Miliband says Labour will raise minimum wage “significantly” by linking it to average earnings

May 18, 2014 10:04 pm

Ed Miliband is set to announce that a Labour government will act on the minimum wage – pledging to increase it over the next Parliament to that it gets closer to the average national salary, and linked to earnings. The plan, which Miliband will call “the next chapter in the history of Labour’s battle to make work pay”, is based on the independent Report on Low Pay produced by former KPMG Deputy Chairman Alan Buckle.

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By implementing Buckle’s proposals, Labour would ensure that the minimum wage rises “significantly” over the five years of the next Parliament – and deal with the “cost of failure” currently funded by the social security system. That would be done in part by “introducing a new framework” for the Low Pay Commission, with a strengthened role in tackling poverty and raising productivity across the UK.

After George Osborne talked about raising the minimum wage towards the £7 per hour mark – but did nothing – Labour are now acting decisively on low pay. 

Here’s what Miliband will say:

“In 1997, a Labour government took action, with one of the proudest achievements of any British government: it introduced the National Minimum Wage and saved people from a level of poverty pay that shamed our country.

“It was controversial at the time. The Tories warned it would destroy millions of jobs. But Labour, working with British business, helped change lives and our economy for the better.

“It is what our Labour Party is all about. But that was the 1990s. Today the extremes of exploitation have been eliminated, but the problem of low pay has only grown. As I have crossed the country in the past three weeks of this election campaign, I have met so many people working hour after hour, often doing two jobs, just to make ends meet. People who are anxious about whether they’ll be able to cover their bills, their rent or their mortgage, people who don’t have time to spend with their family because they are working all the hours that God sends.

 “Britain is still one of the lowest paid countries among the world’s advanced economies. So we have to go further, we have to write the next chapter in the history of Labour’s battle to make work pay.  

“It is time to raise our sights again because Britain can do better than this. The next Labour government will restore the link between hard work and building a decent life for your family.

“And today, Alan Buckle’s Report begins to tell us how: it means promoting a Living Wage which is what our fantastic Labour councils are already doing. But most of all it means setting new ambitions for our country.

“That’s why today, I am proud to announce that the next Labour government will take new radical action against low pay: a new five-year ambition to restore the link between doing a hard day’s work and building a decent life for your family.

“A Labour government will establish a clear link between the level of the minimum wage and the scale of wages paid to other workers in our economy. We will say workers on the minimum wage must never be left behind because those who work hard to create our nation’s wealth should share in it.

“This mission to tackle low pay will be in England, Wales, Northern Ireland – and Scotland too – because social justice is best achieved by working together rather than competing against each other in a race to the bottom on wages, tax rates and aspirations for our country.

“And by helping to make work pay for millions we will chart a new course for Labour too, changing our economy to make work pay and tackle the cost of failure in our social security system too.

“Just as when the last Labour government created the National Minimum Wage, the next Labour government will do this in partnership with business once again, allowing employers the certainty they need to plan ahead.

I will set out the precise ambition Labour will propose closer to the election. But today I want to welcome this central recommendation of Alan Buckle’s report and state plainly that, under the next Labour government, hardworking Britain will be better off.” 

  • Saddo

    Given that Labour have no relations with any businesses and have an agenda that attacks many business sectors, how is this going to be done in “partnership” with business?
    Business doesn’t want Labour anywhere near government for a very long time.

    Miliband’s big and only bet is that the UK has drifted significantly leftwards and has forgotten when he with Brown & Balls had their hands on our money. Don’t think its going to fly.

    • denise clendinning

      No they don,t want Labour near because they are bleeding the workers and hiring people who would work for less. Labour will put a stop to this and and bring wages in line with inflation which in my mind is a good thing as people would be off benefits and paying tax and making the economy start to grow as it did before the Tories got in. GREED IS NOT GOOD

    • jaydeepee

      If businesses can’t afford to pay their workers properly then they should not be in business. Rule number one.

      Also, since when has ‘business’ been the fiefdom of the Tory Party or Lib Dems?

      No business worth its salt would want a government such as this who have been responsible for impoverishing a huge swathe of the electorate to such a degree that they are incapable of buying goods in the shops.Hence the collapse of the British High Street.

