To Fight Poverty, Fight for £15

After a ‘lost decade’ for wage growth since 2008, a £15 minimum wage is necessary, popular, and achievable – it's only elite interests standing in the way.

In the context of the cost of living crisis, the current government plan for the minimum wage isn't going to be enough. (Thomas Barwick / Getty Images)

With inflation expected to climb ever higher this year, the current squeeze on workers’ living standards may be the worst this country has seen since the early years of the Industrial Revolution. There is an obvious solution to the cost of living crisis: get more money to the people that need it, which, after a ‘lost decade’ for wage growth since 2008, means most people in work in this country. That’s why a £15 an hour minimum wage is the right demand to make, with new research from the Progressive Economy Forum showing that it would lift fourteen million people out of poverty pay by 2024.

Using data on earnings and household incomes, we show that most people working in the North of England would get a pay rise from a £15/hour minimum wage, making it a real ‘levelling up’ measure. And the lowest income households would benefit most of all, with their household incomes rising more than ten percent.

It’s affordable for the country, too. Because people earning more also pay more in tax, both on their increased income and as they spend more, the government gets more back in tax revenues. And because so many people are lifted out of poverty by the measure, the government can spend less on Universal Credit. Taking these impacts together, and even after allowing for the increase in the government’s wage bill, we show that £25 billion more a year will be raised in tax. That’s enough to compensate every small business—those employing fewer than fifty people, meaning ninety-seven percent of British businesses—for the increase in their wage bill. This matters, because while big businesses have been making some extraordinary profits lately—meaning they can absorb the pay rise for their workers—smaller businesses are getting squeezed.

The government is currently aiming to raise its ‘National Living Wage’—the legal minimum wage for employees aged twenty-three and over—to hit a target of two-thirds of average pay by 2024 (which, on current forecasts, will be £10.50). But in the context of the cost of living crisis, this isn’t going to be enough. One of the main reasons the squeeze on living standards is so severe is that wages are so low, having barely grown in the decade since the 2008 crisis. The primary reason for that has been austerity, which undermined growth and was used by Conservative governments to hold back pay growth in the public sector, thus undermining wage growth across the whole economy. The weakness of trade unions also played its part, making it harder for workers to bargain for higher wages—just twelve percent of workers in the private sector are in a trade union.

If, instead, wages had risen at the same rate after 2008 as they were rising before 2008, and if we compensate workers for very high inflation this year, the National Living Wage in 2024 would instead be almost exactly £15/hour. In other words, a £15 minimum wage would be an effective compensation for low wage growth in the last decade, and a protection against inflation.

It would mean shifting the balance of the economy back towards workers. The share of national income going to employees has fallen continually since even before the 2008 crisis. The workers’ share of the economic ‘pie’ has been getting steadily smaller and smaller. But by lifting the minimum wage to £15/hour, the workers’ share of the pie returns to the same size it was in the early 2000s, under the Labour government. If it was affordable to give workers that slice then, it’s clearly affordable to do the same today.

This argument about affordability is important, since both the Tories and—unfortunately—Labour tend to talk about pay rises only being allowed if productivity improves. Rishi Sunak, setting out the government’s economic plans in the Telegraph, made this claim again. He says he wants high wages, but then he argues that these can only happen if productivity goes up.

But productivity growth in Britain has been among the worst of any developed economy over the last decade. There’s no guarantee it will improve anytime soon, and Sunak’s plans for more business tax cuts are unlikely to help it. Making workers’ pay conditional on productivity improvements is appallingly unfair—asking people who have already seen pay stagnate for a decade, and are now suffering from rapid price increases, to hold out for a bit longer on the chance the economy will pick up. The economic forecasters at the OECD expect Britain to have the lowest growth of any major developed economy over the next few years.

The labour movement and socialists should make a different demand: that pay needs to improve now, not on the off-chance British business productivity magically picks up at some point in the future. Profits for big businesses are at record levels—there’s plenty of money out there to pay for this. And our modelling shows how we can make sure smaller businesses can afford the pay rise. If trade unions are still weak, and collective bargaining not in place for most employees, a big increase in the minimum wage is a smart way to deliver the pay rise workers in Britain need and deserve.