David Arnold, UNISON Policy Officer

04 June 2014

Alan Buckle’s report on the national minimum wage could be good news for the low paid, but only if politicians are bold when filling in the gaps and ready to put solving the UK’s low pay problem at the top of the agenda for the 2015 General Election.

Alan Buckle’s report on the national minimum wage could be good news for the low paid, but only if politicians are bold when filling in the gaps and ready to put solving the UK’s low pay problem at the top of the agenda for the 2015 General Election.

Buckle was asked by Ed Miliband in September 2013 to look at how low pay could be addressed via both a strengthened minimum wage and greater encouragement to employers to pay the Living Wage.

A previous vice chair of KPMG, Buckle makes it clear that he comes at this issue with a particular perspective. Whereas there have been a number of important reports about low pay, few, he says, have looked at the issue through business eyes. As such, Buckle makes much of the business case for his proposals. He says we should see action on low pay as part of a wider strategy to move towards a high skill, high productivity economy and that we should recognise that higher pay will be good for government finances, in terms of the need for fewer tax credits and a lower social security bill.

Regardless of what one thinks about the appropriate balance between business and worker perspectives, there is much here that has potential to be radical, including proposals for the government to:

• Task the Low Pay Commission with achieving a five year target to increase the NMW to a more stretching proportion of the median
• Introduce sectoral variation, with the Low Pay Commission empowered to set up trade union/employer taskforces in different parts of the labour market. In sectors that can afford to pay more, the Low Pay Commission could ‘look at the case for giving the taskforce the power to set either higher recommended rates or a higher statutory rate for the sector’
• Expand the role of the Low Pay Commission to look at the causes and consequences of low pay and make recommendations for addressing them
• Improve enforcement of the NMW by boosting LPC oversight role, giving local authorities a greater responsibility alongside HMRC, and expanding the remit of the regulators to cover areas such as non payment of holiday pay and record keeping
• Do more to promote the Living Wage, including through use of procurement, greater transparency and targeted incentives

So what are the gaps? Three stand out. First, Buckle does not put a figure on the proportion of the median wage that the NMW should reach at the end of the next five years. He deliberately leaves this for others - but does provide a steer by stating that ‘policymakers should set the target to be stretching rather than easy, aiming to make a significant difference to people’s lives and to put pressure on businesses to adapt their business models......’

In response Ed Miliband has accepted the recommendation that the minimum wage should be linked to earnings but stopped short of putting a figure on the share.

So, what should it be? George Bain, the former chair of the Low Pay Commission, recently suggested that a medium term target could be set at 60 per cent. Based on 2014 first quarter median full time earnings, that would take the rate up to about £7.10. 60 per cent of median is the Eurostat definition of low pay. As such, if this was the NMW, a government that achieved a NMW at this level would technically, according to this measure, be able to say that it had eradicated low pay.

However, it’s the OECD measure of low pay - two thirds of median, rather than 60 per cent - that is the most widely used, and which is more likely to ‘make a significant difference to people’s lives.’ If this were adopted as the target the NMW would currently be more than £7.80, which is higher than the current £7.65 UK living wage (though lower than the £8.80 London rate)

Which leads on to the second gap in the report – which is the relationship between a higher NMW and the Living Wage in the longer term.

The report does set out a number of measures to promote and incentivise greater take up of the Living Wage. But for Buckle the Living Wage and the NMW are totally different things and never the twain shall meet, with the former always a voluntary endeavour and the report unequivocal in opposing a statutory living wage.

In the context of a report that is resolute in its determination to tackle the low pay problem, as expressed in terms of the five million people on two thirds of the median wage or less, and which recognises the need for stretching rather than easy targets, this seems an artificial divide. This is especially so when you consider the proximity of the figures cited above and the recommendation that the Low Pay Commission be able to set higher statutory rates in sectors that can afford it.

The third gap is that whilst the report includes welcome reference to the important role of unions on the Low Pay Commission and on sectoral taskforces, there is little here about the link between collective bargaining and the shift towards a high wage – high productivity economy. There is of course growing momentum behind calls for a renewal of collective bargaining, at the sectoral level and through wages councils, not least from the TUC, Smith Institute and the IER. Notwithstanding Buckle’s distinctive business perspective it would have been useful to have considered these developments, and to have explored the potential overlaps between taskforces, new wages councils and existing national and other collective agreements.

So how should an incoming government that is serious about tackling low pay respond to the report? In terms of simplicity and clarity of purpose, a target should be set for a NMW that is a Living Wage - set at two thirds of the median basic, that is flexible enough to reflect the higher living costs in London. Alongside this, the next government should introduce a full package of measures to promote collective bargaining. The pay and productivity challenges identified by Buckle demand nothing less.