Osborne’s ‘living wage': A potentially damaging excuse for destroying the welfare state

Note: This was originally posted on centreground.uk by myself and this is merely a backup

Turn the clock back to 1997, the start of the New Labour government, Tony Blair was introducing a national minimum wage – the first of its kind. This move was condemned by the Tory opposition who expected a huge loss of low-skill, low-wage jobs. That of course, didn’t happen, unemployment actually fell. But, since it was introduced at under £4, it has grown over 60%. That’s significantly more than normal wages and triple inflation. Labour increased it rapidly to satisfy their core working class voters and now we have a Tory majority government raising the minimum wage by a huge 38% in 5 years, from £6.50 to £9, the highest ever raise in one parliament since its inception. This policy, once condemned by the Tories, is being fully endorsed.

This is only one example Osborne’s plan to portray the Tory party as ‘the party of working people’ and still repeatedly uses the phrase ‘we’re all in this together’ – even after being mocked about it after every welfare cut he makes. It could also be considered a shot at the Tory leadership elections that will precede the 2020 general election. Osborne will be the longest running Chancellor in modern British history by then, overtaking Gordon Brown, building on that with another vote winning budget and possible rebranding of the Tory party will only secure his place as a viable leader.

This budget, despite what Osborne wants you to believe, undoubtedly hits the poorest the hardest, while giving somewhat modest tax cuts to everyone else. The poorest will lose thousands of pounds a year as tax credits get slashed and benefits frozen. As part of the rebranding this time though he’s given something back: in the form of a headline grabber, being the ‘living wage’. A policy to target the core, often abandoned, Labour working class vote in the North. It’s a crafty political budget from a very political Chancellor but, economically, it’s potentially damaging.

A £9 minimum wage is higher than any other country in the world, by a mile. This is when our workforce is still comparatively unproductive compared to most other countries in the G7 such as the US or Germany, making our workers less valuable to employers. You only have to look across the Channel to see where a high minimum wage can go wrong: France and Belgium, who each have generous minimum wages, have unemployment rates of over 10% despite its much more productive workforce.

When wages are artificially raised against the market by an increased minimum wage it will only encourage employers to automate more low-skill, low-pay jobs leading to increased unemployment. Automation makes the idea of putting all the cost of labour on to the employer less and less attractive, even though many view it to be the best and fairest thing to do. Tax credits and the welfare state as a whole could soon be more important than ever to maintain low unemployment and stop ever increasing income inequality, this policy completely ignores that. The OBR has even predicted a loss of 60,000 jobs, showing that tax credits aren’t something to be feared, they promote the employment of low-skill workers that would otherwise be living entirely off benefits.

And yet, although welfare continues to get cut to the bone, pensions are just fine, increasing by 2.5% a year at a period of no inflation. That’s estimated to cost over £6 billion of needless spending on increasing the state pension in real terms that could’ve weakened the blow of tax credit cuts. Only because they vote Tory.

Meanwhile, another often non-Tory and non-voting group, the youngest get their maintenance grants cut, inflation-based increases in tuition fees every year and their housing benefit removed. All Osborne’s attempt to punish future contributors while pampering the elderly with a paradise of zero cuts – not a great idea in a country where the population is ageing and baby boomers are hitting retirement.

Osborne’s strategy of handpicking policies from the left and the right to satisfy as many voters as possible is interesting and, if continued could well see Osborne walking through Number 10 with a healthy majority in 2020. But, perhaps like the last 5 years, Osborne’s budget lacks economic credibility. It lacks any real answers to main issues we face of low productivity or housing shortages – instead it focuses tax cuts at Tory voters while deluding the rest of the electorate with heavy welfare cuts except this time it gives a comparitvely small wage rise in return. It’s far too political for its own good.