by GK Strategy 24th September, 2014
3 min read

The Bare Minimum?

Ed Miliband kicked off the Labour Party conference in Manchester on Sunday with a promise that the minimum wage would reach £8 an hour by 2020 under a Labour government. Managing to make the front pages of the Sunday papers, you may be forgiven for thinking that this was a bold new policy announcement by the Leader of the Opposition; however, it actually symbolises Miliband’s resistance to voices both within and outside of his own party to go much further, and his growing (and arguably belated) desire to allay concerns from businesses about his policies.

This summer, a report was published by the economist Alan Buckle, who was commissioned by the Labour leader to undertake a review of how an incoming government in 2015 could ‘strengthen’ the minimum wage. The central recommendation of the report was a broader remit for the Low Pay Commission – the independent body that makes an annual recommendation for the hourly rate of the minimum wage to be approved by the government – so that it is able to set a 5-year target for a ‘more ambitious rate’ for the minimum wage. The report recommended that this rate should be 60% of median earnings by 2020, a call that was echoed just last weekend by the former chair of the Low Pay Commission, Sir George Bain.

While Labour fully embraced the idea of a 5-year target for the minimum wage, it did not put an explicit figure on it – until this weekend. The £8 an hour that made headlines represents an increase in the minimum wage as a proportion of median earnings from 54% to 58% by 2020, with an ambition to reach 60% by 2025, a more conservative approach than Buckle recommended. When you take into account the motion in favour of a £10 minimum wage passed unanimously by delegates at the TUC conference last week – some of whom will be with Labour in Manchester this week – it is clear that Miliband is resisting a lot of pressure to put forward a more radical proposal.

Yet parts of the business community have already criticised the policy. The CBI has warned against raising the minimum wage to an ‘unsustainable’ level and excessive government interference in the activities of the Low Pay Commission. On the latter point, however, Labour has already confirmed that the Low Pay Commission will retain its current format, simply with an extended remit not far beyond that given to it by the coalition government. Just a few months ago, George Osborne called for a £7 minimum wage, and the government has asked the Low Pay Commission to look at whether the economy can handle an above-inflation increase. Miliband’s vision of the future of the minimum wage, in truth, does not differ much from that of the government.

With a relatively conservative target for increasing the minimum wage and a commitment not to change the fundamentals of the Low Pay Commission, it seems Miliband had already tried to head off concerns from business. Labour is increasingly trying to balance its policy-making between further radical proposals on the cost of living and a growing realisation that the party cannot continue to alienate British business. Its minimum wage proposals are a good example of the difficulty for the party in achieving such a balancing act.

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