Last summer, then-chancellor George Osborne unveiled his first post-coalition, true-blue Budget – and with it, a big jump in the minimum wage. This somewhat confusing re-brand saw the minimum wage become the “National Living Wage” (NLW), which Osborne decided would jump from £6.50 an hour to £7.20, and keep rising to £9 in time for the next general election.
The policy was of course popular in some areas but has hardly been an unqualified success, even during its foetal period. A recent survey suggested that prices have been hiked in response to the move, while many businesses have been forced to cut overtime, bonuses and other staff perks.
Some recruitment firms have noticed a dip in advertised vacancies in the retail sector. Meanwhile the Social Market Foundation has said that a “lack of clarity on the NLW rate to 2020 will only make it harder for employers to plan ahead and make the vital investment needed [for] a high productivity, high wage economy”.
None of this comes as a huge surprise, given that price-fixing always comes with the threat of unintended consequences. In order to mitigate side-effects (such as reduced job-creation) the level of the UK’s minimum wage was supposed to be set by independent experts at the Low Pay Commission (LPC), who were tasked with studying the evidence as time progressed. When Osborne undermined the commission’s role, this newspaper warned that the minimum wage would become a political football – and we are now seeing the consequences.
Yesterday, Labour leadership candidate Owen Smith said he wants a minimum wage of £8.25 an hour for all workers (not just those aged over 25) – “a wage that quickly rises well above £10 an hour”. Smith also wants to scrap the LPC and replace it with a “Living Wage Delivery Unit”, an enforcement body that will somehow try to stop employers from reducing staff perks in response to a soaring minimum wage.
However unlikely it may be that his wishes come to pass, it is worrying to see the minimum wage used as a political tool in an increasingly-barmy leadership race. If the NLW becomes a permanent item in Westminster’s auction house, the whole economy – workers and consumers alike – will end up losing out.