Britain - The minimum wage and the pay squeeze

Jul/Aug 1998

On 18 June, the government finally announced its long-awaited plans concerning the minimum wage promised by Blair in the run- up to the last general election.

On the whole, thanks to the psychological build up engineered by Labour's spin-doctors over the past months and the constant flow of speculative, often alarming "leaks" they fed to the newspapers, the final package has been made to appear much better than it really is.

Thus, the minimum wage will be introduced in full from April next year, instead of being phased in over several years as it had been rumoured. Likewise, the same rates will apply across the country without regional differences or exemptions for certain industries, as Margaret Beckett herself had suggested. Moreover, it will apparently apply to all workers from the first day of employment regardless of status - with or without a formal contract of employment, part-time or full-time, short-term or permanent, contrary to suggestions made repeatedly by some advisers to the Low Pay Commission.

On the face of it, therefore, this looks like a real minimum wage. However, of course, Blair will retain the possibility of amending the present package through the backdoor, at some later stage, for instance in order to grant exemption to certain industries under the pretext of "helping them out of a bad patch". Indeed, it is always possible for government to restrict existing legislation by means of regulations without even having to go to Parliament.

For the time being, this means that by April 1999, all workers aged 22 and over should be paid a minimum £3.60/hr (i.e. £137 gross for a 38-hour week). This was the original recommendation of the Low Pay Commission, except that the 21-year olds are now excluded from this standard rate. On the other hand, the so-called "development rate" recommended by the Commission for the 18-20 age group - which was £3.20/hr - has now been reduced to £3/hr (i.e. £114 gross for a 38-hour week) and extended to the 21-year olds.

According to the media, these changes were the outcome of a row between Margaret Beckett and the Treasury, which Blair settled in Brown's favour. True or not, the fact that the new 18- 21 bracket adopted for the reduced rate coincides exactly with that of Brown's "New Deal" scheme, is obviously not a coincidence. Given the government's difficulties in finding employers who are willing to participate in the scheme, despite the £60/w bribe on offer, it is not hard to understand why Brown would drag his feet. Besides, Labour has long shown its tendency never to miss an opportunity to be agreeable to the bosses!

In any case, the result is that Britain, the fastest growing and only successful economy in Europe according to Blair, will also have the lowest minimum wage among the richer European countries - even without taking into account the lower "development rate". And who can live today on £114 gross a week, or even £137 for that matter, when this would hardly be enough to pay just the rent and bills for a shabby privately-rented bedsitter in a London suburb?

But even more than anyone else, the big losers in this package are those in the 16-17 age group, who are left high and dry. In the 1980s, the Tories deprived them first of social security benefits and subsequently of the limited protection provided by the minimum rates which used to be set by the old Wages Councils. But Blair has obviously no intention to restore these rights and protections for the 16-17s. For all the PC noises made by Labour ministers and MPs against the scandal of child labour, the youngest workers will still remain the least protected against poverty and scrooge bosses!

The bosses purr but cry wolf

Of course, on grounds of principle, employers have always been vocally opposed to the very idea of a minimum wage, as they considered it, like any other regulation, an infringement on their "management freedom". As if low-pay was not an infringement, and a major one at that, on workers' rights to manage their lives decently!

Even before Blair came into office, however, employers' bodies have toned down their "principled position" and agreed that there were potential advantages for them too. Not because of their concern for the workers' welfare, of course, but because many, particularly among large employers, saw such regulations as a way of "tidying up unfair competition" from cow- boy contractors in some industries.

In any case, when the initial recommendation of the Low Pay Commission was released in May, it was broadly welcomed by mainstream bosses' organisations such as the CBI, the Engineering Employers' Federation, etc.. Only ultra-liberal fundamentalists, such as the Institute of Directors and other similar think-tanks, kept indulging in the old posturing. In the words of the CBI director-general, "companies could afford that".

In fact, as the Financial Times pointed out at the time, many of the country's large employers had already carried out a restructuring exercise in terms of pay, bringing their lowest- paid workers to levels close, or even higher than the recommended £3.60/hr. Had British companies become philanthropic all of a sudden? Of course not.

In most cases, in exchange for these higher pay rates, workers had to concede various "flexibility" measures. For instance, premiums for working overtime or unsocial hours in the evening or at weekends were reduced or abolished; or compulsory overtime without notice was introduced; or breaks were cut, sometimes it was lieu days or paid holidays; elsewhere sick pay arrangements were reduced, etc.. In any case, employers can be trusted to have ensured that these wage rises were "self-financing" as they say, and even that they themselves gained something into the bargain.

So when the bosses said that they could afford the Low Pay Commission proposals, it was because they had done their sums and covered their backs long before. In any case this certainly proves one thing - that with its restrictive version of the Low Pay Commission's recommendations, the government has gone even further than what the bosses themselves were asking for!

