The independence of the Low Pay Commission is under threat. It alone has decided the level of the minimum wage, but politicians are increasingly interested in forcing a rise in the NMW for vote-winning reasons. How can (and should) the role of the Low Pay Commission change in this new environment? In the first of a four part series focusing on low pay, Lewis Silkin debate what the future may hold for the Low Pay Commission.
The level of minimum wage
In the US, the level of the minimum wage is set by Government. As such, it is a political football that is kicked around during election season, and has failed to achieve real terms increases. Compare this position to the UK – where the Low Pay Commission sets the rates, rather than politicians – and the difference is marked. Contrary to media headlines, the national minimum wage has increased in value compared to average earnings.
The Low Pay Commission is a success. It is valued as being independent and outside of political motivation. As a result, its decisions are respected by diverse groups such as the TUC and the CBI. Keeping the politics away from low pay has worked. However, with the cost of living being a battleground in the next election, politicians are keen to seize the low pay agenda and set out their big ideas.
Rise in minimum wage
September 2013 saw the first move towards political intervention in the Low Pay Commission’s work. Business Secretary Vince Cable asked the Low Pay Commission to consider how the national minimum wage might be able to rise faster than current conditions allow over the medium term. Since then, the Labour Party has said that, if elected, it would set medium term targets for increases to the national minimum wage. It would be the Low Pay Commission’s job to deliver that target. This idea comes from the Buckle Report, an independent review of low pay issues by former vice chair of KPMG Alan Buckle. This has clearly been embraced by Labour Party leadership, given the announcement yesterday of a promise to increase the minimum wage to £8 an hour.
Big promises about pay make good, clear, vote-grabbing headlines, much more so than wonk-ish statements about strategy and policy. It’s therefore unsurprising that a political party should be attracted to the idea of setting a bold, precise figure then leaving it to someone else to figure out how to do it.
Investigating the productivity problem
The Low Pay Commission’s role is currently limited. Its remit extends only to deciding how much the minimum wage should change year on year. The Work Foundation has suggested a new approach by which the Low Pay Commission could be significantly beefed up, with a greater, more strategic, remit and more responsibilities. Rather than simply deciding upon a rate, it could be charged with investigating the causes of low pay and taking a proactive role with the low pay industries. The Low Pay Commission could work to investigate the productivity problem in these industries (and consequently reduce resistance to higher pay). Its conclusions and recommendation would continue to be based upon evidence and sensible policy, rather than politically attractive policy.
Taking on these new responsibilities would need more resources. The Low Pay Commission’s budget for 2013/14 was just £0.827m – or 0.0001% of total government spending. For such a well respected body, that represents great value for money. A tenfold increase in funding would have a marked impact yet still not be a significant cost on the public purse.
This is the first in our four part series focusing on low pay.
Part two: "What next for the National Minimum Wage; sectoral rates"
Part three: "National Minimum Wage: would a regional approach to NMW work?"
Part four: "The UK's productivity puzzle: a problem worth solving?"
By Tom Heys, Lewis Silkin
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