Battleground 2015: Protecting our standards of living

A few weeks ago, we learnt that inflation has increased to 2.7 percent, whilst the Bank of England said that it expects inflation to exceed the three percent mark at some point this year. Meanwhile, the growth of pay has been just 1.3 percent and most social security benefits are either frozen or limited to a one percent rise over the next three years. The squeeze on living standards remains a very real issue, and the growing disparity between social security, the rate of inflation and low wage increases means that living standards are put under severe strain. This is despite growing awareness for things like the Living Wage Campaign that have sought to re-focus efforts on dignity in employment. Coupled with low overall economic growth (coasting at pretty much nil since 2010, and achieving only 0.3 percent in the last quarter) the consequences have been alarming for working people.

George Osborne’s recent Spending Review has reinforced those trends and, given the fiscal commitments he has made, the Coalition has now set the terms of debate for the 2015 election. It will be, as the Institute for Fiscal Studies claimed, an ‘austerity election’ because successive governments will have to impose further spending cuts of £23bn between 2015 and 2017. This is a contentious agenda, which will see public expenditure plunge below 40 percent of GDP – and below that of the US, Germany and Japan. Public spending will fall by over 6 percent between 2012 and 2017; in the US, it will fall by just 1.26 percent. The UK is therefore rebalancing its economy in a very drastic way in a short time period compared with other major economies. Labour must challenge this agenda. But it must also ask a basic question about its raison d’être: what is the purpose of the left in a period of austerity, in a period of low economic growth, and in a period of declining support for the welfare state?

From the mid-1990s, Labour could rely on economic growth to redistribute wealth – in other words, correct the problems caused by capitalism without dealing with the cause itself. Looking towards the horizon of 2015, this is clearly not possible from an economic perspective, nor desirable because popularity for the welfare state has waned. It means that Labour must support social justice and equality – both central to achieve fairness – in a different way. Labour can no longer focus on a large state and solely on the redistribution of wealth to achieve its goals. Things such as working tax credits have perpetuated market inequalities, where the government spends billions to essentially subsidise companies for low pay. This is one of the central reasons that we must turn towards a living wage to support people in jobs. The living wage is as much about economic equality as it is about social justice. Labour was founded on such a principle, aiming to improve social cohesion and fighting for the right for every person to have an opportunity at a good life. This was a founding aim for guild socialism, co-operatives and trade unions. We must remember that greater economic justice is not an end in itself, but the mechanism by which we can achieve a better society – a society in which we, as communities, can determine our collective fate and in which we, as individuals, can pursue our conceptions of happiness. Unfortunately, this seems so have been forgotten sometime after the Second World War, possibly somewhere amidst the creation of a bureaucratic welfare state. The Labour Party focused too much energy on correcting the faults of the capitalist economy: it focused on tidying up inequality, rather than challenging its causes.

Labour would do well to look to the principle of living standards as a central guiding force for policy. The protection of living standards is the belief that all individuals have a right to a minimum standard of living through dignity in work, good mental (as well as physical) well-being and reasonably priced public services available for all. In other words, life should be affordable and not a daily struggle for survival. The Coalition government has entirely abandoned these aims: the cost of essential goods has increased by 25 percent since 2008 without ameliorative efforts. Living standards are now at their lowest level since at least 2004-05, and the IFS has concluded that: ‘Prospects for living standards are […] bleak – further falls are likely to be followed by a weak recovery, leaving average income growth even lower in the 2010s than in the 2000s’. [1]

Labour’s alternative to austerity must be a return to the principles of a decent standard of living. Living standards resonate with people, so long as it is associated with the beliefs of dignity in work, social security based on a contributory principle, and a distribution of wealth based on just deserts. The idea of a ‘squeezed middle’, scoffed at by so many a couple of years ago, was a bold move that has since become an important reference point for debates around austerity. It requires the following commitments from Labour:

