Karen Buck

Working hard for Westminster North

  • Home /
  • News / Why low pay costs us ALL money

Why low pay costs us ALL money

Central to the public sense of fair play, central to the government's welfare strategy (central to the Labour government's welfare strategy, come to that) is the belief that work should pay and work is the best route out of poverty. All right thinking people agree. No- one should languish out of work unless they are incapable of work. Sp what should be of the utmost concern to us is that work all too often doesn't pay. Not because social security levels are so generous that they enable a comfortable lifestyle over the long term- they don't- but because millions of people do not earn enough when employed to make ends meet.

The minimum wage provided a welcome income boost for around 2 million people at the time it was introduced, and despite the doom-mongering of the Conservative opposition who voted against it, it did not lead to substantial job losses. But welcome though the minimum wage is, as a floor below which hourly rates cannot fall, those wage rates have been insufficient to protect against the growth of the category we call the ‘working poor'. Currently, 57% of children in very low income households have at least one working parent- a statistic we should all be alarmed by.

Hourly rates of pay aren't the whole story, of course. One of the characteristics of the recent years of recession has been under-employment- that is, people having no choice but to work fewer hours than they would like, and/or than are necessary for them to keep their heads above water.

Low pay forces the government to spend more as ‘in-work' benefits rises, so we subsidise low pay by around £28 billion. Tax credits, introduced by Labour in the late 1990s, acted as a top-up for low wages, ‘making work pay' in the positive style ( the other method is to cut out of work benefits, though that does nothing to improve people's incomes, or put demand into a demand-starved economy). Together with other ‘in-work benefits' like Housing and Council Tax Benefit, individuals and families were kept in work, even with frozen or falling real incomes and on reduced hours. And we want people to remain in work- unemployment, especially long-term unemployment, is catastrophically wasteful of money and human potential.

But surely we could do better? If leaving people languishing out of work is seen as an unequivocally bad thing, then trapping a substantial and growing section of the population in in-work poverty must also be wasteful. However, in-work benefits, like tax credits, are taking a hit as part of the £18 billion scaling back in ‘welfare' spending. The government will argue that its new integrated ‘Universal credit' will be a solution, but welcome though some elements may be ( like its smoothing out of the often ludicrously steep level at which tax and benefits are withdrawn) it won't solve the problem of low pay and under-employment.

The think tank for the ‘squeezed middle', the Resolution Foundation, is the latest to campaign for action on a ‘living wage', which voluntarily builds on the minimum wage to tackle the scale of low pay. Its authors point out that there are an estimated 540,000 workers in London earning less than the London Living Wage of £8.30 an hour, yet only 10,000 London workers won a living wage in the six years between 2005 and 2011. When it comes to contemplating the implementation of a living wage, it would appear that the vast majority of employers remain concerned about costs and sceptical about the business case that living wage activists have placed at the centre of their campaigns. Yet in a number of key sectors of the economy, a living wage is shown to be affordable to business and even more so if phased in.

Governments will continue to have a role to play in tackling unemployment, under-employment and the scandal of low pay, because it is in all our interests- economic as well as social- that they do. But on issues like the Living Wage, is it not time that business looks harder at the contribution it can make?


The Labour Party will place cookies on your computer to help us make this website better. Please read this to review the updates about which cookies we use and what information we collect on our site.  To find out more about these cookies, see our privacy notice. Use of this site confirms your acceptance of these cookies.