      The same pie divided more fairly would benefit all businesses and give them money to spend and only Labour is advocating that.

  • MikeHomfray

    Business complained about the Minimum Wage too. I think partnership is simple. the government passes the laws, and business obeys them – have had just about enough of corrupt big business ‘avoiding’ tax and getting away with not following the law

    • Saddo

      How do you think most people get paid for working? Businesses make things they can sell at sufficient prices to make a profit so its worth their while doing it in the first place and can afford to pay the people who make stuff. As huge proportions of businesses are owned by pension funds the net profits actually pay for pensions.

      Your comments are a useful summary of why Labour governments always screw up the economy.

      • Rosie2

        Quote – “In a recent speech Walter Reuther told of a visit to the new automatically operated Ford plant in Cleveland. Pointing to the robots, his host asked him, “How are you going to collect union dues from those guys?” The C.I.O. president … returned an equally pertinent question: “And how are you going to get them to buy Fords?” ”
        If people don’t have a wage to live comfortably on, how are these companies going to sell whatever it is they make?

      • Kaine

        So, in a nutshell, your argument is that those too poor to have investments and pensions should work for lower wages in order to subsidise the rentier class?

        The two sources of all wealth are nature and labour. ‘Businesses’ are legal fictions, which may or may not be efficient ways of organising a given group depending upon their structure, but it is the workers themselves which produce wealth.

        • David Battley

          According to Adam Smith, Capital and Entrepreneurialism are the two other sources of wealth.

          • PeterBarnard

            Mr Smith said many things, but his very first sentence in “Wealth of Nations” hits the spot for me :

            “The annual labour of every nation is the fund which originally supplies it with all the necessaries and conveniences of life which it annually consumes, and which consist always either in the immediate produce of that labour, or in what is purchased with that produce from other nations.”

            Mr Smith also said that there are three fundamental components in the price of any product : wages, profits and rent. Of course, in the Conservative mindset, it is only increases in wages that put up prices. Conservatives would be dismayed by what Mr Smith said about profits :

            “Our merchants and master manufacturers complain much about of the bad effects of high wages in raising the price, and thereby lessening the sale of their goods both at home and abroad. They say nothing concerning the bad effects of high profits. They are silent with regard to the pernicious effects of their own gains. They complain only of those of other people.”

          • David Battley

            Absolutely right. I was merely pointing out the balancing figures to the above comment: if wealth was purely nature (by which I am assuming the author primarily means natural/mineral abundance rather than any sort of comment on human behaviour) and labour, the G7 would look rather different.

          • PeterBarnard

            I see what you mean, David.

            My own view is that everything of a material nature, ie not naturally occurring in nature, is the result of the application of hand and brain, and it’s that application that I label as “labour” (as did Mr Smith). Nowadays, this includes services, of course, so that the removal of an appendix (even though nothing material is actually created) also results from the application of hand and brain.

            Even capital – in the form of equipment – takes the application of hand and brain to create it. Even so-called “entrepreneurs” apply hand and brain (I’m not sure that Adam Smith actually uses the term “entrepreneurs” in Wealth of Nations ; rather, he talks of the “owners of stock,” although I may be wrong).

            However, in the end, all we have is human beings to create our material world. The question, as ever, is how do we divide the proceeds, and I would say, “Not as well or as equitably as we did pre-1979, before the Manchester Liberals took over the shop.”

          • David Battley

            I’d need to check, but believe he originally classified intellectual property as “Land” (i.e. nature as defined above), so the distinctions, including those between Labour and Entrepreneurialism are perhaps both subjective and arbitrary.

            On your last paragraph, this is a really interesting “glass half full” question. Obviously it’s very hard to be truly objective in these debates, but in honest answer to your question I have felt progressively richer now in this age of the internet, cheap international flights and “disposable” mobile phones than I have in any previous decade, and I feel that someone’s opportunity to apply, develop, learn and stretch themselves is higher now than it ever has been.

            I understand the relative argument (i.e. despite these improvements other people are “running off with all the money”), but perhaps my view is coloured from my regular time in Africa, such that I personally believe that even the poorest in our society, who may consider themselves to be “standing still” or “going backwards” are, in fact, growing richer when compared to the disadvantaged there.