But, of course, their general acceptance of the level set for the minimum wage does not prevent the bosses from complaining about the fact that it is nevertheless going to cost them "something". But even disregarding the precautionary measures they have taken in the past in order not to lose anything, this is disputable, in any case certainly for large companies.

The Financial Times, again, provides some examples of this, for instance in the clothing industry, which was said to be most "threatened" by a minimum wage. In that industry, the benchmark minimum rate agreed in 1997 between the British Clothing Industry Association and the GMB union, covering over 100,000 clothing workers, is £3.41/hr. As a result the BCIA submitted to the Low Pay Commission a proposal that the minimum wage should be set at £3.50/hr. In response to the £3.60/hr rate adopted, the head of corporate affairs at Courtaulds Textiles, one of the largest British multinationals in the field, was quoted by the Financial Times as conceding reluctantly that "the effect of the extra 10p is not going to be severe". So, for Courtaulds, there was allegedly going to be an "effect", even if it was not "severe". But what effect? Increasing the benchmark rate from £3.41 in 1997 to £3.60 in April 1999, amounts to a 5.6% rise, but.. over two years - that is, more than 3% less than the estimated inflation! And even then, according to Courtaulds' own admission, because many workers are already paid above the benchmark rate, this increase "would effect only a few of the group's 43 factories"!

Finally, of course, there is the fairy tale about the minimum wage threatening to "cost jobs". This has been a recurring theme on the part of employers' organisations like the CBI, and their mouthpieces in the media, not to mention government officials themselves.

In the case of the large companies, this is pure fantasy. It only takes a casual browse through the pages of the business papers to get an idea of the affluence of these companies today. There one finds the evidence of the billions of pounds they spend constantly to buy new businesses and set up new ventures, or those they earn by selling some of their assets at an enormous profit. They would be "forced" to cut jobs because of the minimum wage, when they sit on such enormous piles of assets and cash? What a joke!

Of course, there is a small shady world of cow-boys who would go bust if they had to pay their workers real wages. Maybe, even at this low rate, the future minimum wage may force a number of them to the wall - but not necessarily a lot more than the number who go bust anyway all the time, often fraudulently because they want to avoid paying their debts, including very often the unpaid wages and redundancy money they owe to their employees.

The more you look at it, the more it shrinks

Besides, there are also all the aspects which are deliberately ignored by commentators because they would expose how miserly this minimum wage really is.

There is, for instance, the issue of who will actually gain something out of it.

The paradox of the situation is that, among the workers who are currently paid below the minimum wage, the poorest will see the least improvement.

For instance, according to official figures, 70% of those workers are part-timers. Even with the minimum wage, these workers will still not be able to make ends meet with the income of their work. Whatever they actually gain, as long as they remain part-timers it will be nothing compared to the bare minimum necessary for them to pay for their own maintenance.

More generally, all those who are poor enough to be able to claim benefits today, whether part-timers or not - because the income of their household is too low to help them in any way - will hardly gain anything because almost every additional penny they will earn thanks to the minimum wage will be deducted from their present benefit.

This, of course, is not the official story told by the glossy figures published in the papers. Except that all these figures have been computed on the assumption that the future Working Families Tax Credit system is fully operational. Yet, according to government officials themselves, this is unlikely to happen before 2002. So in the meantime, it is precisely those workers who have no-one to fall back on for cash, who will be left without any additional help!

Of course, it would be easy for the government just to cancel, in the case of these low-paid workers, the rule which says that additional earnings must be compensated for by a benefit cut. But this would mean giving up one of the vital side-effects of the minimum wage which Brown and Blair bank on - a reduction in the benefit bill. So the poorest will have to remain as poor as ever.

Then there is the issue of how the minimum wage will be enforced. The government's line, in accordance with the approach it has in every aspect of its policy when the bosses are concerned, is that "the emphasis should be on self-enforcement".

Never mind the fact that "self-enforcement" is notoriously useless, as shown graphically by the situation with Health and Safety, for instance. Due to the shortage of HSE inspectors to enforce regulations and their lack of real powers, Health and Safety at work largely relies on "self- enforcement" by the bosses. And what is the result? Regulations are increasingly ignored, unless workers take matters into their own hands by taking action to force their employers to comply.

So, regarding the minimum wage, some form of enforcement has been planned after all. It will be carried out by the agency which is to be formed by the future merger of the Contributions Agency and the Inland Revenue.

