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Britain needs a pay rise

19 March 2014

Frances O'Grady

Tuesday 1 April 2014 will mark the fifteenth anniversary of the minimum wage – a historic milestone in British labour history.

Before its introduction in 1999 some workers were being paid as little as £1 an hour. The minimum wage has helped to end such abuse. It has proved to be a vital safeguard for employees across the UK.

The Low Pay Commission recommends the level of the minimum wage. Its first ever chair Sir George Bain said last month "with more than one in five workers in Britain suffering from low pay, it's time to talk about how we strengthen the minimum wage for the years ahead."

Sir George is right. The minimum wage has undoubtedly lifted many out of extreme low pay, but research shows that many employees start work on the minimum wage and then stay there - failing to lift their pay above the minimum even after years at work.

Over one million workers in the UK are employed on the minimum wage. Many are likely to stay on this rate for a large part of their working lives.

Lifting the minimum wage above inflation as politicians of all parties now support will help these. But many employers could do more by adopting the higher voluntary minimum standard known as the living wage – set at £7.65 an hour.

But it is not just those on low pay who have been left behind. New TUC research shows that the gap between the top ten per cent of wage earners and average pay in the UK has grown by 4.5 per cent since 2000.

This should worry everyone. Those with the biggest pay packets may dismiss this as the politics of envy, but income inequality is bad for the whole economy. It helped drive the financial crash as banks lent the savings of the wealthiest to those in the middle who took out credit to keep up their living standards.

For all the talk of economic recovery UK workers are still seeing their pay fall in real terms and are, on average, £54 a week worse off than they were in 2009.

This real wage squeeze is a key aspect of a wider cost of living crisis. Energy bills have risen three times faster than inflation over the last decade, while rail fares rose above inflation yet again this January.

Childcare and housing costs have also grown as a share of average income. People are now spending over a third of their disposable income on essentials such as food and fuel. People think of the cost of living crisis in terms of prices but the main cause of the problem is that their wages are not going far enough anymore.

So can we do something about it? Or is it just an inevitable fact of life that living standards are in decline and that for the first time in history future generations will have lower living standards than their their parents?

Economic growth alone is not the answer. The economy has grown by £60bn in the last four years but real household disposable income has barely increased. Disposable incomes have fallen by nearly £500 per person.

A first step is bolder increases to the minimum wage. Had it kept pace with prices since 2007 full-time minimum wage workers would be nearly £800 a year better off. We need to make up this lost ground but also ensure that companies who illegally pay staff less than the minimum wage face the full force of the law – including being publicly named and shamed.

Secondly, we need an increased commitment to the living wage from employers in the public and private sector so that their own staff, as well as those in their supply chains, can have a decent standard of living.

Employers in many sectors can afford to pay more without job losses. That’s why we need to find new ways for employers and unions to work together to set higher wages, agreed at a sector level by modern wages councils, so that workers and businesses can both get a fair deal.  

More collective bargaining can stop employers skimping on pay and get wages rising back in line with prices. Even the International Monetary Fund (hardly know for its radicalism) concedes that the decline of collective bargaining has increased wage inequality and reduced wages for ordinary people.

This month the TUC is organising Fair Pay Fortnight – a series events and street stalls throughout Britain – to raise awareness about Britain’s cost of living crisis.

We need to put fair pay at the top of the political agenda and ensure that policymakers and employers create more high-quality jobs to boost productivity and raise people’s living standards. People need more money in their pockets if local economies are to thrive.

Britain needs a pay rise.

For downloads, resources including petitions and information about events please go to the fair pay fortnight website

Tags: , tuc, pay, low pay commission, minimum wage, wages