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National Living Wage – how should the left respond?

Last July saw one of the most extraordinary acts of political cross-dressing in British history. In the first Budget of the first all-Conservative government since the UK’s first National Minimum Wage was introduced against vigorous Tory opposition, the Chancellor announced...


Last July saw one of the most extraordinary acts of political cross-dressing in British history. In the first Budget of the first all-Conservative government since the UK’s first National Minimum Wage was introduced against vigorous Tory opposition, the Chancellor announced a “National Living Wage” – set to be more than a quarter higher in real terms than the current statutory minimum by 2020.

How should the left respond to such audacity?

A narrow response, adopted by many, is simply to rubbish the policy by pointing to its limitations. It does not apply to under-25s. It is not a genuine “living” wage since it does not relate to living costs. Many families will lose at least as much from cuts in the Budget as they gain from higher pay.

While all these things are true, the NLW will have a huge impact. Whether you are a 26-year-old washing up in a hotel or a 52-year-old care assistant, if you do not have children you will become substantially better off as a result of this change. The new commitment is not just to tackle miserably low pay in employment sectors like catering and care by producing at least a £9 minimum by 2020, but also to create a baseline of 60 per cent of median pay for over 25s, and thus address pay inequality more permanently.

While the setting of the NLW rate is indeed not influenced by living costs, it will in practice mean that, for the first time, there will at least be a wage floor that allows a single person working full time to make ends meet. Using the “minimum income standard” that my team at Loughborough University uses to show what is needed to meet the general public’s view of essentials, my latest projections estimate that a single full-time worker will have almost enough in 2020, falling just 3% short of the minimum, compared to 30% short today.

The brutal cuts in support for families, both out-of-work and in-work benefits, is in a sense a separate issue, even though the government used the timing of the Budget to link the cuts to improved minimum wages, as if they balanced out. For the great majority of families they do not, and my projections suggest that working lone parents could fall up to a third short of the minimum by 2020. This is a huge retreat from the position in 2010, when non-working lone parents were a third below the minimum standard and but those working on the minimum wage were only marginally below this level.

The diversity of family experiences in terms of wage levels, working hours and family composition make it impossible to use wages on their own to tackle family poverty. The growth in family-assessed tax credits did more than any other measure to reduce child poverty by a third under New Labour. Nevertheless, given that the government has chosen to make big changes in wage and benefit levels simultaneously, it is worth noting how the combined effect of these changes affects various family types – in very different ways. My projections show that in some cases where both members of a couple with up to two children work full time on the National Minimum Wage, there could be a net gain by 2020. However, in reality relatively few low income couples are both in full-time work and fewer still are both earning the minimum. Most other families with children will either be no better off or, more often, be worse off from the combined policies.

One response to this is to make a crude count to show how losers outnumber winners. But there’s a much deeper point here. The 2015 Summer Budget in many ways represents a turning point in the way in which the state seeks to help families escape low income. In emphasising wages rather than benefits, and at the same time reducing the terms of support for lone parents and larger families, in and out of work, it is greatly extending the conditionality attached to state support. Effectively it is saying to worse-off families that to reach a decent living standard you need not only to be working but working full time, to have two parents and to avoid having more than two children. This greatly extends the extent to which the system is “behaviourist” rather than based on a principle of “social protection”.  Parents who lose their partner, are unable to work full time in an erratic labour market or fall on hard times after having “too many” children are increasingly told to face the consequences of not conforming to a particular model of living and working.

Those arguing that the state should protect the vulnerable need not appear to be supporting a “benefits culture”, which the government likes to portray as the only alternative to its current policies. The idea that wages alone, rather than in combination with benefits, can protect families in a world of zero-hours contracts and soaring childcare costs is laughably absurd. Iain Duncan Smith’s own Universal Credit was initially supposed to help provide a better in-work safety net, whose terms have been badly weakened, especially for lone parents, by the Budget. Ironically, those who have been most critical of Universal Credit’s limitations may in future be arguing that it should now stay true to its original, broadly positive, principles.

Donald Hirsch

Donald Hirsch is Director of the Centre for Research in Social Policy at Loughborough University. He has recently written a report for the Joseph Rowntree Foundation on whether the Summer Budget will improve living standards.

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