A minimum wage alone can’t fix the UK poverty scandal

Next month will mark 25 years since the national minimum wage was first paid in Britain: a quarter of a century during which what was once seen as a radical leftwing policy has won broad cross-party support.

Over the past 14 years, the Conservatives have appropriated and expanded the policy, despite adopting a laissez-faire approach to other aspects of labour market regulation.

First set by then chancellor Gordon Brown at £3.60 an hour for over-21s, the minimum wage was part of Labour’s 1997 manifesto – though not deemed grabby enough to make it on to Tony Blair’s election pledge card.

The Conservatives opposed the legislation as it made its way through parliament after the general election, warning that it would destroy jobs.

Less than a year after it came into force, however, shadow chancellor Michael Portillo announced that his party would not reverse it, saying that at the “modest” level at which it had been set, the measure had done “less damage to employment than we feared”.

Labour had worked painstakingly to build up support for the minimum wage in the run-up to 1997. The low pay commission (LPC), which would give the government independent advice on setting the pay floor, was to include representatives from business as well as trade unions and labour market experts.

The LPC’s first report – published in 1998, after it had held more than 200 evidence-gathering meetings across the country – cited egregious cases of exploitation, including a security guard job advertised at £2 an hour, with the successful applicant expected to supply their own dog.

During the coalition years that followed Labour’s defeat in 2010, the Conservatives used increases in the minimum wage as part of a bid to style themselves as the “workers’ party”.

In 2015, George Osborne effectively rebranded the minimum wage as the “national living wage” – co-opting a name first used by grassroots group Citizens UK in its successful anti-poverty campaign – and set a surprisingly radical aspiration of lifting it to 60%, and later two-thirds, of median earnings. Iain Duncan Smith, the former Tory leader who had campaigned against poverty, punched the air in the House of Commons chamber when the policy was announced.

This ambitious target meant the LPC had to continue recommending chunky increases in the minimum wage, as part of whatthe Resolution Foundation thinktank has called a “transformative” policy.

By 2023, the UK’s minimum wage was higher, relative to average wages, than in any other rich country apart from France, New Zealand and South Korea. It helped to reduce hourly wage inequality and made some of the worst examples of poverty pay a thing of the past. And it is set to increase again, by almost 10%, on 1 April.

Yet the national living wage has been a small island of progress in a labour market that has seen short-term, zero-hours contracts proliferate, out-of-work and sickness benefits eroded, and fire-and-rehire policies going unpunished. And while the rules are laudable, their enforcement is another ongoing issue: trade unions warn that HMRC, whose job it is to police the minimum wage, lacks the resources to do so effectively.

At the same time, the number of people in the UK who are economically inactive for health reasons has hit a record high, at 2.8 million: the UK is an outlier among major economies in having a workforce that has shrunk since Covid.

The national living wage is here to stay. An incoming Labour government would offer a “genuine living wage”, according to deputy prime minister Angela Rayner, as part of the party’s promise to build “a Britain that works for working people”.

In practice, that will mean asking the LPC to take more account of the cost of living in setting the pay floor, though it is unclear whether that will make much difference, after a string of significant increases.

What is clear, though, is that while the widely admired policy has tackled a longstanding bugbear of the UK labour market – the prevalence of low pay – it left wider issues untouched.

Last week’s figures showing that 300,000 children were plunged into poverty during the cost of living crisis, with hunger and deprivation rising, underlined the fact that while raising the minimum wage may be a necessary condition for tackling poverty in the UK, it is very far from sufficient.