Raise the bar: Economically and socially, Britain needs higher wages

A substantial rise in the minimum wage would be a good way to share fairly the fruits of recovery

Tuesday 07 January 2014 19:52

The Chancellor wants to encourage the Low Pay Commission to raise the national minimum wage, this newspaper reports today. But as George Osborne presumably knows, if he thinks a significant rise is a good idea then he will have to do more than merely exhort the independent body that decides such things to give the rate a tweak.

First, though, we should welcome the Chancellor’s political instinct. Even if his motive is to steal a march on the Labour Party in the long campaign for next year’s election, his proposal is an excellent one, nonetheless. A substantial rise in the minimum wage would be a good way to share fairly the fruits of recovery – and at the same time would increase the incentives to work.

That such a move would also help to diminish the memory of a time when the Conservative Party insisted that a minimum wage at any level – even the modest pittance at which it was introduced by Labour in 1999 – would destroy jobs is a political gain for which Ed Miliband should claim credit.

But what of the practicalities? Mr Osborne needs to consider whether the Government should change the terms of reference of the Low Pay Commission. There is, for example, a strong case for allowing the Commission to estimate higher multiplier effects of raising low wages: that is, to assume that the extra money pumped into the economy by higher wages for those workers with a propensity to spend rather than save will increase activity and increase employment generally. In addition, the Commission ought to be allowed to take into account the savings to public funds from a reduction in tax-credit payments.

However, trying to quantify both such factors requires some heavy-duty macroeconomic modelling, and it would make sense if the Treasury were to start work on this now. Some economists will agree, some will disagree, and history is a deceptive guide, but The Independent takes the view that the recovery is sufficiently well-established to sustain a rise in the minimum wage, to stimulate further growth as well as help to promote social justice.

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