Living Wage

Michael Fallon Excerpts

Wednesday 9th January 2013 Westminster Hall

[The Minister of State, Department for Business, Innovation and Skills (Michael Fallon)]

I congratulate the hon. Member for Erith and Thamesmead (Teresa Pearce) on securing this debate. She has long championed the living wage, and it is a tribute to her work that she has been able to attract such a large participation in today’s debate and, as the hon. Member for Hartlepool (Mr Wright) said, such a passionate exchange of views. The living wage is a subject that arouses great passions.

The hon. Member for Hackney South and Shoreditch (Meg Hillier) asked about the absence of Liberal Democrat Members. I cannot speak for the Liberal Democrats—I am not very good at that—but the Under-Secretary of State for Business, Innovation and Skills, my hon. Friend the Member for East Dunbartonshire (Jo Swinson), is responsible for this portfolio in the Department for Business, Innovation and Skills, and she is answering the debate in the main Chamber at this very moment, which is why, Mrs Main, you and the others in attendance have to put up with a stand-in.

We would all like people to be paid more, but obviously there is concern that requiring all businesses, large and small, to pay a living wage as proposed would price people out of work, particularly young people. Encouragement is a better approach than compulsion, because the alternative would reduce the flexibility of businesses and could ultimately be bad for jobs.

We already have a national minimum wage that we require all businesses to pay, and the Government fully support that. The minimum wage is the national rate that the Government of the day—including the previous Labour Government—judge, based on the independent Low Pay Commission’s recommendations, as striking the appropriate statutory balance, trying to increase workers’ take-home pay without damaging employment or other elements such as prices. The adult national minimum wage that we inherited, £5.80 an hour, has now reached £6.19 an hour. That is a 6.7% increase, which is faster than the growth in average earnings over the same period.

The Government have targeted further help at the take-home pay of the low-paid by cutting their taxes. When the coalition Government came into power, the personal tax allowance stood at just £6,475. The Government are committed to making the first £10,000 of income free from income tax by the end of the Parliament. April 2013 will see the next step of that commitment: the personal allowance will increase by £1,335, the largest ever increase, to £9,440 to support hard-working individuals. Those tax cuts for the low-paid have taken 2 million people out of income tax altogether. Those still paying tax will be taking home £57 more each week in April and more than £67 more each week by the end of the Parliament. Under this Government, people working full time on the minimum wage will have seen their income tax bill cut in half.

In difficult times, the Government have, therefore, clearly given priority to the lowest-paid by providing strong support for the national minimum wage, which aims to maximise the pay of low-paid workers without damaging employment, and tax cuts focused directly on the low-paid through raising the tax allowance to £10,000 a year by the end of the Parliament.

That is not all. The Government are continuing to take steps to support households with the cost of living. We have frozen council tax for the third year running. We have cancelled the 3p fuel duty increase planned for this month—average pump prices are 10p a litre lower than under Labour’s fuel duty plans—and we have capped rail fare increases, which will benefit 250,000 annual season ticket holders. That is in marked contrast to Labour, which doubled council tax, doubled gas prices and increased fuel duty 12 times.

Raising the minimum hourly rate to the proposed living wage rate would have consequences. If those consequences make things worse rather than better, it would make no sense to introduce the living wage. The biggest danger is pricing people out of work because the business concerned cannot sustain the higher labour costs of the living wage. In that case, the individuals who lose out are socially excluded from the world of work; the business will be less able to compete and earn profits; and the Government will lose out because growth is lower, tax receipts are less and benefit payments are higher.

The national minimum wage raises awkward questions about the proposed living wage. In particular, the remit that Parliament, under the previous Labour Government, gave to the Low Pay Commission has the primary aim of setting the maximum hourly national rate possible without any adverse effect on employment. The current adult national minimum wage of £6.19 an hour is substantially below the suggested 2011 living wage rate outside London of £7.45 and even further below the £8.55 London rate. Requiring all businesses to pay the living wage would increase wage costs by approximately 20% outside London and by approximately 38% in London. That is without taking into account other increases in labour costs, such as national insurance.

The picture becomes much starker when we look at the position of those under the age of 21. There are separate, lower, minimum wage rates for younger workers because of the previous Government’s concern that a higher rate would damage their employment prospects; there is no such distinction in the proposed living wage. That means that the difference between the minimum wage and the proposed living wage for someone working in London aged between 18 and 20 would be some £3.57, an increase of 72%. For someone aged between 16 and 17, the difference would be £4.87, an increase of 130%.

The Low Pay Commission is concerned to ensure that minimum wage increases do not have adverse effects on employment. The commission’s most recent recommendations have been for a 1.8% increase in the adult rate and a freeze in the youth rates. It stated that

“we concluded that in the current difficult economic circumstances caution is essential.”

These differences imply that if the proposed living wage rates were imposed universally, they would inevitably price some people out of work. Those who keep their jobs will receive at least the increased living wage, of course, but they might prefer to keep more of their colleagues working alongside them. The Government, like the previous Government, believe there is no case for imposing a higher minimum wage across the country by statute.

Some argue that it would be easier to implement the living wage in the public sector than in the private sector. That is only true, however, if the effect of implementing the living wage does not lead to higher procurement costs. Otherwise, implementing the deficit-reduction plan will be more difficult, with either greater public sector job losses elsewhere or higher taxes, which would make it more difficult to reduce the taxes of the lower-paid.

Opposition Members have claimed the living wage is an issue of fairness, but last night we saw that the Labour party wants benefits to rise faster than workers’ wages, which is not fair. Labour’s plan would inevitably mean more borrowing and more debt.

In contrast, our priority is to increase the take-home pay of low-paid people. The key elements of that are the national minimum wage and raising the tax allowance to £10,000 by the end of the Parliament. We believe that workers and businesses are best placed to determine the pay and working conditions that both suit the workers and deliver success for the business. The level of unemployment among young people that we inherited is already too high.