In this respect, the Financial Times, despite its fundamental support for the bosses' interests, gave an enlightening description of the situation in the "cut, make and trim" sector of the textile industry. This sector, explained the FT in its issue dated 25 May, is "made up of thousands of largely unregulated companies, usually employing between three and 10 factory-based machinists and a team of homeworkers, wages are far lower than £3.60 an hour. According to a quality control assistant at a Nottingham CMT factory yesterday, the proposed rate would mean wage rises of up to 50%. However, enforcing the wage rate in this sector, which often falls outside the net of PAYE taxation and national insurance, would require significant resources"

What is significant about this example is that the Inland Revenue and the Contributions Agency, which are meant to enforce the minimum wage, are precisely in charge of ensuring that companies do not "fall outside the net of PAYE taxation and national insurance", as the FT puts so euphemistically. If these agencies are not capable of policing employers in the sector referred to by the Financial Times in terms of PAYE and national insurance, it is highly unlikely that they will be capable of enforcing the minimum wage with the same employers! And what this really means is that once again, a whole section of workers, precisely those who are in the most precarious and worst-paid jobs, in industries with a strong tradition of law- dodging, will be left with no more protection than before, even as far as the minimum wage is concerned.

Resisting the wage squeeze

Today the bourgeoisie's agenda is not to increase its wage bill, not even to help out the scandalously low paid, but to reduce it. Of course, the bosses do not care whether it is by reducing actual wages, cutting the numbers of workers or increasing productivity through aggravating working conditions. But given the chance to use all these devices at the same time, they can be trusted to try their luck.

As mentioned before, a number of companies have already managed to squeeze more out their workers while implementing the minimum wage even before it is actually enforced. But they can still do more in this respect, with the encouragement of the small print of the minimum wage legislation. Indeed, this provides for one exception to the standard minimum wage for workers over 21 - for any worker who starts a new job with a new employer, the minimum wage rate applicable will be the reduced "development rate" if "accredited training" is provided as part of this job. But when does training - which one gets in any new job, however worthless it may be - become "accredited training"? This is anybody's guess, or rather it is entirely in the hands of the bosses' best friend, Margaret Beckett's Department of Trade and Industry. The DTI, or its representatives, can "accredit" anything if they so wish, and they have consistently in the past. Besides, even if the training is meaningful, it can only work to the advantage of the employer, both in terms of improved productivity and tax rebates.

What this small print encourages, on the other hand, is a practice which is still relatively unknown in British industry, particularly in large companies, that of paying reduced wages to new entrants. Over the past year, there have been spectacular moves in that direction in a few large companies, but this would still be strongly resisted, or at any rate objected to, in most. No doubt, employers will get the message and prove willing to follow this lead, all the more so as the examples where it has been successfully forced on workers are there to encourage them.

Of course, this would not need to be a problem if the weight of unemployment and the benefit system were not putting pressure on the unemployed to take the first job on offer, regardless of the pay, and to keep it at any cost.

But despite the government's low headline figure, unemployment is still as high as ever. In fact, a comparative study by the OECD (the economic forum of the richest countries) published in June, shows that in Britain the number of workless households is the highest among all OECD countries and that, moreover, despite Labour's claims about unemployment, it shows no sign of going down. What is more, even Brown's favourite measure of unemployment (that of claimants allowed to receive benefits) has started to increase in May, for the first time in two years. Admittedly it is a small increase (1,700) but if the government's experts in massaging figures have not felt able to hide this rise, it is probably that the real trend is significantly worse.

And in fact there is no reason, booming economy or not, for this situation to improve. Not only have experts been predicting a recession for the British economy, following the fall in manufacturing output over the last two quarters, but the political advisers of the Bank of England are now saying that if inflation is to be brought down, unemployment will have to increase at least until 2002!

This means, that not only is the minimum wage not going to improve the situation for workers, but its introduction will not stop the intense drive against wages that workers have been confronted with over the recent years. If there is a perceptible trend, it points rather to an intensification of this drive. In other words, more than ever before, the working class can only count on its own resources to prevent a further slide down.

As to the reactions of the union leadership to the minimum wage announcement, they were instructive. The TUC leader Monks welcomed it, the Unison general secretary Bickerstaffe described it as a "historic victory" for the low-paid. True, the GMB leader John Edmonds denounced what he called "a slap in the face of workers". But so what? Have union leaders forgotten their own campaign for a £4/hr plus minimum wage before Blair came to office? Certainly not. But at the time, it was not Blair, it was Major, and their problem was to attract new recruits into the unions. Today, Blair is in office and the TUC has organised a special conference to discuss what attitude to take with regard to Blair's union recognition legislation - this is how they hope to regain their membership losses, and not from leading a protest against the wage squeeze or the low minimum wage. Worse even, leaders of the engineering union AEEU have already said repeatedly that the introduction of the minimum wage will be right time to raise the issue of differentials for skilled workers.

When they are not talking about doing nothing, union leaders are therefore scheming to play up sectional divisions in order to woo some more skilled men into their membership. This at a time when, on the contrary, it would be urgent and vital to unify all workers, together with the unemployed, behind the build-up of a common fight against the wage squeeze and against unemployment, which are the two faces of the same coin - a fight for jobs, financed by the super-profits of the capitalists and, maybe since the problem is now posed, for a meaningful minimum wage and decent wages for all workers.