Seeing the Chancellor’s team line up with her on Downing Street reminded me of my own spell as a junior minister at the Treasury, at the Budget and Autumn Statement.
My role at that time was focussed on areas such as alcohol and gambling duties, and energy policy. But there are two Osborne reforms from that time that stick in my mind as having an especially lasting effect.
The first was the Soft Drinks Industry Levy (better known as the Sugar Tax) controversial at the time but now credited with having prompted re-formulation of a number of popular drinks and so helped in tackling obesity.
The second was the National Living Wage.
When the original minimum wage had been brought in in 1999 many (me included) thought it could only be set so high as to increase unemployment or so low as to make no difference. That (and I) turned out to be wrong and the minimum wage did make a discernible difference. Back in 1999, the minimum wage for over-21s was £3.60.
George Osborne’s plan for the National Living Wage (NLW) was a bold step that went a lot further. Initially set at £7.20 an hour the plan was that it should rise over time to 60% of median earnings. The 60% was reached in 2020, and a new target of 66% of median wages reached in April this year.
As the last government left office, the NLW had risen to £11.44 an hour. This rise was substantially more than inflation and it meant that the proportion of workers in low-pay, having stayed stuck at around one in five throughout 1997-2010, had now fallen to one in ten.
Moreover, rising wages came together with low unemployment. This is key, because although – obviously – average wages matter a lot for families’ living standards, actually the single biggest factor of all is having a job. Government policy was always clear through that time (for part of which I was Minister for Employment) that we had to be a high-employment economy.
In the Budget just now, the Chancellor has further increased the NLW by 6.7% to £12.21 per hour. That is, in and of itself, of course welcome, but the Chancellor must also keep a sharp eye on the labour market: there is still a level at which any minimum wage will hit jobs.
Wage regulation cannot be viewed in isolation. Of particular significance now is that the latest NLW increase comes at the same time as two other relevant measures: the Employment Rights Bill, and the big increase in employer National Insurance contributions. Although the government has painted the latter as ‘not a tax on working people’, economists are clear that its effect in the end can only be felt through wage depression or lower employment.
The Resolution Foundation dubbed the NLW the ‘single most successful economic policy in a generation’. I want it to stay that way and keep on raising wage levels and helping productivity. The government needs to look at its wider approach, and remember that low unemployment is paramount.
The rise in unemployment we see this month is relatively small, and we should never read too much into a single month’s data. But it should give pause for thought.
Also of note is that East Hampshire’s ‘claimant count’ – people claiming unemployment-related benefits – for October was 1,130, down 10 compared to the previous month but up 115 on last year. It remains well below the national rate.