            So I suppose I am saying that if one only measured wealth in relative terms, and had a parochial enough view to ignore such hardship elsewhere, and also discounted the advances in technology on their “ease of living”, then I suppose they might feel hard done by. Frankly, despite my own life choices putting me on a relative downward trajectory compared with my peers, I don’t.

          • PeterBarnard

            I don’t know whether I have the mental stamina to give answers, David. I do beg your pardon, but perhaps another day …

          • BillFrancisOConnor

            Just been reflecting on that last quote from ‘The Wealth of Nations’ – How very true it is.

          • PeterBarnard

            Indeed, Bill.
            It’s also an illustration of the saying that “leopards don’t change their spots.”

          • Kaine

            As PeterBarnard lays out below, Smith’s entire point is that the Wealth of Nations is their people, as opposed to how much bullion they have in the bank.

          • David Battley

            Now, that’s not really true though is it.

          • Kaine

            Actually it is. Having abundant natural resources can often be a curse as much as a benefit for a nation, just look at Congo. On the other hand Japan, albeit with American support, managed to go from total material devastation to the second biggest economy on earth in forty years.

          • David Battley

            So to clarify you continue to stand by your assertion that the entire (and hence, only) point of The Wealth of Nations is that such wealth is defined by, and controlled only by “their people”, do you?

            I’m not splitting hairs here: you have made a patently ridiculous statement, that, had you softened it to be “one of the four key contributory factors to a nation’s wealth was Labour”, I would have taken no issue with.

          • PeterBarnard

            Indeed, “labour” (the application of hand and brain) is the only source of material wealth.

            A striking, and prime, example is Saudi Arabia, under the sands of which lay the world’s largest oil reserves. These reserves were useless to the Saudis, because (a) they didn’t know they existed, and (b) even if they had known, they did not have the skills required to produce, process, and distribute the oil.

            It was the arrival of the Americans from Standard Oil of California in 1932 who negotiated a concession area with the King of Saudi Arabia, and it was US know-how that got the black stuff out of the ground, and into the petrol tanks of automobiles. Similarly, it was British know-how that produced, processed and distributed the oil in what was then Persia.

            Of course, “labour” (the application of hand and brain) also applies to artistic productions ; I’m thinking particularly of the masterpieces of Beethoven, Mozart, Haydn, Handel, and Schubert. There are others, of course. I remember my breath (almost) being taken away when I first saw Flatford Mill, and The Haywain, in the National Gallery.

            As an aside, “Red” Ellen Wilkinson (the first education secretary in the great post-war Labour government) “wanted to make a Third Programme nation of us all.” That may have been a little bit too stultifying, but her heart was definitely in the right place.

          • David Battley

            A carefully worded answer, Mr B., and presented as to try and defend what I consider an initially indefensible position.

            Kudos, therefore, for trying, but you cannot have failed to notice that your carefully worded description of labour is fundamentally different way to that of Mr Smith, making your conclusion somewhat disingenuous.

            However, even acknowledging such a broad definition of labour as “the application of hand and brain” (and therefore including more traditional definitions of labour, IP and entrepreneurialism) the outputs you describe still require those natural resources (oil under the ground, wood or metal for instruments, and energy), and cooperation (which does not necessarily come for free, hence “capital”) to come together.

            Would you not agree?

          • jaydeepee

            Exactly right. A nations wealth is its people. A simple fact. Without which you have no ‘market’.

          • David Battley

            A truism: without people there is no society, and wealth is a societal construct.

            What is more interesting is whether you are implicitly also including the need for rich people (and their money) in this simplified definition?

      • BillFrancisOConnor

        Businesses make things they can sell at sufficient prices to make a profit so its worth their while doing it in the first place and can afford to pay the people who make stuff.

        Like……………..er, Fred Goodwin did for example.

        • jaydeepee

          Hence the reason Henry Ford made his workers the very first $5 a day workers in the US, so they they would buy his cars.Such a wage attracted workers from as far away as Britain.

      • BillFrancisOConnor

        But businesses need to sell their products in the first place in order to make a profit. People on poverty wages can’t afford to buy the things which businesses sell and you have under consumption.

