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Minimum wage – is Osborne a convert to predistribution?

cashWhile I would always welcome a convert to the case for increasing wages, I suspect George Osborne is less a repenting sinner, he is more likely eyeing an opportunity to cut the benefits bill. George Osborne’s hint that the minimum wage might go up to £7 was been a popular news story last week. I did three interviews on the day including the BBC. Callers to the Call Kaye programme also took a fairly cynical view of Gideon’s motives.

So what has driven the Chancellor to this position? Put simply, it’s a no brainer. He wants to cut the benefits bill without, if he can help it, cutting pensioner benefits because they vote. As more than half of benefit claimants are in work, raising wages means he saves around £6bn a year. In the run up to the election this is also popular. 8 out of 10 voters in the latest poll support an increase in the minimum wage, and that includes 7 out of 10 Tory voters.

There have been a few predictable voices telling us that it will all cost jobs and business can’t afford it. These are the same siren voices who predicted similar job losses when the minimum wage was introduced. Australia has the highest minimum wage at $16.88Aus, that’s £9.11 per hour and they haven’t had a recession for 20 years. A significant increase in the minimum wage would also boost the Scottish economy that has lost £5.5bn in the past five years due to the fall in real wages. The wider impact on poverty has been estimated as high as £20bn. Low paid workers also spend more of their income in local businesses, who would benefit from increased spending power.

A real wage rise would also help the economy from slowing again due to growing personal debt. One in six households borrowed for xmas and won’t pay it back till June. One in five are borrowing to pay the rent, often from pay day lenders. The average adult in the UK owes £26,000; with a growing proportion in short term loans and 15,000 Scots are likely to go into sequestration this year.

In fairness, a number of good employers have pointed to the advantages of raising wages – higher productivity, lower turnover and greater motivation. However, there are still those who cling to the low wage economy as the best way of increasing their profits.

Finally, what about the workers? They are suffering from real wage cuts at a time when the cost of essential goods are rising. The shift from wages into profits since the 1980’s has led to an even less equal society. If the market allows exploitation, then the state must intervene with a minimum wage that doesn’t require the rest of us to subsidise bad employers. Imagine if businesses proposed a taxpayer subsidy for shopping. They would be ridiculed. But that is exactly what is happening now through the benefits system.

Whatever the Chancellor’s motives and we are right to be sceptical, increasing the minimum wage is a no brainer. It’s good for workers, employers, the economy and the taxpayer. George, welcome to predistribution, all converts welcome!

This blog first appeared at Dave Watson’s Blog

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