When the Conservatives were returned to power in 2015, it was on a small majority. It was clear that despite David Cameron being able to defeat his opponent, Ed Miliband, the Tories still had a substantial image problem. In the face of weak opposition, Cameron won in 2015 against sometimes impossible odds. But his modern conservatism was perceived by many voters as interested in the wealthy only and that they are out-of-touch with everyday life. It was as if Britons voted them in because they were the best of a bad bunch. That is why, in a cynical bid to broaden the Conservatives’ appeal, the then Chancellor, George Osborne, implemented the National Living Wage, robbing Labour of a core policy.
Some of you will remember Iain Duncan Smith cheering at the news. But the stark reality for ordinary working families is that, despite the Government’s commitment to introduce a National Living Wage, cut taxes for the lowest paid and freezing fuel duty every year, British workers are not any better off. The freeze in council tax rates has ended with councils increasing their rates to pay for social care at a time when families are still struggling with the aftermath of the 2008 Recession. With the economy consistently growing in the face of Brexit doomsday predictions, wage growth is not keeping up with inflation. A report commissioned by the Bank of England last November discovered wages will decline from 2.7% to 2.2%, despite National Living Wage rates rising each year. This may sound controversial during a time of economic uncertainty provoked by Brexit, but it is time to scrap this policy.
It is disappointing, yet surprising, enough that a Conservative administration would even legislate this policy in the first place. It flies in the face of traditional free market principles that governments should not interfere in the economy. New Labour’s 1999 National Minimum Wage was just as cynical as the current Government’s National Living Wage policy. It persuaded people to believe that businesses cannot be trusted to set their own rates and led most people to understand they would receive a pay rise every year in line with inflation. The policy was New Labour’s ‘landmark achievement.’ It bound Cameron’s hands by the time of the 2010 General Election, because if he campaigned to scrap it after the 2008 Recession. despite growing labour at a time companies were losing money, he would be seen to be on the side of big business, not ordinary workers beginning their long struggle they are still enduring in this decade. It would have been political suicide.
In the face of weak opposition, Theresa May has an opportunity to end Cameron’s disastrous National Living Wage, because the reality is the JAM (just about managing) families she talks about are suffering as a result of this policy. Some will argue this will play into the hands of Jeremy Corbyn’s Trotskyist Labour Party, but the effects of the National Living Wage, and its predecessor, on the ground have been dismal.
In a discussion paper called Did The National Minimum Wage Affect UK Prices, Dr. Jonathan Wadsworth at LSE’s Centre for Economic Performance found that the wages of minimum wage sectors, notably take-away foods, canteen meals and hotel services to name a few, have risen significantly compared to non-minimum wage sectors. He calculated their wage rates increased by 0.5 to 2% per year since 1999. He also found these services increased the prices of the goods they sell each year to compensate for losses in profits due to the National Minimum Wage. This is the reality of governments increasing minimum wage rates each year. It sounds wonderful when workers hear they are getting a wage increase every year, but when they intend to spend their hard-earned cash, this is offset by price increases, meaning the consumer pays the price for an increase in minimum wage rates and they cannot enjoy their pay rise. What with having to pay taxes on these goods as well, it means only HM Government gets more money, not workers or businesses.
In September 2016 a lady called Rosa Monckton set up a charity called Team Domenica, named after her youngest daughter with Down’s Syndrome. It is designed to assist those with learning difficulties to find a job. Considering there are many charities out there that employ paid staff, she is right to highlight increasing wage costs affect these organisations the most. This is because an increase in wage rates often amounts to losses for them, meaning they have to issue redundancies and cause further unemployment, resulting in them being unable to help the people they were established to assist. It often means organisations choose skilled over non-skilled workers because they then do not have to invest in training programmes to build up the skills of the staff they employ, causing further unemployment for those who need jobs the most; people with learning difficulties, single mothers, etc. And this only increases the welfare bill, adding further strains to the state. Milton Friedman warned of the same consequences years ago. He said minimum wage rates discriminate against those with low skills, resulting in high unemployment rates among teenagers, which stood at 20% in America during the 1970s. He advised people not to ‘judge a water bottle by its label; look at what is inside.’
This is why Mrs May must relish this opportunity to end state interference in the economy whilst the opposition are so weak. The evidence suggests people have become worse off since the 2008 Recession due to this expensive policy. The reality is no government in the future will probably dare scrap it as they do not want to be perceived as attacking workers. Last year, a Conservative MP called Christopher Chope introduced a private member’s bill that would allow companies to opt out of paying the National Living Wage, but he was defeated in the face of opposition. But either way, him and many others like Rosa Monckton have set the ball rolling to end government interference in the economy for good.