| 8 mins read
On 1 April 2024, the national minimum wage turned 25, celebrated with warm congratulations by many of those involved in its creation and implementation. On all sides, the minimum wage has been pronounced a policy success. Labour (which introduced it) was reduced to arguing with the Conservatives (who substantially raised it) over who should get the credit for this marvellous measure. But people on low incomes have at least two reasons not to join in the cheering.
Reason one for not cheering
The first reason is that George Osborne’s introduction of a so-called ‘Living Wage’ in 2015 was part of a policy package which has seen in-work benefits slashed. Tax credits, which were Labour’s signature redistributive policy, will end completely in April 2025; already most people are directed to Universal Credit, which is less generous and more conditional. The Living Wage was a cover story for this programme of cuts. It was claimed that people would be better off with a higher Living Wage despite reduced tax credits, but this claim was only ever true for a small minority of 2-adult households where both partners worked full-time. Analysis by the Resolution Foundation showed that the poorest 40% of households would lose out overall; the net gains accrued to households with a low-paid member whose overall income was too high to qualify for tax credits.
It is easy to see why the Conservatives embraced this policy of substituting the minimum wage for social security. The fiscal savings were substantial: if employers pay the Living Wage, the government could claim that it did not need to pay so much to support families. Also, many Conservatives disliked the way that tax credits functioned almost like a basic income, allowing parents (lone parents in particular) to choose to work just 16-24 hours a week, receiving enough in top-up payments to make ends meet. Conservative disapproval of this way of combining work with family life is evident in the design of Universal Credit, where parents working part-time can be harassed into raising their hours.
The minimum wage is not a particularly progressive policy in its effect on the income distribution. Labour designed the minimum wage to complement tax credits, imposing an hourly pay floor to ensure that employers could not exploit in-work benefits to drive wages down. The Low Pay Commission embraced this approach, with employers agreeing with unions on a modest wage that would prevent bad employers underpaying workers without costing jobs. But the Commission came to be seen by politicians as too cautious: both Labour and the Conservatives turned towards a more ambitious approach which set a target for the minimum wage relative to the median (first 60%, then two-thirds). These targets were framed around the concept of a Living Wage. This concept has proved attractive to a lot of well-intentioned reformers on the left, but it has long been vulnerable to being hijacked by the right in the service of cutting in-work benefits, as I argued in a commentary on Osborne’s budget in 2015.
Reason two for not cheering
The policy of raising the relative minimum wage was also framed against the background of stagnating productivity: higher wages would drive employers to use workers more productively. This drive is the second reason why low paid workers might hesitate to cheer the minimum wage. Making workers more productive might sound like motherhood and apple pie, but for those at the sharp end, the intensification of work is not an unmitigated blessing. Outstanding investigative journalism by Sarah O’Connor at the Financial Times has uncovered some of the reality of employers’ responses to higher minimum wages. Workers who are normally paid according to their output, like fruit pickers, must have their wages topped up if their ‘piecework’ earnings do not match the hourly minimum. But seasonal agricultural workers do not collect this bounty. Instead, supervisors monitor their output, and if it is not sufficient to reach the minimum threshold without topping up, they are sent ‘home’ (which can be a caravan). Only the most skilled and experienced pickers are left in the field. This is what it means to be ‘more productive’.
what the minimum wage gives, employers can take away
Workers have also found that what the minimum wage gives, employers can take away in other ways. For some interviewed by O’Connor, ‘perks’ like a hot meal on the job or a taxi home late at night have disappeared. Intensification can also happen by curtailing rest breaks, reducing the hours that count for calculating the minimum wage. Care workers have fought successfully against unpaid travel time, but they still find themselves with workloads that can’t be fulfilled within the allocated hours. The Low Pay Commission has repeatedly reported that issues with pay and conditions in the care sector cannot be resolved without a new funding model for long-term care, but that much-needed policy reform languishes in the ‘too difficult’ box while the easy option of raising the minimum wage is embraced.
Faced with agreement between the main parties on the minimum wage, employers have more or less given up complaining about it. As O’Connor has documented, they can adapt. Yet the ‘New Deal for Workers’ now proposed by Labour has attracted strong opposition. Does this tell us, as Angela Rayner has argued, that employers will always complain, as they originally did against the minimum wage, and this ‘squealing’ can safely be ignored? Not quite. As William Brown and Chris Wright have argued, it should be possible to enlist good and responsible employers in supporting measures that will dampen competitive pressure from those who would undercut standards. But this requires good enforcement, and also measures to hold companies responsible for their suppliers, to prevent them profiting from undercutting hidden away in the supply chain.
Labour. Reasons to be cheerful?
It is possible that some of the measures Labour advocates will actually do more than the minimum wage for those working under the worst conditions. Zero-hours contracts have helped employers ensure that they don’t pay for hours they can’t use ‘productively’. Insisting on some secure hours will help prevent that. Uncertainty over terms and conditions reduces workers’ ability to find better jobs. More secure parental rights could help those who stay in low-paid jobs because the employer is flexible and a new employer might not be. And so on. Labour is right to look beyond the minimum wage. But it should not accept the erosion of social security that has happened since 2010. Poverty will not be significantly reduced by employment reforms: for that, we need the benefit system.
