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.

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[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.

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Opposing Neo-Liberalism

The problematisation of the neo-liberal settlement has begun to slide us towards a paradigmatic shift in politics. This shift has been slow, and is still ongoing. Indeed, it is resisted by many, not least by European-driven austerity abroad and the Coalition’s squeeze on spending at home. Neo-liberalism, although arguably in decline, remains a beacon of light for British politics as much as it does in some quarters of Europe. [1] This is both surprising and concerning. It is surprising because it is the biggest crisis in confidence of the capitalist system for at least 80 years. It is concerning because it entrenches further economic inequalities and social injustices. Furthermore, the proponents of neo-liberalism have been able to reduce questions of (sustainable) economic prosperity and social justice to a simple cuts agenda. British politics is still guided by a specific ontological foundation of individualism and unfettered materialism. Both principles have pushed moral concerns and ethical dilemmas into the private sphere. It has hollowed-out the principles that underpin politics – debate, discussion and conflict – and replaced it with a logic of depoliticisation.

More urgently than ever before, we need an alternative to this agenda. The neo-liberal settlement emerged out of a number of dilemmas in public policy during the 1970s, ostensibly precipitated by the 1974 oil crisis. It took five years to turn academic theories (that existed as early as the 1940s) into policy ideas, and a further four years (at least) to cement neo-liberalism into a policy agenda under Margaret Thatcher’s leadership. [2]  1997 was a watershed moment because it recast the neo-liberal project and challenged many aspects of it. However, it was not able to challenge the fundamentals of the economic model based on individualism and insatiable consumerism. The centre-left was not anywhere near confident enough to challenge this agenda following the collapse of the left throughout the globe during the early 1990s. Furthermore, neo-liberalism was not problematised by a series of exogenous (and inevitable) dilemmas as it is today. Tony Blair and Gordon Brown therefore accommodated aspects of their communitarian governing project with neo-liberal concessions. [3] Having said that, New Labour did challenge the social settlement. It introduced a minimum wage, ensured nursery education for all three and four year olds, implemented a tax credits regime, invested in the NHS at record levels, brought peace to Northern Ireland and recognised civil partnerships. It corrected the excesses of neo-liberalism after-the-fact. It was patently not enough, but members and supporters of the Labour Party should be proud of what it got right in government.

The contemporary challenge for Labour is to offer an alternative that reaches beyond merely amelioration or accommodation with a discredited economic and societal model. Debates that had been buried under neo-liberal rhetoric have resurfaced, which means that the centre-left is able to expose some of its myths. The Policy Review under Labour’s Jon Cruddas has begun – although tentatively – to explore options that go beyond limiting the negative side-effects of neo-liberal capitalism. Ed Miliband himself has repeatedly called for a comprehensive re-think away from ‘irresponsible capitalism’ towards a more ethical capitalist system. Miliband has called himself a ‘responsible capitalist’. In his interview in Shifting Grounds he argues that ‘the way economies succeed is not by a few people at the top, but by supporting the many’ and that ‘unless you have the infrastructure that supports the many, government willing to reform the banking system to support the many, the skills system to support the many, the industrial policy, you’re never going to succeed’. A recent speech by Miliband highlighted that responsible capitalism has an agenda where companies pursue profit in tandem with an equal society, where power is in the hands of the many, and where citizens recognise responsibilities to each other. At a recent One Nation conference in London, Steward Wood, an advisor to Ed Miliband, built on this by calling for: ‘a different kind of economy, a determination to tackle inequality, an emphasis on responsibility (of the people at the top and the bottom), protecting the elements of our common life, and challenging the ethics of neo-liberalism’. [4]

Commentators, of the left and right, within Labour and beyond, have questioned much of the Policy Review to date. The Policy Review has come under hefty criticism for being slow, bulky and far from radical. This is, perhaps, because the review confronts the two most dominant traditions within the Labour Party – New (or Purple) Labour and Old (or Red) Labour. The two perspectives have dominated Party debates. Blue Labour, the new player of the game, does not have quite such prestige. And yet, this tradition opposes both the statism of the Old and the neo-liberalism of the New. Of course, the skirmishes between the three traditions are a sideshow, leaving the Policy Review to get on with its work rather calmly. Clearly, the problem is not that Labour is empty of ideas. Rather, the problem is that Labour has been too cautious to articulate its alternative vision for politics, society and economics – in part, no doubt, given the divisions within the Party about its future. However, it is time that Labour spells out its vision in unambiguous terms.  Taking the three headings of the Policy Review, Labour must go into a new direction and call for:

  • An ethical politics. Labour must reject the simplistic rational-choice individualism that has been a crucial foundation for neo-liberalism. The greed-based model has destroyed faith in politics. Power must be radically decentralised to local councils and regional assemblies. The liberal commitment to depoliticisation must come to an end immediately.
  • A fairer society. Passions over welfare reform run high, but Labour must be bold and challenge the divisive language espoused by many on the right. Labour must reduce inequalities by tackling our inefficient tax system and ensure that living standards lie at the heart of a Labour programme for reform.
  • Sustainable economic growth. The challenge for a sustainable recovery dominates public discourse.  Labour must re-balance the economy in a radical way – something that New Labour never dared to do. The real test, however, is the extent to which this is sustainable. Not simply in material terms, but environmental ones, too.

Some of these are in strong opposition to the Red Labour (statism versus localism) and Purple Labour visions (Keynesian versus Polanyian economics). [5] Crucially, many of the aims chime together. Challenging unfairness and inequality are things that have united all three shades of contemporary Labour traditions, which is why it must be at the heart of Labour’s governing vision in 2015. The Party leadership has failed to be bold in its critique of the status quo. This is somewhat perplexing, given the resounding support Miliband has received in the past for taking on vested interests. 2015 could be a watershed moment, if Labour wants it to be.

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[1] C. Crouch (2010) The Strange Non-Death of Neoliberalism, Cambridge: Polity Press.

[2] Thatcher was guided, for instance, by Friedrich Hayek’s The Road to Serfdom, originally published in 1944. The book itself led to numerous libertarian critiques of the welfare consensus.

[3] M. Bevir (2010) Democratic Governance, Princeton: PUP, p.130.

[4] For a summary of Wood’s speech, click here.

[5] See, for example, A. Finlayson (2013) ‘From Blue to Green and Everything in Between: Ideational change and left political economy after New Labour’, British Journal of Politics and IR 15:1, pp.70-88.

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.

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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.