SocialismToday           Socialist Party magazine

Issue 178 April 2014

The struggle against poverty pay

15 years of the minimum wage

Dubbed a ‘minimal wage’ by many, the national minimum wage is set at a very low rate – just enough to raise the level of those deemed to be on extremely low pay. It is far from a living wage, and even lower for young people. JUDY BEISHON reviews the findings of a recent report.

Marking 15 years of the national minimum wage, the Resolution Foundation carried out a review of its future, chaired by Professor George Bain, who was the first chair of the Low Pay Commission. The final report, ‘More than a Minimum’, concluded that the minimum wage has been a success, and suggested some modest adjustments for government policy.

When first introduced in April 1999, even though it was set at the low rate of £3.60 an hour, it immediately lifted the pay of those suffering ‘extreme low pay’ – below 50% of the gross median hourly rate of all employees. One third of low-paid workers were in this category. Now, fewer than 9% of low-paid workers are described as having extreme low pay – mainly apprentices and youth who are excluded from the ‘adult’ rate, indefensibly in the Socialist Party’s view.

Over its first 15 years, the national minimum wage has risen by 75% to its present level of £6.31 an hour for workers aged 22 and over. This rate of increase has outstripped the growth in average earnings and also inflation (price increases). But this does not mean that the minimum wage is at a good level now. Rather, it is a consequence of the very low initial rate which, incredibly, according to the Low Pay Commission, was "set much lower than intended" by the government "because of an error in the data supplied to LPC".

In addition, delve into the detail of the national minimum wage’s rise and it can be seen that its gains against inflation were all achieved in the first nine years. Since 2008, its value has failed to keep up with inflation. If the Low Pay Commission had recommended increases since 2008 in pace with the consumer prices index, it would now be £6.64 an hour, rather than £6.31. Even after October’s planned increase to £6.50 it will be no higher than its 2005 level in real terms, and is expected to be only just over 4p an hour higher than its 2013 rate.

One reason the Low Pay Commission gives for caution when recommending increases in the minimum wage is concern that a ‘ripple up’ affect will increase wages across the economy, fuelling inflation – although it admits there has been no sign of that to date. On the contrary, it has simply become the going rate in some sectors: 2.6 million workers now earn no more than 50p above the minimum wage. Most have been stuck on low pay indefinitely, with one study showing that almost three-quarters of low-paid workers in 2002 were still predominately low paid ten years later.

Their bosses can rest on their laurels having met their legal obligation, so to some extent the minimum wage has played a role in legitimising low pay. In many cases it personifies pure greed, as the Low Pay Commission acknowledges: "Many employers would see only a small effect on their overall wage bill if they were to pay their lowest paid workers more". Among its conclusions, the commission concedes that "some of the policy’s key strengths have become weaknesses".

Nevertheless, the minimum wage has provided a bottom line wage floor that has largely prevented ‘extreme’ low pay. Most employers abide by it, though cases of evasion are regularly exposed, which are inevitable given the government’s very weak enforcement and rare prosecutions. The minimum wage in Britain is higher than in a number of other developed capitalist economies, such as the United States (federal rate), Japan and Spain. However, it is lower than in numerous other countries, including Canada, Australia, France, Netherlands and Belgium, both in ‘cost of living’ and absolute cash terms. It is also the case that in Britain a higher proportion of workers are low paid (earning less than two-thirds of the median wage) than in most other developed economies.

Endemic low pay

Overall, one in five of the UK workforce – five million workers – is classified as low paid, when using the definition of those earning less than two-thirds of the median gross hourly wage for all employees. The median wage is a much better reflection of what most people earn than the mean (average) wage, because the latter is distorted upwards to a much greater degree by the massive pay levels of the top 1% of earners.

However, the line is moving downwards because median wages have been declining. The median per hour fell by over 8% in real terms between 2009 and 2012. The government’s claim that low pay has fallen is a fiction – it is the bar against which it is measured that has fallen. Using the Con-Dems’ logic, austerity-ravaged Greece has a lower incidence of low pay than Britain! Rather than pay levels being better in Greece, the ‘median’ bar against which low pay has been measured is comparatively lower there. The reality in Britain is revealed by the fact that, taking the ‘living wage’ as a benchmark (presently £7.65 an hour, calculated by a research unit at Loughborough University), the proportion of workers earning below it rose steeply from 14% to 20% between 2009 and 2012.

