Britain: Labour’s living wage pledge: robbing Peter to pay Paul

As part of the battle against the “cost of living crisis”, Ed Miliband has announced plans to incentivise businesses into paying a “living wage” through temporary tax breaks. The Labour leader paints a win-win situation, in which both workers and business gain. Every increase in real wages for workers is a step forward that is to be applauded. But what is likely to be the real outcome of Labour's latest pledge if implemented?

The living wage is a voluntary commitment made by firms, charities, and public sector bodies that is meant to reflect the real costs of living, recently raised to a rate of £8.80 in London and £7.65 elsewhere in the UK. Much has been made of the living wage in the media over the last year, with a number of campaigns pushing for the living wage to be introduced in specific workplaces or sectors. As a result, the number of living wage employers has risen from 78 to 432 in the past 12 months, with the result that there are now 250,000 workers covered by living wage agreements.

The latest proposals by Ed Miliband are designed to increase that number further by encouraging more businesses to voluntarily increase wages from the minimum rate to the living wage rate. In return for raising wages to the living wage, firms will be able to claim back a tax rebate; meanwhile, it is estimated that the government will save money. According to the Financial Times (3rd November 2013):

“Under the Labour scheme, employers could claim back 32p for every extra £1 they put on to workers’ wages in the first year of introducing the scheme.

“It has been calculated that the government saves 49p for every £1 increase in wages through a mixture of increased income tax and national insurance revenues and lower payouts of tax credits and benefits.”

At a stroke, it seems that everyone would win! Businesses get a tax rebate; government saves money; and workers get a wage rise – what a wonderful world for everyone!

Swings and roundabouts

But a closer look at the plans reveals that the Labour pledge is merely a case of robbing Peter to pay Paul. Low-paid workers are currently entitled to a range of benefits – such as housing benefit - and tax credits to supplement their income and make living a bearable reality. Such benefits are, in effect, a subsidy to low-paying employers, allowing businesses to drive down wages below liveable levels for the sake of increasing profits.

With the introduction of a living wage, low-paid workers would no longer be entitled to claim such benefits. The net gain for such workers would be zero: what they are given with one hand would simply be taken away with the other. Whilst they would nominally be on a higher wage, the actual affect on living standards would be cancelled out - or even reduced. This is how the tax rebate to businesses would be afforded by the government: by taking away much needed money from the very workers that the scheme is supposed to help.

Despite the pro-worker gloss, the whole policy is, in fact, relatively business friendly, designed to cost the capitalists very little. What’s more, the scheme is entirely voluntary, placing no pressure whatsoever on businesses to sign up. The ambivalence of big business towards the suggested proposals, which put no onus on them to do anything, were reflected by the comments of John Cridland, director-general of the Confederation of British Industry, the bosses’ union, who stated, “I welcome the scheme because it is a carrot and not a stick.”

Other voices from the capitalist class have responded less positively, questioning what might happen after the 12-month period for the tax rebate incentive runs out. According to the Financial Times (3rd November 2013):

“The Federation of Small Businesses said Mr Miliband’s proposal was ‘interesting’ but questioned whether it would have much impact on its members because few small businesses could afford to pay more and the tax break only lasted a year.”

Meanwhile, John McTernan, a former advisor to Blair, warned that Miliband’s proposal would create unemployment if thoroughly implemented by setting wages too high for businesses:

“The London Living Wage is £8.80 an hour, which is a 40 per cent increase or more on the minimum wage. I don’t think you can increase wages that much without destroying jobs. A study says that if you implement it across the country it would lead to 300,000 young people losing their jobs and I don’t think we can afford that at a time of high unemployment. Many decent people support this campaign. But they are wrong.”

Such threats – which have been echoed by the Tory frontbench – demonstrate the limits of capitalism and its ability to provide even a basic standard of living for ordinary people. In effect, the capitalists are holding a gun to the working class and saying, “You want better wages? Fine, but every wage increase for one of you means unemployment for someone else.”

The limits of responsible capitalism

The living wage proposals are yet another attempt by the leaders of the labour movement to try and regulate capitalism – to try and create a “responsible” capitalism that allows bosses and workers – the exploiters and the exploited – to somehow live harmoniously alongside one another.

Such proposals, however, are limited at best and utopian at worst. Firstly, it is worth noting the current state of affairs with the living wage. The statistics above show that, thanks to various campaigns over the past year by trade unions, student unions, etc., the number of employers providing a living wage has increased by a factor of five, with 250,000 now employed on the living wage rate.

Every increase in real wages is clearly a step forward for the working class. But this number now on a living wage rate – a quarter of a million – is a tiny fraction of the overall workforce. By comparison, recent figures show that over a million people are on extremely precarious zero-hour contracts, used to atomise workers, drive down wages, and reduce costs for the capitalists. On a related note, it should be pointed out that the living wage is an hourly rate of pay, not a guaranteed annual wage. The ability of a living wage to provide an actual decent standard of a living, therefore, depends on whether workers on a living wage rate are given enough hours of work in the week to provide an adequate income.

At a time when capitalism already cannot provide full employment – far from it, in fact, with over 1 in 5 young people not in education, employment, or training – what is the likelihood of a living wage rate of pay being accompanied by a full working week of hours? How many on a living wage rate of pay are actual able to afford a decent standard of living?

