Robert Halfon is a member of the 1922 Committee Executive and MP for Harlow
In 1997, the Conservatives opposed the introduction of a National Minimum Wage. We were wrong to do this. It cemented Labour’s claim as the party of ‘labour’ – something which has been lost in recent years, as the party has moved to be the party of welfare. It also gave ‘the left’ ‘ownership’ of an issue in the same way that occurred with the establishment of the NHS.
The minimum wage should have been something that Conservatives didn’t just champion in terms of social justice, but because of Conservative heritage: the party of aspiration and working people. If Conservatives want to support people who want to work hard and get on, then fair wages should be a national prerequisite.
It is good that the Tories have moved on and come to accept the National Minimum Wage as an important weapon in encouraging people back into work, weakening the poverty trap, and showing that work pays.
For this very reason Conservatives must not make the same mistake opposing the Living Wage. However, giving strong support to the concept of a Living Wage does not mean that Government shouldn’t be very careful about imposing extra burdens on small businesses. This is particularly important in the current economic climate, as small business would find any additional cost difficult to afford.
The question should not be do we support a living wage, but what is the best Conservative way to achieve it?
Achieving a Living Wage makes social sense, but it is important politically as well. It would be an important way of reconnecting with voters on low incomes to convince them that the Conservatives are on their side. This is all the more important given Lord Ashcroft’s recent polling which suggested that only 1 in 5 voters believe that the “Conservatives are concerned about people like me”.
The economy is healing but low wages continue to be a problem, and people are still feeling the pinch. This is not a new phenomenon: as the Resolution Foundation has made clear, median real wages stopped rising in 2003. A full 7 years before the coalition government came to power.
This problem is not exclusive to the UK, as OECD nations across the developed world, including the United States and Germany, have been suffering with this problem for decades.
This Government has made positive moves to helping workers on low incomes. This year, 24 million people paid £600 less income tax than they paid in 2010, and 2 million of our lowest earners were lifted out of income tax altogether.
But, how to go further than this and achieve a real Living Wage for all workers?
It is worth first noting what a Living Wage means in practice. This is the amount an individual must earn to cover the basic costs of living – currently £8.55 in London and £7.45 for the rest of the UK. Currently, 20% of employees earn below this, and the National Minimum Wage is currently just £6.19 – making life extremely tough for those struggling on it.
The reason why a Living Wage has become such a potent issue is because of the rise in cost of living. For example despite the Government cutting and freezing fuel duty, the price of petrol has still increased by 80% since 2003. Water bills have gone up by an average of 14.5% since 2010. The cost of food has risen by 32% since 2007. On top of prices increasing, wages remain stagnant.
A number of proposals have been made to help to achieve a living wage.
Some suggest that the National Minimum Wage should simply be increased; that companies should be encouraged to pay their staff a Living Wage by giving them tax breaks; or that the National Minimum Wage could be regionalised to better reflect the cost of living in different areas.
Whilst there are merits of persuading companies to pay more by giving them lower tax bills overall, there are concerns that voluntarily encouraging a Living Wage could leave many people left behind. Other measures that would force employers to pay more, could land them with extra financial burdens that may be unaffordable, threatening increased employment.
For big corporations, these things can be absorbed financially. But it is small businesses that would hurt the most. It is estimated that a Living Wage could cost as many as 160,000 jobs, and would disproportionately affect the young or those who lack qualifications.
Achieving a Living Wage a Conservative way – one that helps business, rather than harms – is through lower taxes for lower earners. It is somewhat Kafka-esque that the taxman takes away an employee’s wages when they are earning what the state considers to be the very minimum you need to live on.
This is further compounded by research from the Adam Smith Institute which showed that last year, the National Minimum Wage before tax (at £12,875.20) was higher than the Living Wage after tax (£12,715.72).
It was therefore tax that prevents people earning the National Minimum Wage from receiving a Living Wage. Although this is no longer the case due to the rise in the tax threshold and increases in the Living Wage, it still illustrates the point that it defies logic to tax the National Minimum Wage.
This leads some to argue that the tax threshold should be increased to fully encompass the £12,875 that everyone needs to live on.
The Coalition’s commitment to raising the threshold to £10,000 is a great step forward – successfully taking 3 million people out of tax. But changes to the tax structure is an essential next step.
Those proposals could include the implementation of a 10p tax band – a hugely significant political move for Conservatives – which would reduce the cash-gap between the National Minimum Wage and the Living Wage by 50%.
Another option is to ensure that no-one who gets minimum wage (working on average 40 hours per week) pays any tax. This would be done by raising the tax threshold to £12,875.
Removing tax from the minimum wage would cost £14.4 billion compared to about £6 billion by introducing the 10p tax rate. Both would have cost-benefits to the Treasury in terms of eliminating the poverty trap, incentivising people off benefit dependency and getting them back into work.
These measures would have the additional benefits of safeguarding employment, of stimulating the economy through extra spending and tax receipts, and reducing welfare spending.
Ultimately, how we achieve the Living Wage is irrelevant – what matters is that it is achieved in a sound way, so that the 4.6 million workers who currently earn below the Living Wage can benefit and keep more of their own money.
A Living Wage introduced through Conservative means shows hard working people that we are on their side. As Disraeli almost said, ‘it’s all about elevating the condition of working people’.