Wage rises that spark inflation end up hitting poorest

Wage rises that spark inflation end up hitting poorest

Published: 21st January 2014

I AM not in favour of a statutory living wage, but I am in favour of raising the minimum wage.

A rise in the minimum wage, as national wage growth returns, fundamentally leads to a smaller state, as has been outlined by Labour MPs.

Now that the Government has reduced business taxes – national insurance, corporation taxes and small business taxes – the time is right to look at how we can create a sustainable growth in the wages of the lowest-paid by giving the taxation that the Government were taking back to the people who are creating the wealth in companies.

That means that the potentially inflationary pressures will not occur because the Government are not taking tax from a company just to give it back to a worker.

Let us talk about the problems of falsely increasing wages and go back to the 1970s. In 1975, my parents, who were young teachers, were given a 25 per cent pay rise under Harold Wilson and were delighted with it.

Twelve months later they suffered a three per cent pay cut because inflation had gone up to 28 per cent. We also remember the then Labour Chancellor, Denis Healey, demanding wage restraint at the Labour party conference, only to be booed by the floor.

Wage inflation creates a real problem for people on fixed incomes who have worked hard their entire lives and paid into private pension funds, only to then see them eroded by inflation running out of control. For example, in 1965 my great uncle retired at the age of 65 on what was then a very reasonable pension of £15 a week. By the mid-1970s, it was absolutely worthless.

If we go ahead with wage inflation in the way suggested 
by the Labour Party without linking it to cutting taxes for business and making sure that it is sustainable, we will end up, as Neil Kinnock said, with a Labour council running around the city in taxis, giving out redundancy notices.

It is fundamentally evil to introduce policies that create inflation which people who are on fixed incomes and who have worked hard all their lives are unable to keep up with.

Such policies must sound very good to the Islington elite as they sit around their dinner tables and say: “Let’s talk about a living wage. We must have a living wage.”

It is notable, however, that Labour’s motion does not encourage the Low Pay Commission to look at a living wage.

Conservative MPs accept the lessons of the past. Our party accepts that it was wrong to oppose the minimum wage. The Chancellor, the Prime Minister and many Conservative Members have made that clear. Indeed, we are a party of young people from normal backgrounds these days.

The trouble is that the Conservative Party is the party with working-class people in it and the Labour Party is full of failed polytechnic lecturers. The fact is that their philosophising and great ideas that sound good around the table have a real impact on the lives of people at the bottom of society.

Those who cannot afford to keep up with inflation because their income may not rise with it need proper, sustainable policies.

One such policy is the opportunity we have taken in this economic climate to cut taxes on business and cut the national insurance contributions of business leaders and employers, followed by making sure that those tax cuts go back to the people who create the wealth in the first place. That is a sustainable and sensible policy and a long-term economic plan.