        • jaime taurosangastre candelas

          You need to split apart Business to Business transactions from Business to Consumer transactions. No I have no idea what the split may be, but your reasoning can only apply to the latter.

          • PeterBarnard

            BFoC is correct.

            As Adam Smith wrote all those years ago, “Consumption is the sole end and purpose of all production ….”

            When, for example, a hairdresser re-fits his (her) premises, the cost will be passed on to the customers (over a period of time).

          • jaime taurosangastre candelas

            I think your answer is a little bit specious, and with your intellect I suspect that you know it.

            A business might be doing very well, but choose to pay employees extremely poorly. So that business might choose to invest in all sorts of stuff, but the employees find they have nothing at all spare at the end of the month. Equally, the cases could be reversed.

            Anyway, the Adam Smith. I know that he is a bit of a god to some, but merely repeating his sayings without context, or any warranted criticism seems a bit lazy. It is I think really quite conservative, without any Tory connotations, to keep endlessly dragging the old corpse into modern debate.

            He was not the “be All and end All” of economics.

    • BillFrancisOConnor

      Completely correct Mike- Well said.

    • ButcombeMan

      Both you and Milliband would do well to listen to this File on Four.:

      http://www.bbc.co.uk/programmes/b042ztrk

  • Steve Stubbs

    When you raise the minimum wage, you will automatically raise the national average salary, and every time you try to raise it to match, you again raise the national average……. Yes for goodness sake raise the minimum wage , and then enforce it. Make it a criminal offence not to pay it. But don’t throw in pointless links.

    • girlguide

      I was just about to make the same point. This would be an effective way of creating an inflationary wage spiral. Linking the minimum to a percentage of the average or median, increases the average, and year on year both the average and minimum wage costs increase. A disaster for the UK in a global economy and a consequential increase in unemployment. This demonstrates a worrying lack of business knowledge and basic maths.

      • CoolJHS

        Really!!!!. Okay, I think you missed one very important detail in the announcement so allow me to clarify this for you. Ed has not yet said exactly what percentage of the average wage will apply to NMW but the the likelihood is that it will be around 60% of the average which means 40% less than the average. How does this therefore increase the average significantly? Now, companies increase their profits year on year, it is only right that those at the bottom should get a fairer share of those profits rather than the Chief Exec and Directors alone benefiting by massive pay increase. Just curious by the way.

        • MonkeyBot5000

          The average wage is calculated by adding up everyone’s wages and dividing them by the number of earners. If you increase the minimum wage, the total of everyone’s earnings will increase and so the average will increase as well. Now the average wage has increased, the minimum wage will have to be raised again.

          This happens regardless of what percentage of the average wage the NMW is set at, but how much of a problem it is depends on how often you recalculate and whether you use the arithmetic mean or the median value for the average.

          • Daniel Speight

            But surely it would just depend on the schedule for considering the minimum wage. If it were yearly then it wouldn’t be a continuous wage inflation. I quite like the idea of the minimum wage chasing the average knowing that it would be impossible for it ever to catch up, but still yearly improving the the lot of the lower paid. I find it a rather scrooge like attitude to worry about the link with average pay. Now if we could do the same with the highly overpaid in the opposite direction then eventually in many years to come the average wage would be what everyone except the true entrepreneurs would be on. (Rarely are the CEOs of large companies entrepreneurs. They are usually just management employees of the shareholders.)

          • MonkeyBot5000

            “I find it a rather scrooge like attitude to worry about the link with average pay.”

            And I find it a very government-like attitude to ignore basic mathematics.

          • Daniel Speight

            So let’s look at your idea of basic mathematics. Every year hopefully the minimum wage is moved a little closer to the average wage. By moving it so, the average wage will also rise due to its effect but the part of average wage rise caused by this policy will be less in percentage terms than the minimum wage rise. What we would hope is that these two points would close although there is no guarantee of that as wage rises at the top and in the middle could move the average even further away.

            What I fail see is where is the problem. Are you just arguing like a silly schoolboy or do you see a real problem with an attempt to close the gap? Of course there will always be a gap. Only in what some would see as an ideal world would the minimum wage be the same as the average wage because that would also mean that the maximum wage would equal the minimum wage.

