Contemporary Labour Reform: Where “Pay Rise” Equals diminished household income and “Progressive’s” anything but

Lecturer in Human Resource Management and Industrial Relations, Jo Grady, looks behind The Welfare Reform and Work Bill’s upbeat rhetoric to reveal the downplayed reality

“Britain deserves a pay rise and Britain is getting a pay rise”

By discontinuing a series of Tax Credits and by replacing the current National Minimum Wage (£6.50 per hour) with a higher paid Living Wage (£7.20 per hour), the Welfare Reform and Work Bill promises to deliver one. Assume 52 working weeks of 35 hours. Add the fact that base rate tax payers will, in the next budgetary period, become £80 less liable. Derive an £1,354 annual pay rise to the non-holiday taking Minimum Wage earner. That’s over 11%! A little higher than the rate of the controversial ministerial salary increase and a lot higher than university employees can expect to receive any time soon, if ever. No wonder this good news grabbed all the headlines.

The Chancellor George Osborne recently added what he called the ‘progressive’ case to the Bill’s proposed pay rise. There, he argued that low income families need to stop “relying on welfare” when other families “rely solely on their earned income”. They should also “think hard about whether they can afford to have more than two children”. Osborne’s progressivism, then, like the progressivism of many before him, is to trump up the perceived charge of excessive welfare dependency in the name of equity and social justice. So, just like Lord Grey’s Poor Law Amendment Act of 1834, the Welfare Reform and Work Bill is girded by the suspicion that government subsidies encourage socio-economic idleness. And, just like his predecessor’s, Osborne’s rhetorical stance is that taking money from those that haven’t earned it is not only compassionate but also empowering. The devil of disingenuousness, of course, is hidden in the Tax Credit detail.

Take the case of a single wage-earning family with one child, for example. In April 2015, they could convert a gross income of £11,830 into a total income of £18,094.90 by applying for various in work Tax Credits (totalling £6,264.90). In April 2016 the same family, now assuming a gross income of £13,104, will only be able to upgrade that income to £16,817.40. That’s a real income cut of £1,277.50. Some have gone so far as to claim that the lowest paid would actually need a 25% ‘pay rise’ to accommodate the stealthily cut Tax Credits while others have run a more modest series of hypothetical scenarios around these changes. Whoever’s numbers add up for you, be suspicious of Osborne’s progressivist pretensions. The politically independent Institute for Fiscal Studies questions the soundness of these proposals where even the not-necessarily progressive goal of cutting the deficit with this Bill is predicted to fail. No matter, the Bill was put to MPs from all parties, passing by 308 votes to 124.

The economically vulnerable, as the vote on the bill suggests, are poorly represented by the contemporary parliamentary process. This has been the case for some time now. The real value of earnings in the UK, for example, has fallen by 15% since 2008: in some parts of the UK this figure reaches a staggering 50%. Wage stagnation has, over the past 30 years, been accompanied by higher rates of profit extraction and shareholder dividends. Throughout the 1980s, core competency sensitive asset stripping corporate strategy, accompanied by anti-trade union politics, both shed and squeezed labour in the name of sustainable competitive advantage. What political options were available to those worse affected by such trends? Labour mobilisation? Strength in numbers? Many mobilisations against these developments were in fact criminalised or made prohibitively onerous by anti-trade union legislation and, as a result, the capacity of unions to negotiate on behalf of their members was severely undermined. The current government will seek further restrictions on the labour side of the wage-effort bargain: yet more legislative jabs to compliment the recent taxation’s hook.

The economically vulnerable will need stronger trade union legislation if they are to have any hope of surviving the beating they’re now taking from their government, on behalf of the market. A progressive pay rise which is neither progressive, nor a pay rise, is now in the process of being written into law and there is presently very little which the poor can do about it.