The motion recognises that there is a series of extremely important issues, but it fails on at least three fronts: in my view, it is too timid in its prescription; it lacks honesty in addressing the issue of how to meet competing ambitions; and, above all, the public have no confidence whatever in the ability of the shadow Treasury team and the leader of the party who tabled it to manage the country’s economy.
These issues are important because people want a pay rise. They want a pay rise because for many years now they have suffered from the consequences of the previous Labour Government’s debt-fuelled policies, which came crashing down in the economic collapse of
2007. That was seven long years ago, and we are still suffering the consequences of their failures. People understand that it takes time for the economy to be repaired. They are pleased to see that the Government have a long-term economic plan and are making progress in addressing the fundamental weaknesses of the economy. They understand that a stronger economy means stronger businesses, that stronger businesses mean more jobs and that an increase in employment will result in higher wages. However, they are impatient to feel that in their own pockets.
There is a lack of ambition in the proposals before us. There are several reasons why the motion and policy prescriptions from both sides of the House are too limited to meet the challenges that the economy faces. The first reason is that we are living through an era of massive corporate welfare. Vast sums of taxpayers’ money are funnelled into our private sector—or so-called private sector—companies year in, year out. One of the most substantial amounts of corporate welfare each year is paid out in the form of tax credits. I am not at all saying that we should scrap tax credits, but I think we need to be clear about how much taxpayers’ money can be paid to corporations to subsidise wages or provide other subsidies for what are otherwise private sector, free market activities.
The second reason is the conundrum that those of us in free economies do not value valuable work. We have heard comments from Members on both sides of the House about this, but if we asked the public to rate how important they think certain jobs are and what should be paid for such jobs, we would end up with substantially different outcomes from those that now exist. For a start, every Member of the House would be paid a whole lot less and bankers would not gain the millions of pounds that they achieve, but our nurses would earn more and, most importantly, our care workers would earn substantially more. In free economies, there is a conundrum: how do we get to a point somewhere between what the market delivers and the remuneration that people expect to be given for the work put in? There is no question but that the moves under the previous Labour Government in both introducing the national minimum wage and providing working tax credits—I might have concerns about the latter going too far—were steps in the right direction of trying to find solutions to that problem, which still persists.
The third major reason why today’s prescriptions are too timid is that there is a substantial underlying issue of demand in western economies. If we look at the risks faced by this country—it is a tremendous accomplishment that the UK economy is growing so strongly, despite the international headwinds—we still have to conclude that one of the most substantial risks is the insufficient demand in the real economy. There is quite a lot of demand in the financial products area, but there is not enough demand in the real economy. Providing a boost to real wages would address the issue of the absence of demand perhaps even more effectively than quantitative easing has managed to do over the past five years.
As I have said, the motion fails because it lacks honesty in tackling the existence of competing ambitions. Let me give an example in relation to the first issue. One sector with low pay is care, but a route out of that is to have transparency in commissioning. This week, I was very pleased to meet Citizens UK, which has been at the forefront of efforts on the living wage. It will have a manifesto for each of us as Members of Parliament or candidates at the next election to consider. It has looked at commissioning, and wants transparency in commissioning to show that care workers’ pay can be at or above the minimum wage or at or above the living wage. It says that that can be accomplished by providing a floor on commission pricing. If we are to be honest, we have to address the consequence of that. In an era of limited public expenditure, when it is necessary to bring the deficit down, what will we do when the average cost of care goes up? Will we expand the amount of care that is provided and expand the budget for it or will we reduce the amount of care to keep the expenditure the same? The Government and the Opposition need to be honest about what their proposals are on that.
The second issue, which I ask Opposition Members to address, is that in a number of the scenarios for increasing pay from the minimum wage to the living wage, the increase is offset nearly 100% by reductions in benefits. What are the proposals of the Opposition and the Government on that? They say to the public, “We will increase your pay and that will be a good thing,” but when tax and national insurance are taken away and the working tax credits, child tax credits, housing benefit and council tax benefit are added, are people actually going to be better off? If it is not possible for parties to demonstrate that there will be an increase in pay at that point, we are in danger of misleading people by saying that we are doing something that will make them better off in their pockets. That is compounded when Opposition Members say that they can achieve an increase in wages at the same time as reducing the deficit. The same pound cannot be spent in two different places. In her closing remarks, perhaps the shadow Secretary of State for Work and Pensions might provide some light—it might be too early to be too explicit—on how she sees that conflict playing out.
The third issue is directed more at my own party. I believe strongly that we need a strategy for wages. However, I understand that that will have consequences for employment. The Government have done a remarkable job of increasing employment during the country’s worst recession since the war. We now need to look at how we will balance that policy over the next few years with increasing wages.
May I make three suggestions? First, we should continue the work that the Department for Business, Innovation and Skills is doing to look at the national minimum wage. Secondly, we should consider whether there should be a cross-party agreement to peg the minimum wage to a percentage of average wages. That could become a norm within the Low Pay Commission’s role and responsibilities. Thirdly, we should promote the living wage through greater transparency requirements in all local government contracts, so that local authorities cannot parade the fact that they are doing the right thing by paying their own employees the living wage unless it is transparent that people in the private sector companies and charities that are commissioned to provide their services are being paid the living wage as well.