Issue of the week: playing politics with pay
Politicians are engaged in a minimum-wage bidding war, but will this ultimately hit those it’s meant to help?
“Employers have warned they will be forced to raise prices, freeze hiring or cut hours” unless the Government backs down on its national living wage policy, said City AM. A survey by the British Chambers of Commerce (BCC) of 1,600 of its members found that more than a third had been forced to increase their wage bill to meet the hike in the minimum pay rate for the over-25s to £7.20 an hour, introduced in April. Of those, around a third have passed on the cost in price rises for consumers, and a quarter have cut back on new hiring, said Sky News. One in three of the companies reckon they will need to take similar measures if the rate rises, as is currently planned, to more than £9 per hour by 2020. Business complaints have so far fallen on deaf ears, and Theresa May reaffirmed her commitment to the policy in August.
The problem is not that most businesses can’t afford it, said Martin Flanagan in The Scotsman. “The problem is that the businesses which can’t afford it the most – mainly a slice of the small and medium-sized sector – are hurt disproportionately.” As the BCC survey shows, they’ll have to cut staff hours and refuse pay rises. Not that the living wage is “a bad idea”. So far, only 8.5% of employers have been forced to cut back on recruitment, which is hardly dramatic. Increasing the minimum wage is a good thing for “social cohesion”: real wages for the lowest paid have fallen in real terms over the past decade, a fact frequently blamed for the rise in support for populist politics. But that “doesn’t mean pragmatism should go entirely out of the window”.
Indeed, said Paul Johnson, head of the Institute for Fiscal Studies, in The Times. The political “bidding war” on wages is worrying; Labour has just “doubled down” and announced its support for a £10 minimum wage. Since the minimum wage – which last week also rose for 21to 24-year-olds, by 25p to £6.95 – was introduced in 1999, it has been set by the Low Pay Commission, which is tasked with increasing pay “with a nil or minimal impact on employment”. It’s done a good job, not least because politicians have been prevented from “plucking numbers from the air”. Moreover, Labour’s new proposal “translates into about £20,000 a year for a full-time job”. Shadow chancellor John Mcdonnell has vowed to ensure this would not hit jobs, but “setting both wages and hours and employment levels from Whitehall” (which this would entail) has often been tried before, and “has never gone well”. There is a case for trying out a generous increase and “seeing how it goes”. But the “idea that we can just announce a £10-an-hour minimum wage and guarantee all jobs is pure snake oil”.