Importantly, it must be stressed that the capitalism is not – and can never be – made “responsible”. Every progressive reform and victory for ordinary workers and youth has, throughout history, been won through struggle – through the mobilisation, organisation, and action of the labour movement. This has been aptly demonstrated by the recent struggles of garment workers in Bangladesh, who have won a wage increase of 77% - not because of the kindness of the capitalists or the boycotts of Primark, etc., but because of a series of militant strikes over the past few months.

The eight-hour day; the 40-hour week; the right to vote: all of these were gained, not thanks to the benevolence and the philanthropy of the capitalists, but through the struggles of the working class. None of these were handed over without a fight; and now – at a time of the deepest crisis of capitalism in history – all of the gains of the past are under threat as the capitalists attempt to make ordinary people pay for the crisis.

The global forces of capitalism

Whilst Miliband and co. were busily talking about their latest living wage policy, BAE Systems, the giant defence company, were announcing plans to close down yards in Scotland and England, putting 1,775 jobs at threat. Meanwhile, Jim Ratcliffe, the billionaire boss of Ineos, has recently taken on the workers and their trade union leaders at Grangemouth, choosing to shut the petrochemical plant and sack hundreds of workers rather than conceding to demands over pay, pensions, and trade union rights.

Such examples show the real nature of the capitalists, who – far from being responsible – are more than happy to attack the working class for the sake of profits. If businesses in Britain are forced to pay more to workers, thus biting into profits, these capitalists will simply up sticks and move to elsewhere in the world where lower wages are available.

This is the reality of the situation in the present period of global crisis. The capitalists in each country are trying to export the crisis elsewhere by cutting wages at home whilst encouraging every other nation to increase consumption. “Restoring competitiveness” – i.e. reducing the cost of labour – has become a buzzword amongst the serious voices of the capitalist class. The capitalists in Britain are in an intense competition against the rest of the world market – competition that forces them to attack wages and conditions of workers here in Britain. For ordinary workers in all countries, this competition means a global race to the bottom.

The meagre suggestions by Ed Miliband are, ultimately, like firing a pea-shooter at a stampede of elephants. The forces of global competition and technological innovation – with automation and machinery being used to replace workers and reduce labour costs – are far more powerful than any small reform can fight. As the Financial Times (4th November 2013) comments:

“Wage stagnation, too, is an almost pan-western blight. The entry of China, India and the former Soviet bloc into the global supply of labour was a painful reckoning for the average British (or American or German) worker. So too was the rise of automation in the production process. Next to forces so awesome, the spectacle of politicians prodding companies to pay a bit more – or, worse, calling for the economy to produce better jobs, as some Labour spokespeople have taken to doing – is the very definition of bathos.”

As we have pointed out elsewhere, capitalism has created vast global inequalities, with workers worldwide suffering, whilst the capitalists continue to rake in huge profits. The Economist, in an article commenting on how workers everywhere in the world are receiving a smaller slice of the wealth in society, makes the same point:

“Workers in China and America alike, it turns out, face a shared threat: they have captured ever less of the gains from economic growth in recent decades...

“A falling labour share implies that productivity gains no longer translate into broad rises in pay. Instead, an ever larger share of the benefits of growth accrues to owners of capital...

“Cheaper and more powerful equipment, in robotics and computing, has allowed firms to automate an ever larger array of tasks...That made it attractive for firms to swap labour for software whenever possible...

“Trade and technology’s toll on wages has in some cases been abetted by changes in employment laws...Privatisation has further weakened labour’s hold...

“Such trends may tempt governments to adopt new protections for workers as a means to support the labour share. Yet regulation might instead lead to more unemployment, or to an even faster shift to automation...

“Accelerating technological change and rising productivity create the potential for rapid improvements in living standards. Yet if the resulting income gains prove elusive to wage and salary workers, that promise may not be realised.” (The Economist, 2nd November 2013)

The fight for a living wage is a fight for socialism

Whilst Miliband’s current proposals do little to put any pressure on big business, certain layers of the capitalists do recognise that any call for better wages - even those as mild as Miliband’s – must be resisted tooth-and-nail, for fear that they may embolden workers to push back further and struggle for greater pay across the board – greater pay that ultimately represents a threat to profits. Hence the warnings in the media that a living wage might lead to increased unemployment and the threats by energy companies of a blackout in the case of any energy price freeze.

Like the meagre reforms suggested by the Labour leader on the question of energy prices, the bosses wish to quickly put to rest any rhetoric that may whet the appetite of the working class. Such an appetite comes with eating, and the capitalists understand that even the smallest shift to the left on the part of Miliband and co. can open up a space for more radical ideas to talk hold – as seen with the case of the energy companies, where Miliband’s calls for a freeze on energy prices quickly escalated into support for nationalisation of the whole energy industry amongst ordinary people.

A real living wage for all should be a basic human right; but under capitalism, it remains a utopia. The task of the leaders of the labour movement is not to persuade the bosses to do this or that, but to mobilise workers and youth in the fight for a socialist programme. Rather than trying to regulate and incentive the capitalists, Labour should be committing to the nationalisation of the banks and the major monopolies – including the energy companies, utilities, and transport – under democratic control. Only through the socialist transformation of society can we guarantee such basic demands as full employment, a home for all, free education, decent pensions and public services, and – yes – a genuine living wage.