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by Jamie Cater 8th January, 2018

Return of the JAMs? How the Government might respond to the Taylor Review

If a week is indeed a long time in politics, then aeons have passed since the Conservatives unexpectedly won an outright majority in the 2015 general election. One of the key debates in that election was defined by the term coined by then Leader of the Opposition, Ed Miliband: the cost of living crisis. David Cameron’s Conservatives were victorious largely on the basis that the electorate believed that they, rather than Miliband’s Labour, were best-placed to secure the economic recovery and thus improve living standards.

In many respects, the predominance of Brexit, another surprise election result and the occasional soap opera-style drama of minority government means that the political debate has since moved on considerably. However, an underlying trend has steadily grown in prominence that could begin to shift the conversation firmly back to living standards: stagnating wage growth. The Resolution Foundation – the think tank focused on living standards whose director, Torsten Bell, was previously Ed Miliband’s head of policy – found after November’s Budget that average annual earnings would not return to their pre-2008 level until 2025. It is no surprise that towards the end of last year, Theresa May had attempted to re-assert her commitment on the steps of Downing Street when she became Prime Minister to help those who are ‘just about managing’, effectively echoing Miliband’s argument from 2015.

Thanks mainly to the introduction of the National Living Wage and the tax-free personal allowance, the incomes of the lowest earners in the UK have generally risen faster than others over recent years. However, there are few in the political sphere who doubt that more still could be done to improve the living standards of those at or near the bottom of the income distribution as pay recovery since the financial crisis continues to be slow. The current squeeze on earnings is likely to become an increasingly sensitive issue for the Government that is keen to be seen to be standing on the side of the so-called JAMs, particularly as inflation is forecast to remain high over the next year.

It is not a new observation that May’s ideological leanings are effectively the inverse of David Cameron’s; the current Prime Minister returning to a paternalistic style of conservatism, cautious of the free market, that frequently jars with Cameron’s blend of Thatcherite economics and social liberalism. The economic headwinds as 2018 begins are likely to reinforce May’s determination that those policies that most closely resemble Miliband’s – whether this is on employment and pay, or interventions in consumer markets such as a cap on household energy bills – remain firmly on the agenda as she continues her departure from her predecessor’s modus operandi. One of the vehicles through which she may be able to begin to articulate a more comprehensive vision will be the Government’s forthcoming response to the Taylor Review.

The Resolution Foundation recently held a discussion on one of the recommendations in the Taylor Review to explore employers being mandated to pay a higher minimum wage for non-guaranteed hours. Other than a pledge to conduct a review of employment status, to date the Government has remained relatively quiet on the Taylor Review’s recommendations; offering increased pay for non-contractual hours might be one of the ways in which Ministers might believe they can address one of the key questions around the gig economy and low pay. It could prove to be an attractive compromise option for the Government that may help to smooth the uneven earnings of those in insecure work while avoiding Labour’s calls simply to ban zero-hours contracts as a solution, as well as increasing the security of the low-paid outside of the gig economy.

Businesses should be prepared for the Government to be willing to explore this type of policy solution to concerns over pay and insecurity of work. Stung by the U-turn it had to make on increasing national insurance contributions for the self-employed in March last year, the Government will take a gradual, cautious and consultative approach to developing and implementing policy in this area, so employers should be ready to engage as Ministers decide on how to proceed. The political impetus for policy-makers to focus on additional financial security for the low-paid and flexible workers is clear; the case will need to be made for this to be balanced with ensuring that innovative, growing businesses are adequately supported and not punished by these solutions.

Pay is certainly not the only question that Matthew Taylor’s work on modern employment has raised, but it is central to the mission that the Prime Minister set herself when she took office. With concerns about the recovery of earnings, the economic impact of Brexit and rising household debt increasing in volume, the Government is likely to be ploughing fertile political ground with a renewed focus on the JAMs, and its response to the Taylor Review should be expected to be a significant part of this.

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