Impact of a National versus Regional minimum wage

There are suggestions that Gordon Brown is developing plans which would see the national minimum wage vary by region by region across Britain. This move away from a national minimum wage to a regionally based minimum wage appears to have been informed by academic studies which suggest that having a single minimum, currently £5.35 an hour, right across the UK, is uneconomic.

One Union has quoted a senior Labour Party source as saying that a “regional minimum wage” was the “logical next step” after Mr Brown’s announcement as chancellor four years ago that regional price indices would be published to show variations in inflation rates across the country.

Of course this simply illustrates once again how narrow economic analysis which fails to take account of broader social, political and economic factors can lead us up the garden path and to policy decisions that are patently perverse.

One of the great deficiencies in the performance of the UK is the imbalance of economic activity across its regions and countries. The South east, typically, suffers from pressures of lack of housing, over demand for services and has a very dynamic economy. At the same time other parts of the UK can languish far behind and often seem to be failing to reach their full potential.

Any sensible and long reaching view of policy would want to begin to spread economic activity out more evenly across the country, taking some of the pressures away from the South east and driving activity more towards the northern regions of England and into Scotland and Wales.

At first sight it might seem that having a lower minimum wage in areas outside the South East might do this. would it not make these other areas more attractive for employers.

That is certainly one factor but the problem is that other factors come into play. One reason that the south East is such an economic hot house is because this is where people tend to gravitate to. And where the people go the House prices rise and services follow and the economy booms.

Having differential minimum wages across the UK will simply further entrench such inequalities. Anyone who can will continue to move towards the economic hot-house of the South east because that's where the people are, that's where the jobs are and you also get the benefit of having a higher min mum wage. so the policy becomes quite perverse in its effects and simply makes the differences in economic performance between different regions more entrenched.

In June 2006, Brown declared in his Mansion House speech: “Britain will have to become a more flexible economy – more ready to change, with more local and regional pay flexibility, better equipped for the long term, with more focus on the jobs and skills of the future.”

A recent report from The Economic Research argued that northerners should receive lower unemployment benefits and be paid a less generous minimum wage.

The council’s study, which used a raft of official labour market and price data, said the minimum wage for Londoners should be boosted to £6.90 an hour. It also said the level in the north-east should be cut by 57p to £4.78 an hour, while workers in Yorkshire should get a minimum of £4.95, employees in Northern Ireland should be paid at least £4.80 and those in Wales more than £4.84. The report called for Britain to adopt a similar system to those operating in Switzerland and America, where local authorities are allowed to set benefits, the minimum wage, and the salaries of public sector workers.

It is quite astounding that a Labour government which claims to be committed to reducing inequality should be proposing a policy which will have the effect of permanently entrenching inequality between the regions of the UK.

On this issue it is time for Scottish Labour party to stand up and take a lead.