Labour must turn the minimum wage into a ‘living wage’ by 2020

As 2010 was defined by a debate on public spending, cuts and the deficit, 2015 will be the ‘living standards’ election.  That calculation is at the heart of Ed Miliband’s strategy for returning Labour to power.   Ignore headlines proclaiming ‘Boom time in Britain’, the argument is that economic recovery will only appear real to voters who personally feel the benefit.

Ed and the Shadow Cabinet are on fertile territory.  GDP growth is overdue and welcome, but it’s a crude measure for assessing the overall health of the economy and can hide huge variations in living standards.  The party’s recent dossier was an alarming expose on how much poorer the average family (£1,350 per year) has become under a Tory-led government.  We have picked the right issue and have plenty of ammunition against the opposition; the final pillar is to devise a compelling Labour alternative.

Reversing the fall in living standards will require a suite of new policies, but I want to focus on the minimum wage.  Ever since Ed Miliband entered the Labour leadership contest, how to introduce a ‘living wage’ has been a source of debate in the party.  There is a consensus that the minimum wage is set too low to deliver an acceptable standard of living for the millions that currently take home £6.19 an hour. So far, there is no such consensus on the solution.

We are making great strides in Local Government; from Newcastle to Hounslow, Labour Councils have introduced a statutory living wage for their employees. While every move is rightly celebrated, each council can impact the lives of a few thousand employees; the Labour aspiration must be to transform the lives of millions.

The mood music from the leadership is that our priority in Government would not be to legislate for a mandatory living wage.  Instead, the ambition would to use the levers of Government (namely, tax and procurement) to create incentives for employers to voluntarily pay a living wage.  It’s an understandable objective, based on the view that no Government can mandate the introduction of a living wage overnight, without risking a significant rise in unemployment.

I share the view that our economy could not move from a mandatory minimum to a living wage in a single year.   For a sector like retail, a shift to a living wage would cost tens of millions for employers and some would unquestionably look to make job cuts.  However, just because a mandatory living wage couldn’t be introduced in the first year of a Labour Government, I don’t think the legislative route should be ruled out.

Ed Miliband could announce in Brighton this autumn that an incoming Labour Government in 2015 would deliver a mandatory living wage by 2020.  The mechanism would be simple; a five year plan to cumulatively raise the minimum wage, so that by 2020 it has reached parity with the living wage.  To direct the reform, the remit of the low pay commission would be changed, so that their primary function would be to advise on how to reach a living wage by 2020.

It is an option with three crucial attractions:

1. It is both realistic and radical.  We accept that a living wage can’t be delivered overnight, but concurrently show that Labour is serious about combating low pay and is willing to legislate to enact change.
2. A commitment to a mandatory living wage does not need to come at the expense of the voluntary measures already being promoted.  It could be an exemplar of responsible capitalism, with good employers leading the way and Government nudging the others to play catch-up over a five year period.
3. It would have huge value as a campaigning tool.  Every year up to 2020, the Labour Chancellor would announce an incremental (above-inflation) increase to the minimum wage; bringing the living wage ever closer.  Repetition remains the most effective campaigning tool, as evidenced by the incremental Lib Dem increases to the tax threshold, which is the one policy the party is positively remembered for.

The minimum wage was a signature achievement of the first term Blair Government – the living wage can do the same for a first term Miliband Government.