  • A minimum living wage. This, beyond anything else, will be a test for Labour. The Party must commit to the introduction of a living wage across the country. There are calls for the national minimum wage to be raised to become the living wage, which I would echo. [2]
  • Protection of basic economic rights. Calls from Conservatives suggest that austerity may cause the repeal of employment rights. Tory europhobes, too, want to repeal rights in order to create a more ‘flexible’ labour market. If anything, these need to be strengthened to ensure basic rights for workers.
  • Regulating prices. Our utility companies are hardly subject to competitive frameworks. Water companies have monopolies over certain areas, and energy companies make it difficult to switch to cheaper rates. [3] This must be challenged through a regulatory framework, coupled with a green investment strategy.
  • Social investments. For example, we need to continue to invest in education at all levels (from pre-school support to post-graduate funding). This will balance equality of opportunity as social mobility will increase, and it will also act as an incentive for further investment from businesses.
  • A strategy for growth. Social security benefits are rising because our economy is not growing. A growing economy – that is rebalanced towards sustainability, with regulative frameworks in place – has the opportunity to not only lower social security, but also to strengthen dignity in work.

Labour can be radical in its approach towards living standards. It speaks to a positive vision for what economics is for. It is an approach that moves Labour away from the falsely constructed ‘strivers versus skivers’ debate. Ultimately, this is also not about austerity. This is about using the resources we have to achieve radical outcomes for greater social justice and equal opportunities for all, without the need to necessarily increase public expenditure.

mg

[1] Institute for Fiscal Studies (2013) Living Standards, Poverty and Inequality in the UK: 2013, London: IFS, p.28. Available here.

[2] A living wage is important because it would ensure dignity in work for the employed, it would boost the spending power of individuals (gross earnings would be up by £6.5bn) and it would ensure a more productive workforce. Crucially, it would also allow the Treasury to achieve gross savings of £3.6bn if universally applied. See this report by the IPPR and Resolution Foundation for more details.

[3] The Power Book, presented by Caroline Flint at the last Labour Annual Conference was a step in the right direction. For more, see: Local Government Information Unit (2012) The Power Book, London: LGiU.

Labour and the EU: From realpolitik to principle?

Since David Cameron called for a referendum on Europe, it would appear that the issue of Europe has subsided somewhat. And yet, there is a distinct danger that the approach taken by the Prime Minister’s opposite number, Ed Miliband, is beginning to create antagonism within Labour. Cameron’s referendum pledge means that the position of the Labour Party towards Europe has been questioned – to such an extent that it is possible that the issue could damage the Party’s electoral chances. This is because Labour’s position is based on realpolitik, not principle. At a time of intense debate about the very nature of the European Union, it is more important than ever that a Labour policy based on principle, as opposed to pragmatism, comes to the fore. First, however, it is worth teasing out why a tension could emerge within the Party.

Let’s rewind time back to the 1960s. The UK was not part of the then European Economic Community, having been snubbed by a veto courtesy of the French. The Labour leadership was not unhappy about this because it saw the EEC as nothing more than a ‘capitalist club’. In 1962, the Leader of the Opposition, Hugh Gaitskell, exclaimed that a federal Europe would mean: ‘the end of Britain as an independent European state, the end of a thousand years of history!’. [1] For Labour, what was at stake here was more than just national sovereignty. Rather, the Party argued that the EEC would further the interests of capitalists alone. For those reasons two reasons, Labour fought for a ‘no’ vote on Europe in 1976, and opposed Margaret Thatcher’s support for the EU in the early 1980s. However, as the 1980s drew to a close, the Conservative Party and the Labour Party switched position. The European project turned emphasis away from a common market, which would be fully implemented by the early 1990s, and instead emphasised pan-European welfare, including employment rights and a commitment to a better standard of living. The Labour Party looked across the Channel and saw that in mainland Europe broadly left-of-centre policies flourished. At this point, Labour opted to support the EU because it has economic and social benefits for the UK. [2]

