggest that Labour is just trying to preserve what we already have, nor is it correct that anything is being offered in fear that another party would erode it. Labour is promising an above-inflation increase and challenging the other parties to do better.
      Since it came in, the minimum wage was mostly 44-46 per cent of the average wage. Current level is 54 per cent but Miliband wants to make it 60 per cent. That’s six per cent more than the Tories’ best offer and 16 per cent more than when it was introduced.

      1. alittleecon

        We’ll have to agree to disagree on this one, but just a note on average wages. If average wages fall, but the minimum wage stays the same, then the minimum wage/average wage ratio would increase. Obviously this would not be a good thing, but it would be possible to say that the minimum wage has risen relative to average wages. This is one reason why I argue it’s a poor way to benchmark the minimum wage.

      2. Mike Sivier Post author

        In a country where average wage rises are pegged to executive pay (everyone else’s wages have stagnated) I don’t see that being a problem for the time being.

  2. NeilW

    Saying that ‘Labour is slightly better than the Tories would be’ is a pretty weak position. It’s essentially saying – you *must* take this unpalatable bitter mouthwash because otherwise you’ll have to have one that is *more* bitter.

    I’d rather have the choice to avoid the mouthwash altogether thank you.

    This is why we have Hobson’s Choice at election time. Arguing about angels on a pinhead within the very narrow framing reference permitted by those funding the political parties.

    Not good enough. Must try harder.

    Still not enough jobs and not enough income for the lower end, when there is *no* justification whatsoever for that position. You don’t need to ‘consult business’. You tell them what the wage is and they set the reference from that – or go bust. Nobody should ever be scared of making businesses paying slave wages go bust.

    Remember that the Green Party offering is better – but still annoyingly within the framing reference.

    1. Mike Sivier Post author

      Why is Labour’s offer only slightly better than the Tories’ would be? A six per cent increase, relative to average wages, when the average is dependent on ever-increasing executive pay because everybody else’s has been stagnating, seems a lot better to me!

  3. Smiling Carcass

    If the minimum wage is £1 an hour or £8 an hour, below a living wage benefits will be needed to top it up, so it matters little to us.

    My argument, Milli-who(?) is this: stop paying the employers and make the employers pay!

    1. Mike Sivier Post author

      Yes. Without a minimum hourly wage, people on any contract at all will receive much less than they get now, so fat bosses can get fatter.

  4. hstorm

    I didn’t get any impression while reading the essay that Alex was comparing Labour’s policy with any Tory policies, except as an afterthought. He was just pointing out that a rise to £8 per hour becomes less impressive than it initially sounds, once you have taken on-board the five-year timeframe.

    Certainly Labour’s policy is a darn sight more humane and intelligent than the Tory approach of slashing incomes for the working poor and somehow still expecting the economy to get a boost from having millions of people without money to spend. But at the same time, it’s fair enough to un-spin *both* sides, and while I would say Alex is going a bit far when he says that differences between the two parties are “infinitesimal[ly small]”, Labour have had a bad habit over the last 18 years or so of finding rather misleading measurements with which to talk up their policies.

    (Can we ever forget how Gordon Brown, as Chancellor, announced an annual £50 lump-sum per elderly household, with which to help pensioners cover fuel costs? “£50?!? Great!” people think. Until Charles Kennedy stood up and pointed out that this is rather less than a quid a week. It’s that sort of braggart-y-sounding spin doctoring that Labour really needs to cut out.)

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