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One of the Labour government’s more revealing refrains is that British businesses are in some way, shape or form, “addicted” to cheap labour. This dependency is sometimes serviced from abroad (if the minister in question wants to praise the government’s border control policies) and sometimes from within the United Kingdom (if the measure in question is the employment rights bill). Either way, Labour’s self-declared mission is to kick the habit.
Missing from this oft repeated mantra is the awkward truth that the UK has one of the highest statutory wage floors in the OECD. British businesses may have many addictions, but the one thing that anyone who chooses to hire anyone else in the UK cannot be addicted to is “cheap” labour. Yet when Labour ministers say this, they are not speaking out of pure political expediency: they really believe it.
Part of the reason why is that Sir Keir Starmer’s Labour party, unlike most successful oppositions, never had any real interest in what the Conservative government actually did. They had a theory of Tory victory that was essentially negative: that for want of anything better, the British voters kept re-electing the Conservatives.
As a result, their grip on the Tory record, and any serious thought about what Labour should therefore do now, is patchy. There are a handful of departments where, for good or for ill, there is serious engagement with what went before: at the Ministry of Justice, at education and in energy. But for the most part Labour’s grip on the actions of its predecessor is thinner than it should have been.
The other reason, and one that is more useful to dwell on, is that the British political class as a whole has confused two different questions about the minimum wage. The first is “what should the minimum wage be able to buy?” and the second is “what level should the minimum wage be set at?” They look the same but they’re not.
It’s a reasonable, achievable and, in my view, desirable aim of policy that the minimum wage should guarantee that a full-time worker on it can live in decent accommodation, and have enough disposal income to enjoy life. The problem is that the minimum wage is only one of the levers that enables this — alongside how much and what type of housing a government builds, how cheap energy costs are and more besides. When you have successive governments that fail to deliver either of those things at scale, there is a limit to how much you can meaningfully improve people’s lives simply by increasing the minimum wage.
Indeed, as we’ve seen over the past decade, if you do not do these things and simply increase pay, you do not make a meaningful difference to rates of poverty or to equality of opportunity. And there is no legal minimum wage that can provide a fair standard of living for every worker, because the needs of a childless couple, a pensioner who wants some extra spending money or a widowed single mother who needs to balance work and childcare are radically different. You cannot solve these problems through the minimum wage alone.
Over the past decade, by cutting back what the state does through cash transfers and believing that can be compensated through increased pay alone, we have succeeded largely in raising costs rather than improving people’s living circumstances.
We also need to reconsider how much we ask of business. When the UK introduced the minimum wage in 1998, few in the then-Labour government can have envisaged that we might, almost three decades later, be considering whether business needs a mandatory duty to purchase insurance in case of ransomware attacks. The minimum wage is just one part of what a business does that is socially worthwhile: so too is offering a job to someone returning to the workforce after a period of illness, or taking a chance on an 18-year-old starting a job for the first time.
But successive governments since 2016 have leaned too heavily on this cure all. It is more popular to expect our country’s problems to be solved by business alone than it is to accept that we should all contribute to making life at the bottom of the income distribution scale better. This might mean accepting greater housebuilding near us, more generous cash transfers for people with young families, or more dynamic labour markets that allow businesses to take more risks, hire more people and grow faster. Starmer’s Labour government has thus far failed to break out of this mindset, and it seems unlikely that the next government will either. Cheap rhetoric about cheap labour is an addiction that’s hard to kick.