In 2010, the storm clouds were still circling around the British economy, with unemployment rising, the country on the verge of bankruptcy and grim talk of a stagnation that would last for years, or even decades.
In the period after 2008, many workers and families made great sacrifices, with many eschewing pay rises for several years. Following the financial crash, the Minimum Wage also lost value in real terms, as the Low Pay Commission decided that anything other than small increases were too economically risky.
Thankfully, the British economy has now turned the corner – growth being amongst the highest in Europe. Profitability of business is now at a record high. Profitable big business needs to give some of these profits back to their workers in increased wages and for businesses to rely less on the taxpayer to tackle low pay.
We should celebrate the above inflation increase to the Minimum Wage and the increase to the rate for apprentices. The economic recovery means that now is the time to tackle low pay generally and to ensure that people don’t become ‘stuck’ in low paid work.
Low pay matters because people who are stuck in low pay often think that the connection between hard work and reward has been broken. Low paid workers are less likely to be able to spend time with their families or in their communities and there’s a link between low-paid work and problems with depression and mental health issues.
It matters to the taxpayer as well. As new research for the Centre for Social Justice has shown, the Universal Credit succeeds in ensuring that work pays. But too much of the bill to ensure that people on low pay are able to reach a reasonable standard of living is being picked up by the state. It’s time for profitable big business to take on its share of the burden.
Take the example of a single person with two children. A 35 hour week on minimum wage would mean that they were earning £211 a week. After benefits under Universal Credit this rises to £454 a week. It’s clear that tax credits are an important way of cushioning low pay, but business should be prepared to play their part too. Otherwise employers who pay their workers well are effectively subsidising those who don’t.
The strong economy means that substantial, above inflation increases in the Minimum Wage can now be achieved. It has also seen a big increase in the number of firms paying the Living Wage – up from the low hundreds in 2010 to over 1,200 today. It’s right that big, profitable companies should move towards the Living Wage and they should be expected to report annually on whether they’re taking steps to achieve this.
Tackling low pay is crucial, as is making sure that people don’t get ‘stuck’ in low pay for a prolonged period of time. Universal Credit provides a proactive way of doing this – Job Centre Plus advisers should work with Universal Credit claimants to develop way for them to increase their skills and increase their hours.
A strong economy is a prerequisite to tackling low pay over the long-term. The strength of the economy now means that big business should be ready to reward their workers for the sacrifices made since the banking crash and take some of the burden off the taxpayer when it comes to tackling low pay.
This article was first published in the New Statesman on 18th March 2015.