Back to 2013, and the orthodox Labour support for Europe has come under significant pressure. The pledge by David Cameron to hold a referendum on the EU has caused an EU-induced schizophrenia: first, Ed Miliband rules out a referendum on Europe; second, Ed Balls makes the opposite claim. This confusion suggests that Labour needs to rebuild its strategy on Europe. Most importantly, and probably uncomfortable for some, Labour must call for a referendum on Europe. Once it has done this, Labour will be able to shape the agenda on the future of Europe by asking two questions:

1. What should Europe stand for? There are three principles:

  • Democracy. European democracy should rest with the European Parliament, on the one hand, and a European President, on the other hand. This would ensure national representation through two input-based mechanisms. The EU must do more than preach democracy, it must begin to practise it too.
  • Economic and Social Prosperity. One of the overriding positive impacts of the EU is that it will help to stimulate national economies. This is the major output-based mechanism that needs attention. The EU must be able to do less on a European-wide level, and support national economies instead. For this reason, Ed Balls and Douglas Alexander were right to call for a real-terms cut in the EU budget. The EU should become an association of national economies that supports employment rights and better living standards.
  • Subsidiarity. Power must be devolved to the most local institution possible. This goes to the heart of democratic power and also remains a prerequisite for economic prosperity. This is because it will give European peoples a sense of ownership. All of this means that the EU become multi-level and multi-sectoral – a dynamic system that sees clusters of shared policy-making.

2. How can these principles be implemented? Here are some specific policies:

  • Democratic powers must be based on a directly elected president for the whole of the EU; but the European Parliament should become the sole initiator of European legislation (exceptions would be inter-governmental treaties to be scrutinised by national parliaments).
  • The overall size of the EU needs to be slimmed down through a smaller Commission; the removal of the European Common Agricultural and Fisheries Policies (CAP and CFP respectively); no more moving back-and-forth from Strasbourg and Brussels; and a salary freeze for MEPs and bureaucrats. This will allow for a real-terms budget cut.
  • Resources should support national economies and protect employment rights – this could include a guarantee of apprenticeships, placement schemes and more. This is hugely important to develop cultural and economic ties throughout Europe.
  • To safeguard subsidiarity, we need a more powerful Conference of European Affairs Committees (COSAC), which would meet more often to hold EU decision-makers to account. The UK Parliament should establish a Parliamentary Committee on Europe that brings together MPs, peers and UK MEPs to debate EU issues of major importance. It would be accountable to the UK Parliament, but also send representation to the EU.

This is what Labour must stand for. It must ensure that the principles given above remain at the heart of the European project in order to pave the way for a new European settlement that calls for a slim, dynamic association of national economies and not for a corpulent, bureaucratic union.

mg

Notes

[1] M. Charlton (1983) The Price of Victory, London: BBC, p.274.

[2] I’ve drawn this analysis from a BBC podcast by Analysis, called ‘Labour, the left and Europe’ (29 October 2012).

Pressure on the High Street?

It was not just the fact that HMV announced that it was going into administration that caused me to reflect about the state of British high streets. A few weeks ago, I also took a stroll through Broomhill, in Sheffield, where a countless number of shops had closed and a local coffeehouse was being turned into a Costa. Additionally, I found out my great granddad’s pub had closed down. The stark message appears to be that the high street is slowly dying. What is to blame for this morbid future of town centres?

The changes on our high streets have been accelerated by the economic downturn from 2007 onwards, and probably worsened by the economic policies of George Osborne. However, the long-term cause lies in a much broader shift in consumer culture that has moved from the high street towards larger, out-of-town shopping centres and towards the Internet. Earlier this month, in addition to HMV, we have seen Jessops and Blockbuster go into administration. This follows a number of other businesses including: Woolworth’s, JJB Sports, Clinton Cards, Optical Express and so on. This is a very small and selective list, but it shows that there are a wide variety of shops that are closing down. More generally, the number of town centre stores fell by almost 15,000 between 2000 and 2009 with an estimated further 10,000 losses over the past couple of years. [1] Without doubt, traditional high streets are in decline, which has seen the emergence of ‘ghost towns’ and ‘clone towns’ across Britain. [2] It means that, first, our high streets are dying and, second, those that remain all look the same, with a generic number of national outlets.