The fall in the median wage level in Britain is not surprising when looking at the stratospheric pay levels and increases for company directors, university vice-chancellors, NHS chiefs and others in the highest bracket of earners, together with the unprecedented level of cash hoarding by the top companies. There has also been a fall in the share of national income going to wages in general (as against profits); it is around 54% now but was averaging 59% in the 1960s and 1970s.

It is strikingly telling that one of the recommendations the Resolution Foundation felt driven to make was that the government should make reducing incidence of low pay an explicit ambition, instead of this issue being off its radar. The Low Pay Commission, despite its name, has always been relegated by the government to just suggesting minimum wage rates and has never been asked to make proposals on reducing low pay or even to simply measure it. The commission placidly comments that this "reflects the lack of any wider strategy to tackle low pay under current and previous governments". It also has no responsibility to propose measures on the minimum wage to "incentivise employers to go further even when they could afford to do so".

For pro-big business governments – Tory or Labour – this deliberate disregard for countering low pay yet again brings to light the class interests they serve. For the millions of workers who cannot make ends meet, it is a graphic example of the urgent need to build a new mass political party that can represent working-class interests. That would include a programme putting forward measures to drastically improve the living standards of the low paid, as well as meeting the needs of all workers, pensioners, those unable to work, students and so on.

The building of such a party needs to go hand-in-hand with trade union-led struggles to fight to improve the minimum wage and all other levels of pay of the 99%. After Bob Crow's tragic, sudden death, among the accolades was recognition that his willingness to lead RMT union members in a determined, intransigent defence of their pay, terms and conditions had prevented their living standards from being eroded during the years of recession. Crucial to emulating this is the building of left-led, fighting trade unions across all sectors of industry and services, using their collective might to defeat the anti-trade union laws, defend collective bargaining rights and insist on decent pay.

The living wage

Many trade unions rightly call for the ‘living wage’ to become the lowest pay point, rather than the national minimum wage. The Low Pay Commission, which has three leading trade unionists on its nine-strong panel, does not support this, or even indexing the minimum wage to the rate of inflation. "We do not want to over steer", driving the bosses to sack workers, or risking escalating inflation, the panel pleads. It applauds the fact that its cautious approach has "forged cross-party political support", which would be "foolhardy to jeopardise".

One of its justifications for not linking the national minimum wage (NMW) to inflation is that France’s annual increase is inflation-linked, but the UK’s minimum wage has risen at a faster rate and outstripped inflation. This is a spurious argument because the present minimum wage in France is over 20% higher than in Britain. The Low Pay Commission’s caution is despite its own admittance that there is no evidence of any adverse effect of the minimum wage on the overall numbers in work. Yet it congratulates its "careful" stance because "at some level the NMW would inevitably cost jobs". Nor, it accepts, has it caused generalised inflation, though "this is partly because the NMW has had lower ripple effects than anticipated, not raising wages across the economy".

The Low Pay Commission claims that increased productivity of low-paid workers is necessary to make increases in the minimum wage generally ‘affordable’ for employers. This is a weak argument at a time when most of the major companies are not finding it difficult to make profits. Also, significant productivity increases are particularly out of reach for vast swathes of the lowest paid labour, like social care and catering workers, without serious damage to the quality of the service provided.

All these constraints have been fully agreed to by the three trade unionists on the Low Pay Commission’s panel: John Hannett, general secretary of Usdaw retail union, Kay Carberry, assistant general secretary of the TUC, and Heather Wakefield, national secretary for Unison’s local government service group. The panel has repeatedly agreed unanimously to continue to recommend lower minimum wage rates for young people and apprentices – which have risen at an even slower pace than the ‘adult’ rate, and were frozen completely for two years in 2011-12.

Hannett, Carberry and Wakefield have signed up to the verdict of the Low Pay Commission that it has "helped to depoliticise Britain’s minimum wage". In other words, both the coalition government and Labour before it have felt it does not infringe too much on the ruling class’s interests for them to accept its timid recommendations.

There are two significant deficiencies in the calculation used to arrive at the living wage. Firstly, it rightly takes into account the cost of living, and the researchers who produce it have come up with a figure of £9.08 an hour being needed at present. But, in order to prevent the increase in the living wage being "too far out of line with general pay trends", they have capped their figure at £7.65 an hour. So that is the figure being widely used. It is not, however, a genuinely living income by the assessment of its originators. In London, the Greater London Authority’s estimate is usually used instead, presently £8.80 an hour.

