Editorial: Enforce the minimum wage to make work pay

 

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It was Bill Clinton who, as US President, summed up what he called the old idea of the American Dream that “if you work hard and play by the rules, you ought to have a decent life”. But that sentiment applies not only to America and not just to a dream. It should be the guiding principle of any government worth the name.

Regrettably, it is not only the United States that even now routinely fails to guarantee a "decent life" for the lower echelons of its labour force. Today's Britain is not very good at it either. We are worse at it, in fact, than most of our European neighbours. In that respect it was heartening that a government minister, Matthew Hancock, agreed to address the subject of low pay head-on – in a speech yesterday to a London think-tank. And he started with two uncomfortable facts.

The median wage in the UK is £21,500 a year, and it has fallen – yes, fallen – over the past decade by 10 per cent. The economic growth of the early 2000s helped to raise incomes substantially at the very top, and to a much lesser extent – partly because of the indexing of benefits – at the very bottom, but average individual pay fell. So much for a rising tide lifting all boats – or anything akin to an equitable distribution of the proceeds of growth. It is unlikely that the lower paid were shirking for a decade.

What was positive about Mr Hancock's speech, however, was not only that a minister was addressing the issue of low pay head-on in a public forum, but that a Conservative minister in a Conservative-led coalition was prepared to concede that low pay, traditionally a cause of the left, was of concern to a centre-right government, too. And even as he recited the predictable free-market arguments about the need for a modern economy to be globally competitive and the relative advantage of a flexible labour force – reflected in the UK's relatively low unemployment rate – he also accepted that low pay could be a problem and that asking people to increase their working hours was not, in itself, a solution.

The Government's record on low pay is mixed. The rise in the income tax threshold will have taken almost three million people out of tax altogether by the next financial year, which is welcome for two reasons. Not only does it leave those on low pay with more of their own money, but it simplifies the system. That is the answer to those on the left, who argue that targeted tax credits would be cheaper and more effective in helping the poorest.

In a more typically Conservative vein is Iain Duncan Smith's welfare reform, in the shape of the universal credit, designed to ensure that everyone is better off in work than on benefits. It remains to be seen whether the incentives to take a job – or the penalties for not doing so – produce anything like the desired effect. But if they don't, this will have at least as much to do with low pay as with "overgenerous" benefits. They are two sides of the same coin.

Another, albeit ill-defined, suggestion from Mr Hancock was that the minimum wage might be "strengthened". One variant of this could be an extension of the "living wage" concept across the public sector, tailored to the local cost of living. Other employers might then have to increase rates to attract staff. At least as effective, though, would be more rigorous enforcement of the minimum wage.

All manner of stratagems are currently used by employers to evade their legal obligations – from charging for uniforms or housing, to presuming notional tips, to giving pay cash-in-hand. Such employers must feel the full force of the law. Not only because laws that are not applied are discredited, but because such practices distort the labour market and exploit those workers who most need the protection of the state.

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