There are those that have little qualms about the decline of shopping in town centres; if anything, ‘clone towns’ have made shopping more convenient (you know what you’re getting from your Starbucks and your H&M wherever you are across the country), and better still, online shopping means you don’t even need to leave the house (hush about the tax avoidance from the likes of Amazon.co.uk though). Ultimately, however, high streets do matter. This is not just about nostalgia for an age of butchers, bakers and candlestick makers; this is about a vibrant local economy (although I do love a good cake). The problem is that national retailers suck out economic capital in town centres and take it straight back to their headquarters. Rarely do profits return to the local economy. The growth of tax avoiding retailers has further reduced the tax base for investment, which is further exacerbating the problem. Whether town and city centres are labelled ghost towns or clone towns, it damages the local economy. Communities become dependent on state-led investment, something which would be less likely in a locally independent economy where small- and medium-sized businesses work interdependently. [3]

A more fundamental point, however, is that British high streets are about public space. The space of the town centre is becoming marginalised and soulless – which may sound rather fuzzy, but is based on the idea of social capital. The problem facing our high streets has surpassed retail. It is also about our ability as citizens to contribute to the public spaces we occupy, which suggests that we need to reclaim town and city space. In other words, strong town and city centres matter because they contribute towards a dynamic economy, and they also help to strengthen and maintain a sense of social capital. We must recognise that the role of high streets has changed from a pre-dominant retail role towards one that should emphasise a social one. It entrenches a sense of belonging and localism, which is preached by both the main parties in their own ways [4]. As Jan Gehl points out:

Wanting to go into town is different from wanting or needing to shop. It is about an experience. It is about sociability and relaxation, creativity and being part of something you cannot get at home or work. [5]

To echo the points made by Mary Portas’ independent review from 2011, high streets should be bustling with people, services and jobs. They should be vibrant places that people choose to visit. They should be destinations. This is not about nostalgia – it is about social capital and sustainable economic growth.

The question, therefore, revolves around how we can improve the confidence and strength of high streets. ‘Localism’ has become a key word for this to happen. Local councils have always been marginalised in the British political system, for a range of reasons that go beyond this article’s remit. The broad point, however, is that local politics must matter to people; and the best way to do this is to empower local councils. [6] Local councils need to be at the heart of local decision-making, which includes the local economy – something which has been hoarded by central government for too long. Councils need to think more creatively about parking spaces, improving public transport and improving consultation with local businesses. The success of Business Improvement Districts is one important development (mechanisms where local businesses contribute to joint business plans), which demonstrates that working together is an important dynamic of the future. [7]

In terms of economic policies, a number of choices are available:

  • First, the model of business rates is out-dated and out of proportion. For example, the business rates for an ASOS distribution centre in Barnsley is around £40 per square metre; for a unit in a Rochdale shopping centre, this is £1,080 per square metre. This has led one commentator to question if business rates are taxing the high street out of existence. Business rates need to change.
  • Second, big businesses need to be regulated so that smaller, independent shops can grow. A diverse high street means that large supermarkets and hypermarkets must be limited in space and size, and regulated in terms of products. Changes in planning law should reduce the power of the likes of Tesco, Asda-Walmart, Morrison’s and so on. [8]
  • Third, the introduction of a ‘Small Business Saturday’. This has been introduced in the United States, and proven to be highly successful. Figures suggest that more than £3.4 billion were spent that day in 2012. This idea was sponsored by social media and supported by celebrities. It suggests that there is a lot of potential for this to work in the UK.

