Wages and good and bad government

By Mike Emmerich | 20 October 2021

Our concern for good government is as old as the city states that created the modern world. The walls of the Renaissance city hall of one of them, in the Italian city of Siena, are famously decorated with frescoes depicting good and bad government. In the former, the fields abound with produce and the city‘s streets are harmonious and orderly. In the latter, there is almost apocalyptic misery. These frescoes, and their warning to city leaders, painted at the dawn of modern governance, came to mind as I read the Prime Minister’s goal, announced at the Conservative Party conference in Manchester:

‘…We are not going back to the same old broken model with low wages, low growth, low skills and low productivity all of it enabled and assisted by uncontrolled immigration. […] that is the direction in which this country is going now, towards a high wage, high skill, high productivity […] economy.’

This sounds very politically attractive. We have a low-pay problem and the question of what to do about the low-pay, low-skill foundations on which we rely has troubled policy-makers for years. But the argument that the pre-Brexit model of relatively high immigration drove low wages is extremely questionable. Stopping migration will not, therefore, increase them. Many communities in the UK would benefit from higher wages. The question is whether the Prime Minister has a strategy for delivering them. The early signs are not encouraging.

The evidence that wages are rising is less compelling than that relating to prices. It seems likely that we may already be set for a year or two of decline in disposable incomes driven in part by higher payroll taxes. That is to say: unless productivity rises, tax, wage and price increases in one part of the economy feed through into reduced spending power elsewhere.

To compound this problem, the cut in Universal Credit is taking more than £1,000 a year out of the pockets of some of Britain’s poorest families. Even some of the most ardent supporters of the Government take the view that this latter policy decision is regrettable.

To fix the pay and productivity problem we need to get training policy fixed once and for all. More business investment in technology will support higher wages. But training and investment take time to put in place with a supportive policy regime. Yet European-funded programmes to deliver these goals are winding down with the replacement programmes not in place let alone operational.

As a result, it is possible regional differentials will widen yet further – the opposite of ‘levelling up’.

Labour took a more cautious approach to the idea of a national minimum wage pre-1997. The creation of a Low Pay Commission ensured that it was introduced gradually and with plenty of time for businesses to plan. This ensured the potential negative impact on parts of the economy were significantly mitigated. It was a success. Then chancellor George Osborne built on its foundations and the Minimum Wage is here for good.

We know too, from the Scandinavian economies, that high wages and high migration can accompany productivity growth and economic success. But in these countries, there are arrangements involving Government, trade unions and businesses whose aim is to deliver change in ways that maximise the benefit and minimise the risks.

The main recent policy innovation we have on pay, the Minimum Wage aside, is the growing lobby for a Living Wage, backed up by Good Employment Charters in cities around the UK. These voluntary agreements are often designed with business to build the case for higher wages (such as a commitment to pay the real living wage to all employees), aligning this to other areas that create good employment (such as a strong employee voice, progression and training, health and wellbeing, flexible working, and inclusive recruitment). They are small-scale but they signal the possibility of change.

These measures point to cross-party appetite in councils across the country to support a new approach to inclusive growth, increasing wages and improving job security in the UK.

Policy and recent history offer lessons in raising wages and delivering inclusive growth, as does a substantial body of UK and international research. Listening, reflecting and seeking to design policy which navigates these complex issues are all at the heart of good Government. The alternative is there to see on those frescoes too.

Mike Emmerich is the founding director of urban strategy consultants Metro Dynamics

@metrodynamics

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