The introduction of the minimum wage in 1999 was one of New Labour’s greatest achievements. Overnight, millions of workers saw their pay leap up. Such was the level of success that in 2015 a Conservative Chancellor tried to get in on the act: George Osborne announced in his Budget a new national living wage.
This was really just a rebranding, but it confirmed that today there is something approaching consensus on the idea of a legal minimum. Few politicians on either side want to scrap the “wage floor” altogether. Since the financial crisis, the low-paid have seen their earnings increase far faster than the average worker—counter to the usual media narrative.
Few know more about the impact of the minimum wage than Bryan Sanderson, Chair of the Low Pay Commission. The LPC is the independent body which has advised the government on rates for the NMW and NLW since their introduction. Now in his late 70s, Sanderson spent years in industry and finance before taking the helm last year.
Over the course of our conversation it became clear that all is not well. Sanderson is increasingly worried, and told me earlier this month that the lowest paid could be about to suffer an economic blow. Brexit storm clouds are gathering.
We discussed first the progress that has been made. “If we go back to the banking crisis, the real wages of people on the minimum are up 11 per cent since then,” he told me. Those on low wages “started from a low base, which, of course, you wouldn’t wish, but they have done well. They’re ahead of the game.” There are various different age bands for the minimum wage: for those aged over 21 the sum is now £7.38. The national living wage is essentially a minimum for those aged 25 plus, and is currently £7.83 (this differs again from the “real living wage,” a higher sum voluntarily paid by 4,000 employers.)
Sanderson would be expected to brag about the impact of the minimum wage. But the truth is he's right. The NMW has boosted pay significantly. It has also helped those further up the system: there is a ripple effect which means millions more benefit when the wage floor is lifted, and Sanderson puts the number directly or indirectly affected at seven million. There has as yet been no discernible negative effect on employment.
But the success so far is why our conversation quickly became so troubling. Sanderson slowly began to sound his warning, which ranged widely not just over the minimum wage but the challenges facing the less well off in general.
The most immediate challenge is exit from Europe. I asked whether Sanderson was worried about what he saw. "Oh, of course, yes. I’ve been on the record but what I’m saying now is personal. I go around the country and it comes up every single time, in every meeting we have." The fact is "the very last thing you want is uncertainty in the country."
A no deal exit would be the worst of all. It would be "very serious," Sanderson said. "Everyone would feel the shock. The most vulnerable, of course, inevitably get it the worst. So I do worry about it."
This was a remarkable intervention. Liam Fox's comments earlier this month, where he put the odds on a cliff-edge departure at 60 per cent, become even more troubling if Sanderson is right.
A no deal Brexit would be "very serious"The pound has plummeted since Britain voted Leave in 2016. Does he worry about inflation eating into any future wage hike? "If the pound continues to drift, it’s bound to. We’re bound to import inflation." What about Brexit eating into government bandwidth? There is concern that departure is so complex it leaves little room for government attention on anything else. "Yes," Sanderson said, it is "quite difficult to get attention away from the Brexit issues." This is not what you want when formulating policy.
There was another Brexit question I wanted to put to him of a more technical nature. I asked first where the LPC gets its data from. The response came that it was the Bank of England, the ONS and a few others. But these organisations have been struggling to make accurate predictions due to the Brexit uncertainty in the system. Does that filter down to the LPC, making it harder to suggest rates? Is the data uncertain?
"Yes, it is and the economic forecasts shift around quite a bit. We get asked, well, what’s it going to be in 2020." The number for the minimum wage "does move around."
Of course there were challenges before Brexit. Speaking carefully, Sanderson brought up Osborne's announcement of the NLW in 2015. According to him, while the policy was welcome, the former Chancellor didn't tell the LPC in advance. "As far as I understand it, they had no warning of that." I asked if he was saying that Osborne blindsided the LPC. He confirmed "I wouldn’t have liked that, had it happened to me, just out of pride.”
It's all well and good hiking the minimum wage, but there's another challenge further down in the chain. How do you ensure unscrupulous employers don't just circumvent it altogether? Enforcement was clearly something Sanderson was concerned about.
When it comes to government inspectors "we point them to where we think they should go, and we have pressurised the government to have more enforcers." It has hired many more recently, but it still might not be enough. "I think what concerns us, all of us, is we know there are certain areas which we just can’t access, where there are no whistleblowers and people don’t come forward for all sorts of reasons. I think we’re in very delicate cultural territory," he said, trailing off. These problems "are hard to get at." Pressed for an example Sanderson cited "textile workers in Leicester."
The LPC has played a vital role in British politics since its inception. But its future has come into question in recent times as politicians have sought to exert ever-more control. When Osborne introduced the NLW and set out its terms the concern was this was yet another power play, squeezing out the space for neutral experts (the fact he didn’t tell the LPC ahead of time just added insult to injury.)
"Everyone would feel the shock—the most vulnerable inevitably get it the worst"Sanderson of course insisted there is little prospect that the LPC loses the reins altogether—and I hope he is correct. The relationship between No 11 and the LPC has been one of the most successful arrangements in Westminster. Various former ministers have praised it as a model to emulate.
For now, the body has a great deal of relevance and Sanderson stressed that he feels listened to. He has been asked by the government to get the NLW "to 60 per cent of the average wage by 2020—but only if you can do it without materially affecting growth.” The aim for the NMW is to lift rates as high as possible without damaging employment. In just a few weeks Sanderson will submit his annual recommendations.
At some point, hiking the minimum wage must have a negative impact, mustn't it? "Most economists, I think if they’re honest, would’ve said 10 years ago that we would’ve already passed that and we haven’t," he said, before conceding "there must be a tipping point." Can the minimum wage keep rising at its current rate? Sanderson dodged the question by making a point about the logic of my query. "I suppose automatically it can’t, can it? Just because if it runs and runs and it’ll overtake the average."
There is plenty to be getting on with. "We know the short term agenda," and "once minds can be turned to things other than Europe," then there will be "a look at what next after 2020."
The minimum wage is one of Britain's great success stories. If that success is undermined by Brexit then that will be a desperate shame, and indicative of a policy that is likely to harm, rather than help, the most vulnerable. Sanderson is likely right that a no deal departure would be the worst outcome of all. The sooner the government wakes up to this reality the better. Otherwise, those 20 years of progress will be put at risk.