These are just three ideas, and many more should be looked at – reducing red tape, creating local enterprise zones, and setting up a Post Office Bank. However, none of these measures will be enough. The national economic policies of the current Coalition government are preventing the growth that is desperately needed. Austerity is simply not working. We are now on the brink of a triple-dip recession – an unprecedented and bleak outlook for the future that must be tackled. All of this makes the emphasis on local, sustainable growth even more important.

mg

Notes

[1] Department for Business, Innovation and Skills/GenEcon (2011) Understanding High Street Performance, Leeds: GenEcon, paragraph 21 (available here).

[2] See New Economics Foundation (2005) Ghost Town Britain, London: NEF (available here), and New Economics Foundation (2005) Clone Town Britain, London: NEF (available here).

[3] See, for instance, New Economics Foundation (2002) The Money Trail: Measuring the impact on your local economy using LM3, London: NEF (available here).

[4] The Conservatives, for example, have focused much on the ideas of the Big Society: see among others: D. Cameron (2011) Speech on the Big Society, London (available here). See also: Conservative Party (2009) Control Shift: Returning power to local communities, London: Conservative Party. The Labour Party has focused on One Nation as its main alternative starting point for localism. See J. Cruddas (ed.) (2013) One Nation Labour: Debating the future, London: LabourList (available here).

[5] J. Pehl, quoted in M. Portas (2011) The Portas Review, London: BIS, p.15 (available here).

[6] See J. Wilson (2012) Letting Go: How Labour can learn to stop worrying and trust the people, London: Fabian Society.

[7] Portas, p.21.

[8] New Economics Foundation (2011) Ten Steps to Save the Cities, London: NEF (available here).

The Living Wage: Supporting living standards, economic prosperity and consumer freedom

The Living Wage Campaign is a laudable campaign that seeks to protect and strengthen employee rights. The LW will be a key factor for economic recovery and crucially helps to re-balance our economic system in favour of the citizen. A decent, living wage has three positive claims: first, it rests on a moral claim that people should not be treated as cheap commodities; second, it rests on a economic claim that it will increase growth through greater consumer spending; and third, it rests on a political claim that will allow citizens to spend their money more ethically.

Living Standards

The Living Wage Campaign was founded on the principle that work should be rewarding, and that it should bring dignity. Consequently, wages should be enough to provide families the essentials of life. [1] The campaign has roots that go back to the late nineteenth century, where one MP wrote: ‘A living wage must be sufficient to maintain the worker in the highest state of industrial efficiency, with decent surroundings and sufficient leisure’. [2] A living wage is important because the minimum wage is not enough for a sufficiently comfortable life in the twenty-first century. This is not about luxury, it is about protecting living standards:

  • The Living Wage has had a colossal effect on reducing in-work poverty. Since 2001, over 45,000 families have been lifted out of working poverty, directly as a result of the LWC.
  • Relatedly, the LW contributes to a reduction in fuel poverty. A living wage would cut the horrifying situation where people have to choose between their radiator and their dinner (especially at a time when fuel bills are going up).
  • The LW is about increasing the health of employees. A higher wage means less stress, and could ensure that the money is spent on better quality food, goods and services (with obvious health benefits).
  • Being paid the minimum wage prevents parents from seeing their children at weekends because they end up with two or three jobs to make ends meet. The LW intends to end such a situation, ensuring hard-working parents’ strain is eased through wage security.
  • Better living standards will have an effect on the economy: a happier, healthier workforce will lead to higher productivity, fewer ‘sick days’ and a greater sense of social cohesion. The modest effect that the LW will have on reducing inequality is vital. [3]

Economic Prosperity

The last three bullet points of the above section have already hinted that the Living Wage plays an important part in prosperity. This is something that goes beyond the individual level, or as the Mayor of London puts it: ‘Paying the London Living Wage is not only morally right, but makes good business sense too’ (quote from LWC Website). Independent studies have shown that 80 percent of employers believed that the LW increased employees’ quality of work, and absenteeism decreased by approximately 25 percent. Two thirds of employers reported a significant impact on recruitment and retention within their organisation. 70 percent of employers felt that the Living Wage had increased consumer awareness of their organisation’s commitment to be an ethical employer. [4]