          • MonkeyBot5000

            Are you just arguing like a silly schoolboy or do you see a real problem with an attempt to close the gap?…

            No. I’m a guy with a masters degree in physics who has seen the woeful level of numeracy in parliament and finds writing someone off as “scrooge-like” for pointing out that there is feedback between two variables to be a little silly.

            That’s why I said;

            “…how much of a problem it is depends on how often you recalculate and whether you use the arithmetic mean or the median value for the average.

          • FMcGonigal

            About 1.4 million are on minimum wage out of a workforce of 30.4 million (4.6%). So if the minimum wage increased by £1 the average increases by about 5p (slightly more as those near the minimum also get an increase) If the minimum wage was set at 60% of the average then for every £1 it rose about 3p would need to be added next time it was calculated, in other words a fairly minor effect.
            If the median is used the problem effectively disappears.

          • MonkeyBot5000

            If the median is used…

            Big if. Remember our MPs are mostly borderline innumerate .

        • girlguide

          It’s not difficult to work out why it raises the average – probably a question in GCSE Maths.

      • FMcGonigal

        If the median is used there is some effect on the arithmetic average but NOT on the median itself so there is no ‘wage spiral’. Even if the average is used the effect is small and rather than an inflationary wage spiral the feed-back into the minimum wage rapidly diminishes (see my response to MonkeyBot5000).

    • FMcGonigal

      If it is the MEDIAN that is used rather than the strict arithmetic AVERAGE that would not be a problem. Increasing wages at the lower end of the scale would not change the median, but they would increase the average.

  • MonkeyBot5000

    In 1997, a Labour government took action, with one of the proudest achievements of any British government: it introduced the National Minimum Wage and saved people from a level of poverty pay that shamed our country.

    You introduced a minimum wage without accounting for inflation (how many of you studied economics?) and so doomed a huge swathe of the population to year on year pay cuts.

    A Labour government will establish a clear link between the level of the minimum wage and the scale of wages paid to other workers in our economy.

    I doubt it. A bunch of rich guys who benefit from keeping wages down will sell you horror stories about the collapse of the economy and you’ll buy it. You’ll put a quid or so on the NMW which will in no way address its fall in value since its introduction and you’ll act like you’re doing us a massive favour.

    …the next Labour government will do this in partnership with business once again…

    It’s really reassuring to know that the people who are paid by us to represent our interests are willing to listen to the people who benefit from our work before they decide how much of the wealth we generate we should be allowed to keep.

    A Labour government will establish a clear link between the level of the minimum wage and the scale of wages paid to other workers in our economy.

    I know it’s only coincidence that a lot of things I’ve been banging on about for ages – rail franchises, rent control, now the minimum wage – have recently been floated as policy ideas, but I’ll cross my fingers and give it a try.

    The personal tax allowance should be set at the rate of a standard 40hr week at the minimum wage. Set 10%, 20%, 30% etc tax bands at multiples of the personal tax allowance or set band boundaries at 1x, 2x, 3x the personal allowance and vary the rates.

    Uprate the minimum wage in line with inflation at the same time as benefits are increased and JSA/NMW levels won’t converge. If your wages don’t increase with inflation, less and less of your income would be liable for tax until you reached the minimum wage level and paid no tax.

    • PeterBarnard

      Agree with much of what you say, MB5000 (and what you have said over the years on LL), but it’s not correct to say that the minimum wage lagged inflation over the Labour years.

      On introduction in April, 1999, the NMW for adults was £3.60/Hour and the RPI index was 156.3 ; when Labour left office, the adult NMW was £5.80/hour and the RPI index was 222.8 : NMW up by 65%, and inflation (as measured by the RPI index) up by 43%.

      Since April, 2010 (to April 2014), the adult NMW has increased by 8.8%, and the RPI index by 14.4%. Well, surprise, surprise ….

  • Daniel Speight

    So that’s helps those in work at the bottom end of the salary range. Next how about legislating the multiple limits for those at the top of corporations and public bodies compared to the lowest paid in these organizations. Let’s see Labour back on the path of social democracy. At the moment the gap between those at the top and those at the bottom is obscene and it has been getting worse over the last 30 years with no turn-round in sight.

