National Minimum Wage

Debate between Iain McKenzie and Karen Buck

Wednesday 15th October 2014 Commons Chamber

[Ms Buck]

I will talk about tax credits in a moment, because they are extremely important, but, as we have heard from Labour Members, there is no excuse for tax credits being a substitute for employers paying a decent wage.

The number of people paid below the living wage rose in the past year from 4.6 million to 5 million, so we have seen that problem getting worse. I want to talk a little about London, because this vastly successful city, which includes a massive concentration of wealth and some of the best paid people in the country, has a scandalous problem with low pay, and it has been getting worse. Almost one in five jobs in London are low paid and the number of low-paid jobs—those below the London living wage—increased by 45,000 last year to 600,000. The number of low-paid people in London has increased from a total of 420,000 just before the global economic crisis. In 2013, almost one in five London jobs were low paid. That figure has risen from 12% in 2009, so we have a worsening problem of low pay in London.

That problem is not spread equally across people or across all sectors. We know there is a particular problem in the retail and wholesale sector and that one in five low-paid jobs are in the hospitality sector—in hotels and restaurants. Together those two sectors account for nearly half of all low-paid jobs in London—again, that proportion has risen since 2010. We know that low pay particularly affects those working part-time, particularly women. The number of women working part-time on low pay in London has increased by 67,000 since 2009-10. Women are particularly at risk of being trapped in low pay.

Worryingly, we know that there is a particular crisis of low pay affecting black and minority ethnic communities. The Bangladeshi and Pakistani communities are at particular risk of being low paid, and that is also true of black African workers in the capital. We also know that low pay has spread from inner London, which has historically had some of the worst concentrations of poverty, out into the suburbs. They have seen the fastest increase in low pay, with the proportion of low-paid jobs being highest in boroughs such as Harrow and Bexley. They were traditionally regarded as among the more affluent communities in London, so the whole pattern is changing and, unfortunately, in the past few years it has not been changing in a good way.

What does all this actually mean? It means three things, one of which is that people are worse off. We know that, on average, working people are worse off by £1,600 a year. Paul Gregg, of Bath university’s institute for policy research, said in a report that the wages of Britain’s working people are almost 20% lower than they would have been had trend wage continued at its level before the global economic crisis hit us.

[Mr McKenzie]

My hon. Friend makes a good point about the £1,600 that people find themselves down each year in real-terms pay. That £1,600 would be spent in the local economy, thus promoting more jobs and sustaining more business.

[Ms Buck]

My hon. Friend is absolutely right about that. We know that the £1,600 fall in income in cash terms and the fact that wages are 20% lower than they would have been if wage growth had been consistent with its level before the global economic crash—before 2008-09 and beyond–—means several things for the wider economy. Obviously, low-paid people invest their money in the local economy; they spend it, and that has a beneficial effect on the shops, services and communities where they live. It also means that some of those people who would have been paying tax are no longer doing so, which has a beneficial effect for low-paid people coming out of tax but means that total tax revenues are undershooting dramatically, as the Office for Budget Responsibility has confirmed. Indeed, the problem of low pay and tax revenues is a contributing factor to not being able to reduce the deficit, which of course the Conservative party told us would be completed by the next financial year. That has been a complete public policy failure, with a reduction of only a third compared with a target of almost total elimination.

Other issues arise from low pay. It damages work incentives, and we hear a great deal from the Conservative party about those. It is as if it were the party that discovered the idea of work incentives and making work pay. In fact, we all want to see work pay and for that to be an incentive for people going into work. Let us accept that that is universally shared. The trouble is that the worsening scandal of low pay, including in cities such as London, means that work simply does not necessarily guarantee a route out of poverty and it traps people on benefits. That is partly because wages have fallen, as we have heard, but also because they have fallen, particularly in places such as London, relative to soaring housing costs and rising rents. The rise in rents in London means that many households simply cannot work enough hours at the kind of pay that is being offered to get free of benefit tapers. That is particularly true for lone parents and couples with children.

Let me return to the question I was asked by the hon. Member for Bedford (Richard Fuller) about tax credits. It is very important to put on the record just how crucial they are, because whatever one does about the tax threshold and taking people out of tax completely, it simply will not be enough to make sure that people with children are earning enough to make ends meet. The tax credit policy is not a substitute for tax thresholds; it is an essential complement to them, particularly for parents.