The benefits for the economy are important for the macro-level too. Higher wages allow for greater consumer spending. Workers’ spending on consumption accounts for roughly half of GDP in advanced economies. Lower wages means less spending, and hence less demand for economic output. Unless this is more than offset by new investment or exports, total output will contract as a result of a wage cut, and employment will fall. [5] Unfortunately, the UK is not export-focused. Combine that with government cuts and decreases to global investment, and we have stagnation in economic output (enter the double-dip recession). A Living Wage could counter some of these negative effects.

Citizenship

Ultimately, giving the employee more economic power can only be a good thing. A massive problem for the low-paid is that their choices, in economic terms, are diluted. They are forced to shop in the cheapest possible places, without any regard to the ethical or moral outcomes. Plenty of people do not buy goods with a Fairtrade mark simply because it is more expensive. Should our moral and ethical choices be limited because we are paid less? No. [6] I am not saying that we should all be paid enough so that we can go to Waitrose, or that everyone should buy free range eggs. But surely there is a problem if shoppers buy unethically because they are paid unethically?

A link between ethical consumption and the LW definitely exists. The LWC is not just about individual changes to eating more healthily, but also about wider societal efforts to create a more ethically-balanced economy. Higher wages means that spending power of the consumer could be directed towards more ethical goods – precisely those Fairtrade, free range and environmentally-friendly products that cost marginally more. Wages affect attitudes to shopping. As one commentator puts it: ‘spenders of the world, unite!’. [7] The LW could enhance exactly this sort of behaviour to create a more ethically-based capitalism.

Fighting For A Living Wage

A living wage has unparalleled benefits for living standards of employees, benefits the economic growth of this country, and can ensure that citizens become more active in their consumer choices. There are other reasons for introducing the LW. One is that it would reduce the need for taxpayers to effectively subsidise employers who pay their staff too little, because state benefits, such as working tax credits, would be reduced.

It is hugely misleading to say that the Living Wage would ‘kill business’. For most businesses – and especially in banking, IT and construction – implementing the LW would represent less than a one percent rise in overall costs; in other industries the costs are a few percentage points higher, but a phase-in could mitigate any harms. [8] Indeed, one way to increase the take-up rate would be to offer tax-cutting incentives to small- and medium-sized businesses for introducing a living wage.

Analysis has also shown that simply reducing income tax rates – touted as one alternative to the LW – is poorly targeted and cuts the British tax base even further, which would perversely increase debt (cut income tax but pay tax credits equals higher debt burden).

For all those reasons, I’m very happy that the Labour Party has announced its unequivocal support for the Living Wage and that Sheffield Labour Students supports this campaign. I’m also proud to support the Living Wage Campaign in Sheffield more generally. And I’m more than happy that Sheffield City Council will introduce a living wage for all its staff.

mg

Notes

[1] D. Hirsch and R. Moore (2011) The Living Wage in the United Kingdom, London: Citizens UK, p.4. Report available here.

[2] Ibid., p.4.

[3] For instance, see R. Wilkinson and K. Pickett (2009) The Spirit Level: Why equality is better for everyone, London: Penguin.

[4] These figures are drawn from the Living Wage Foundation. Click here for more details.

[5] J. Stanford (2008) Economics for Everyone, London: Pluto Press, pp.158-9.

[6] One very interesting example of this in action was Hugh Fearnely-Whittingstall’s Channel 4 three-part documentary, Hugh’s Chicken Run, from a few years ago. Here, local residents learnt about free range chicken, but some residents simply could not afford to eat ethical chicken – even if they wanted to.

[7] D. Jeffery (2012) ‘A Call to Arms: Spenders of the world, unite!’, Canvas 3:6. Article available here.

[8] M. Pennycock (2012) What Price a Living Wage? Understanding the impact of a living wage on firm-level wage bills, London: IPPR. Report available here.