It is rare that a government introduces a policy to near-universal acclaim. But political experts agree that the minimum wage (NMW) is the most successful government policy of the past 40 years. However, it’s introduction was fraught with political vulnerability and predictions of economic catastrophe. Labour could have easily jolted from it in the face of a classic Project Fear campaign.
By the time Labour returned to power in 1997, the British economy had undergone a deep transformation. The Thatcher and Major years saw a heap of trade union reforms, which ended the power of collective bargaining and wage councils. It meant that wages settled at the ‘natural level’ of the free market. For millions of people trapped at the bottom it meant insecurity and a subhuman standard of living.
By the early 1990s over a million people earned less than £2.50 an hour and 300,000 earned less than £1.50 an hour. This was in spite of the TUC calculating that a level of £3.50 was needed to meet the cost of living. Many of the underpaid workers were women who worked as cleaners, dinnerladies and shop assistants. It ensured that in 1993 the gender pay gap stood at 29%.
Labour adopted a NMW policy for the 1992 general election. However, announcing that the rate would be set at £3.70 per hour (half the male median earning), was a political gamble. Although the Tory government had endured a torrid time, as house possessions grew to record levels and unemployment hit 10%, a Project Fear campaign heightened tension over Labour’s ability to manage the economy.
The Tories calculated that a NMW would lead to two million job losses. A press release from April 1991 read: ‘Michael Howard warns Labour Minimum Wage Fiasco “could double unemployment”’. Howard’s argument was supported by Phillip Oppenheim: “Minimum wages destroy jobs, particularly among young people” and Michael Portillo: “it would push up inflation and could cost over a million jobs.”
In the midst of a severe recession, caused by high-interest rates, falling house prices and an overvalued exchange rate, polls continually showed that the Tories were trusted to run the economy better than Labour. When the Tories won the 1992 election, the message from the voters was clear: Britain cannot afford a pay rise.
Watching this as was Tony Blair, the shadow employment secretary. He had raised concerns to John Smith that the £3.70 level was too high. The trauma of the election defeat re-affirmed his view. To neutralise fears, Labour appointed Harriet Harman to oversee a Low Pay Commission to set the level of the NMW.
It still caused concern amongst the Tory ranks. When Harman raised the issue in the House in 1995, she was patronisingly told: “The hon. Lady was tittering; she is now wittering…a minimum wage would cost the taxpayer…because it would increase unemployment”.
Cautious of another Project Fear campaign, Blair and Brown built the political case for the NMW from a business perspective. They argued that low pay undermined recruitment and retention of staff and argued that the NMW would prevent ‘cowboy’ companies undercutting. The move to woo the city – dubbed ‘the prawn cocktail offensive’- was pitched alongside a plan to reform welfare to ‘make work pay’.
The Tories linked unemployment in Europe to the NMW – as they later did with the single currency – to fight the policy. Labour needn’t have worried; the 1997 election resulted in a landslide and the Tories worst performance since 1832.
Once in government, Labour set about their task. Margaret Beckett introduced the NMW bill to the House in December 1997: “We all know the examples: a homeworker paid as little as 35p an hour, a cleaner paid £1.30 an hour or a security guard paid £2.35 an hour—and bring your own dog!”
The Low Pay Commission found other examples; of people working for 80p an hour in a chip shop, £1.22 as care workers and as clerks for just £1.66.
The Tories used the NMW debate to try to win back business support, promising to fight it all the way. The arch-Brexiter John Redwood was brought into William Hague’s shadow cabinet and became the most vocal critic of the policy: “We have warned the government throughout, that a minimum wage policy will not work.” Redwood cited a report that one million jobs could be lost ‘if we had a national minimum wage at half average earnings’.
It wasn’t just the hard-right that opposed the policy. Phillip Hammond, now the chancellor, was aghast at a NMW that would “drive some small businesses into the black economy.” He warned that “the economic damage could be massive” and that pensioners in his constituency would “no longer be able to take pin-money jobs” for next to nothing.
In addition to Hammond, Michael Fallon, the disgraced former defence secretary, predicted an economic collapse that would “add to public spending; hit school and hospital budgets; damage competitiveness; hammer small businesses…and discourage people from adding to their training…Above all, it will cost jobs. That is why we oppose it”.
Damian Green, once seen as the de-facto deputy prime minister, dubbed the NMW “immoral”, arguing that it would “discourage workers from taking low-paid, socially useful work”. He said the NMW: “deludes people into thinking that it is an attack on poverty. It will not reduce poverty.”
