Power Failure

In a period dominated by big ‘P’ politics, there has been an important – and concerning – change to recent policy-making: the social partnership model of the Low Pay Commission (LPC) has begun to crack.

This started with the decision made by the Coalition in March this year to ignore the LPC’s advice on the apprenticeship minimum wage, by raising it higher than recommended. It continued with Labour’s manifesto pledge to increase the minimum wage to £8.00 by 2019, pre-empting any advice from the LPC. The SNP then raised the bidding in its own manifesto, pledging £8.70 by 2020.

The LPC was set up to avoid this kind of bidding war. Each year, it models the economic effects of a range of potential rates for the minimum wage, including trade-offs between wage growth and job-creation. This evidence-base is important in informing decision-making, but so too is the social partnership structure of the LPC itself.

The LPC is structured to bring together different interests – employers, trade unions and the Government – to enter into dialogue with one another before any decisions are made. This recognises that while the interests of employers and employees overlap considerably, they are nevertheless are distinct. The task, therefore, it is to consider the evidence and find answers that work for everyone.

Fundamentally this is about the sharing of power. No one has it all their own way, but the idea is that reasonable compromises are struck. As such, the LPC doesn’t seek to ‘take the politics out of wages’, it aims to manage them through reason and negotiation.

The apparent desire of politicians to set the minimum wage themselves undermines this. Suddenly, power is no longer shared and the scope for dialogue and compromise is diminished. Interest groups must lobby politicians, rather than examine the evidence and talk to one another. It is a recipe undermining the minimum wage, one of Britain’s most successful and popular policy innovations.

Rather than diminishing social partnership arrangements, Government should be extending the principle of power-sharing to other parts of the economy. For example, when public money is used to subsidise workforce training, Government should be careful to balance the interests of employers, individuals and society as a whole. It would make sense, therefore, for sector skills bodies, to evolve from ‘employer-led’ bodies to social partnership institutions, which formally represent the interests of both employers and the workforce in each sector.

Similarly, Local Economic Partnerships make important decisions in local areas, including what the priorities should be for public investment in roads, buildings and other new facilities. They too must balance different interests as they do this. However, LEPs are structured as partnerships between local authorities and businesses. The principle of power sharing implies that formal workforce representation should be added to that list.

More radically, power sharing could be applied to workplaces themselves, with the German idea of ‘co-determination’ applied to larger organisations. Under this model, employees are represented on the boards of larger companies. The idea is to encourage constructive conversations within firms, encouraging employees to take more responsibility for companies’ performance and companies to take a greater interest in their employees’ well-being. I looked at some of the arguments for this idea in my essay in this collection.

It is a moot point whether public opinion has moved ‘Left’ or ‘Right’ since the financial crisis, but one thing seems clear: there is a much greater mood of populism about British politics than there has been for many years. The best response to the idea that some companies have too much power is not to centralise that power somewhere else – in the hands of politicians and their officials. Instead policymakers should adopt Bernard Crick’s idea of politics as the means by which differing interests are conciliated by giving them a share in power. The Low Pay Commission has been a successful experiment in this; it would be a great shame if the model was lost rather than replicated.