Politicians shouldn’t meddle with the minimum wage

Image courtesy of hywards at FreeDigitalPhotos.net
Image courtesy of hywards at FreeDigitalPhotos.net

When the National Minimum Wage (NMW) was being debated in the late 1990s, there was one strong argument against its creation: it would destroy jobs.

Critics argued that it was better for there to be many low paid jobs, rather than fewer slightly better paid ones. People with bad memories of centralised government control of the economy didn’t want to see ministerial decrees ruining the economy again. So, thankfully, added to the NMW legislation was a very good idea – The Low Pay Commission (LPC).

The LPC is independent from government and is drawn from a cross-section of interests. Its panel of nine members includes academics, trade unionists, employee and employer representatives – it is neither a leftist nor a pro-business creation. It simply analyses the data available and then advises government on what it should do. The LPC reports in February and in October its recommendations are carried out.

There’s little doubt this body has increased wages. In 1999, the minimum wage was just £3.60, but it has increased steadily since then; in October this year it will rise to £6.70. This will improve the pay packets of 1.4m people and that can be no bad thing. Meanwhile, there’s been very little complaint from businesses and no real evidence that jobs have been destroyed. Furthermore, many employers like to boast they ‘pay more than minimum wage’ and so it pushes up wages across the spectrum. The NMW is working well, but not well enough it would seem.

The ‘cost of living crisis’ has caused politicians to stray into areas where they should not go. Numerous Labour MPs and think tanks have called for a rise in the NMW. But then George Osborne, backed by Vince Cable, made the first tiny move down the slippery slope. This year he rejected one of the Low Pay Commission’s recommendations on pay for apprentices. It said the rise should be 7p the government chose to raise it by 57p per hour. Osborne has also said he wants the NMW to raise to £7. But Labour has raised the ante further by declaring it will increase the NMW to £8 per hour – although not until the end of 2019.

All of a sudden politicians are risking jobs to win votes and in doing so undermining a sensible institution which has been of great benefit to the low paid.

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