Shaun Woodward, who would later cross the floor to join Labour, warned: “workers will pay for it with their jobs.” John Bercow, now Speaker of the House, argued that the NMW: “is bad for small business, bad for investment, bad for competitiveness and bad for exports and jobs.”
Tory opposition allowed Labour to claim they were now the party of business. Ian McCartney closed the debate for the government: “Few businesses support him (Redwood) ; they have all deserted the Tories. Businesses want to get on and succeed, and to produce quality goods and services. They are sick and tired of being undercut by the cowboys.”
The battle to halt the NMW moved onto the Lords, where the Tories used their sizeable muscle to thwart the bill. By 1998 Blair had yet to reform the Upper Chamber and remove hereditary peers. It meant that the Lords, by a majority of 58, forced the government to make exemptions from the NMW dependent on regions, industries, business sizes, and age-groups.
The lead campaigner, Baroness Miller of Hendon claimed to be preventing “a horrendous mistake”. Ian McCartney responded: “the site of hereditary peers…trying to deny the NMW is the greatest boost yet to Labour’s desire to eradicate hereditaries”
Heaping further pressure on Gordon Brown, the Tories enlisted the business community to support their cause. The CBI estimated that the cost to industry of a £4.25 a minimum wage would be £5.7 billion at a loss of at least 100,000 jobs in the short-term. The CBI had once claimed: “even a low minimum wage would reduce job opportunities and create major problems for wage structures in a wide range of companies”.
Tony Blair was unrepentant: “These are the people who opposed a national minimum wage at any level. These are the people who are happy that hundreds of thousands of people are paid below £3 an hour, £2.50 an hour. These are the people who believe you can build an economy on sweatshop wages. This side does not.”
When the bill returned to the Commons, John Redwood again argued that the government should not intervene in the free market. Among his key concerns was a possible wage explosion, as companies were pressured into matching the enforced pay-rises by jealous co-workers.
Despite the Tory opposition, the National Minimum Wage Act was enacted on July 30th 1998. The legislation would apply to all employees regardless of their sector. Set at a modest level of £3.60 per hour, the government aimed to start low and evaluate its effect over time. When the law came into force in April 1999, two million people received a pay rise overnight. It was estimated that 10% of all women workers benefited from the rise.
Over the next few months, the economy continued to grow and the job losses failed to materialise. By February 2000, the Tories had been boxed-in by the immediate success of the policy and promised a review of their position. It set Hague on a collision course with Redwood, who maintained a belief that 250,000 jobs would be lost through the red tape attributed to its implementation.
Hague recognised that it was a losing battle. He pushed Redwood out. It would be another hard-Brexiter in Michael Portillo who would take up the task of shadowing Gordon Brown. Portillo immediately surprised Tory MPs with a u-turn on the NMW. Just three years previous, he had claimed: “the minimum wage is a truly immoral policy. It masquerades as something caring but will actually damage people. Its main benefit will be to the better off. The worse off will lose their jobs.”
Now Portillo argued: “at the modest level at which it has been set by the government… The minimum wage has caused less damage to employment than we feared”. It was a clever piece of politics, and fed into a perception on the left that the NMW had been set too low. A week after its introduction, Unison organised a rally against the government to force them to increase the rate.
Despite pledging not to reverse the policy, the 2001 Tory election manifesto made no reference to the NMW. Public fears remained that they would dismantle the policy at the first opportunity. It would take the real ‘heirs to Blair’ – David Cameron and George Osborne – to fully convince the country that the party supported the NMW. Cameron used an early speech to claim: “the minimum wage has been a success…it turned out much better than many people expected, including the CBI”.
There is still opposition within the Tory ranks to the NMW. Key Brexiters Andrea Leadsom and Dominic Raab have argued for small businesses to be exempted from the NMW in order to stimulate jobs. Even though Raab now has the power to negotiate employment rights away as he moves towards a Brexit deal, he will struggle to sneak it past the electorate.Twenty years on from its introduction and it is hard to envisage Britain without the NMW.
Ironically it is the Redwood’s, Portillo’s and Duncan Smith’s of this world who were so concerned about rising unemployment in the 90s that now dismiss business fears about Brexit as Project Fear. Back then we knew within weeks that their fears on the NMW were hype and bluster. The true effect of the Tories Brexit is going to take us a little longer.