Secondly, in working out their living wage figure, the researchers examine the needs of nine different types of household (taking benefit entitlements into account). They then decide what income figure would provide for those needs. Rather than using the highest-need household as the benchmark, an average is taken across the nine. Therefore, for the 50% of household types that are above average in their needs, the living wage figure arrived at is insufficient.

Notwithstanding these understatements, for workers currently struggling on the minimum wage or a little above it, achieving the living wage can make a very significant difference, as many have testified. As the most well-known target figure above the paltry minimum wage, the living wage has regularly become a focus of struggle by groups of low-paid workers.

Local authorities

Salford city council is one of 26 councils across Britain that is committed to a wage floor of the living wage. This, however, was only won as a result of the council Unison branch calling for it, along with other demands, backed up by the threat of strike action. In autumn 2012, the Labour council disgracefully told the Unison branch that it intended to change the pay and grading structure of the workforce in order to save £19 million over five years. The Unison members met and voted to organise a strike ballot if the council did not withdraw its proposals. The council pulled back under that pressure and, in subsequent negotiations, the union branch succeeded in gaining commitments that there would be no reduction in the overall wage bill, no loss of pay for those paid less than £21,000 a year, and that the living wage would be implemented.

This was not viewed as a perfect deal by the Unison branch, because the gains of the lowest paid were to be paid for by middle-income earners, but there were far fewer losers than winners – contrary to the council’s original proposals – and a ballot of the branch members voted to accept it. The living wage policy significantly helped the lowest-paid workers, including apprentices as they were included in it. Some workers received a pay rise of £1.20 an hour. Many of the council’s contractors and partner-organisations signed up to it, including the local housing association and arms-length management organisation, the leisure trust and Salford City College. However, it is still the case that social care workers contracted from the private sector by the council are receiving less than the living wage. The Unison branch regards it as a priority to change this and, in the meantime, is not considering the council to be a true living wage employer, despite its Living Wage Foundation accreditation.

The London borough of Camden is another Labour council accredited as paying at least the living wage. Unfortunately, it has passed on some of the Con-Dem cuts by introducing performance-related pay to reduce its overall pay bill. Again, the living wage does not cover all its subcontractors; it is asking them to commit to it when their contracts are renewed, which in some cases is years away. In 2012, traffic wardens in Camden, subcontracted to the private sector, fought for and won improved pay by resorting to strike action. Camden Unison is currently running a major campaign for school meal caterers in the borough to be paid the London living wage.

Only 20% of Labour councils are living wage employers. What about the other 80%? Labour leader Ed Miliband spouts propaganda against low pay while most Labour councils are not even accredited as paying a living wage. The many trade union leaders who are still clinging to affiliation of their unions to the Labour Party could insist that their union’s money at least buys immediate implementation of Labour-led councils paying the living wage.

Miliband has pledged to give a tax break to employers who voluntarily pay the living wage if Labour forms the next government. But he argued that it would not cost the government a penny because its costs would be covered by the reduced eligibility for benefits of workers whose hourly income would be raised. In other words, workers lucky enough to be affected by this scheme might gain very little from it!

Some Labour councils are even leading the way in attacking local authority workers’ pay, terms and conditions. Bridgend council in Wales has outraged its workers by withdrawing itself from national pay bargaining in order to not honour the paltry 1% pay increase for 2014. It is only offering staff on the bottom two points of the pay structure the 1% because, otherwise, they would be paid less than the minimum wage – illegally. In an indicative ballot the council's Unison branch has supported responding with strike action. In Doncaster, carers subcontracted to Care UK by the Labour council are conducting a long-running battle against intolerable attacks on pay and other terms and conditions.

Struggles for a living wage beyond local authorities have included cleaners and porters in the Royal Opera House in London. In February they scored a victory by securing a pay rise from £7 an hour to £8.80. Cleaners in the Houses of Parliament and on London Underground have also won battles for the London living wage. More recently, 150 GMB union members working at Ealing hospital – porters, domestic, catering and help-desk workers – took eleven days’ strike action to fight for a living wage and pay in line with NHS staff.