  • JoeDM

    Another Labour policy to make British businesses even less competitive!

  • David Battley

    Over the last couple of months, Monday morning seems to be the favoured time to “unveil” these new policies. All have been described as “eye-catching”; all appear to “play to the gallery” with “sticking up for the little guy” as the common theme. This thought process has much to be commended.

    However, to date none of these policies appear to last longer than a week: potential “holes” seem to get identified, and then dominate, the public debate. In response, the party appears to, rather than correcting or repairing these issues, collectively shrug their shoulders and move on, leaving an impression of half-thought through measures and ill-understood consequences. This is disappointing.

    I am not a betting man, but I have some confidence in suggesting that this is not accidental, and the political calculation is that the former view will be left behind amongst the “less avidly political”, while the latter will be proverbially “wrapping tomorrow’s chips”. I am personally not sure that calculation is right, and may be regretted at the next General Election, when a concerted push by both the Tories and Lib Dems (especially the latter: they’ll want their voters back) to remind the public of these, and in so doing portray the party and especially Miliband (assuming he is still in post: it seems an unlikely time to make a change, but elections can do strange things to parties…) as intellectually incoherent and muddled.

  • treborc1

    Problem is the hope that employers will pay the living wage, but why should they, after all labour is still in agreement with the Tories to hold down the public sector pay to 1%.

    I suspect because labour now agrees that teachers and nurses are paid to much, and both parties can see this needs reducing, sadly the bottom dwellers like carers will be caught up with zero hour contracts.

    “Welsh Labour has voted down an amendment to the Social Services Bill
    that would have outlawed zero hour contracts in the social care sector
    in Wales. Labour AMs joined with the Tories to defeat an amendment
    brought by Assembly Member Jocelyn Davies that would have made their use
    illegal in social care in Wales”

    Labour MP’s and the Tories joining forces what next a labour Tory coalition well in Wales it could happen..

    In Wales employers are struggling they really are and until the recovery picks up a lot more wages will be held at the min wage, maybe when the recovery really picks up then I suspect many employers will pay over the living wage well they may have done once but now of course they have a whole EU to get low pay staff from.

    The offer is nice but it’s just that a maybe if you vote for us, but it’s not enough first the 1% pay cap has to be removed if you have to do deals with teachers and nurses to take lower wages then do it, but care workers council refuse and all those on really low pay need protecting from the zero hours contracts.

    i wish you luck with the teachers and nurses maybe you should ban them from striking after all your not in the Unions pockets anymore.,

  • markmyword49

    Listened to Miliband on Today this morning. On this topic the usual fudge. He pretends to care but still ensures that people in work still need to claim benefit to ensure a living wage. I’m tired of my taxes being used to inflate company profits because they won’t pay a living wage.
    I heard nothing about loopholes in the system being closed, for example carers only being paid for time on site rather than the time they are actually on site AND moving between them.
    To quote Winston Churchill “It is a national evil that any class of Her Majesty’s subjects should receive less than a living wage in return for their utmost exertions” If that old reprobate could see the unfairness it shames the current Labour leadership that they want to do so little about sorting out the disgrace.

  • BillFrancisOConnor

    All these arguments were used against the introduction of the Minimum Wage and were found to be completely false. This is where neo-Liberal dogma (or any dogma for that matter) contradicts the real world. The Minimum Wage rate should be linked to the national average wage and what EM has said this morning is an important step forward.

  • IAS2011

    What is he going to do to improve Social Mobility amidst a FAILING Work Programme and FAILED government ‘loan guarantee schemes’, which, with their partners in crimes – the CEO banks and their Unethical practices – FAILED VIABLE Small Businesses of ‘ordinary’ folk… and then allowed these same banks to Repossess the homes of these innocent people.

    For the reasons that Miliband FAILS to talk about such REAL issues confronting ‘ordinary’ hardworking folk, he – like the Tory and Liberal Democrats- SHOULD NOT be in allowed in government.

  • mouthOfTheUmber

    Great start. But why not link it to Salary + Bonus of top 1%?
    This will dampen ‘fat cat’ pay and eventually raise the living standards of the 99%

  • driver56

    Interesting statement, I hope Ed deliver’s.

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