The workers are subcontracted to Medicrest, part of the multinational company, Compass, that has a turnover of £17.5 billion. With a further seven days of strikes planned, Compass caved in and agreed to give the workers a 16% increase to £7.31 an hour from 1 April 2014. From April 2015 pay rates will be harmonised across the health trust so the workers should be on £9.10 to £9.30 an hour – the same rates as NHS staff and those transferred from the NHS to Compass under the TUPE agreement (which safeguards workers’ terms and conditions when transferring to a new employer). The GMB regional organiser drew attention to the fact that, 18 months ago, there were only six GMB members in this outsourced workforce, but the number now exceeds 150.

For £10 an hour

The Socialist Party fully recognises how necessary it is for workers on or near the national minimum wage to fight for the living wage and has firmly supported all struggles for it, directly participating in many. We oppose the Low Pay Commission’s view that the living wage should be voluntary for bosses. It should be mandatory, and we call for the minimum wage to be raised to the level of the living wage immediately, with no exemptions.

However, as that is insufficient to provide the basic costs of living (as outlined above), it needs to be regarded as a stepping stone to a higher amount. What should this be? The level of the wage floor is not a theoretical issue for the lowest-paid workers. It is an acutely practical and material question. This means that the level that is campaigned for beyond the living wage needs to be based not just on what would provide a fundamentally comfortable and secure standard of living, but also on what could be achieved in the not-too-distant future through well-organised struggle. It also needs to be what the lowest-paid workers would view as possible to achieve – as without them having confidence in the goal being realisable, a determined, united struggle will not develop.

Austerity-imposing governments, whether Tory or Labour-led, and most big businesses, are not going to offer a real living wage out of the goodness of their hearts. It has to be fought for through strong, serious campaigning, backed up by strike action if necessary. As well as aiming for a level that is realisable through fighting for it, a figure that can become easily recognisable and taken up as a focus across different industries and services is important. With all this in mind, the Socialist Party is putting forward the call for trade union struggle to increase the minimum wage to £10 an hour, which would raise sights beyond the living wage and is achievable through building a mass campaign in the millions-strong trade union movement. There should be no exemptions from this for young people, and the level would need to be reviewed as the cost of living rises.

Seattle fighting for $15

In the United States, Socialist Alternative member Kshama Sawant was elected to Seattle city council last year with one of her main campaign demands being an increase in the local minimum wage from $9.32 an hour to $15. The demand for $15 was first raised in struggles of fast-food and Walmart workers. Socialist Alternative supported those struggles and spearheaded a major campaign in Seattle, with local ‘15 Now’ action groups being set up in communities, workplaces and on campuses.

Socialist Alternative recognised that, while most large companies could pay a $15 minimum, some small businesses and not-for-profit organisations would have financial difficulty with it, so called for extra taxes on big business that could fund assistance for small organisations. However, when opponents of $15 questioned the tax raising powers of the city council, to avoid this issue being used to undermine the campaign, Socialist Alternative proposed that a concession be made to small-scale entities whereby they could phase in the increased minimum over three years.

The approach of living wage campaigns to small businesses and not-for-profit organisations will vary in detail between countries, and between local and national campaigns. Nonetheless, it is correct that the particular problems that small organisations might have are recognised and solutions put forward. It is also essential everywhere to demand full government funding of public services and the reversal of all cuts and privatisation, so that the workers delivering those services receive decent pay and the services are high quality.

It is crucial that campaigning for a baseline living wage is part of a programme of demands that addresses all the related problems faced by low-paid workers. This should include demands for rent controls, more public housing, affordable public transport, free education, adequate benefits and pensions, and an end to zero-hour and other precarious contracts. In addition, socialists stress that, for as long as the capitalist system remains, its ruling class will attempt to pass the burden of economic crises onto the backs of ordinary people, and gains made through struggle can be taken away at a later stage.

So the programmes of fighting, working-class-led organisations – whether left-led trade unions, the Trade Unionist and Socialist Coalition and, in time, a new mass party – need to promote the vital goal of public ownership of the top banks and other main corporations, and a democratically run, socialist planned economy. On that basis, with the majority in society in control, nobody would have to work for a pittance and the living standards of all workers could be raised enormously.

All the facts, figures and quotations in this article are from reports of the Low Pay Commission and Resolution Foundation unless stated otherwise.

Home About Us | Back Issues | Reviews | Links | Contact Us | Subscribe | Search | Top of page