Labour Market

Scrap the Low Pay Commission, not dishwashers

Assaults on economic freedom come so thick and so fast it is difficult to keep up with them. Here are two recent ones.

Chancellor of the Exchequer and once-upon-a-time free marketer Sajid Javid was busy at the Conservative conference. He signed off a huge amount of extra spending without any apparent attention to detail, just to boost the Tories’ electoral prospects. But the thing that caught my eye was his plan to raise the National Living Wage (NWL) to £10.50 an hour and broaden its scope to cover all aged 21 and over, at a time when the UK economy’s prospects are doubtful, to say the least.

As the IFS’s Paul Johnson points out, this is just a brazen attempt to outbid Jeremy Corbyn’s plan to raise the NLW to £10 an hour.

I don’t believe governments setting minimum wages do anything very much to relieve poverty (a high proportion of beneficiaries are students, the semi-retired and part-time second earners in households). It damages smaller businesses and the prospects of labour market entrants, particularly those with low skills or other disadvantages. But if you must have a minimum wage, you need to look carefully at labour market conditions when you recommend rates. This is a responsibility which the Low Pay Commission (LPC) has discharged with some distinction for the last twenty years or so.

I don’t often feel nostalgic for Gordon Brown or Alistair Darling, but whatever their other faults, these two New Labour Chancellors recognised that raising minimum wages is a risky business and largely deferred to the LPC’s cautious recommendation.

Mr Javid is now the third Chancellor in succession (after George Osborne and Philip Hammond), to ignore the Low Pay Commission and pluck a number out of the air to set wages for millions of low-paid workers. Clearly the LPC no longer serves a purpose and we should save the few millions of pounds a year it costs the taxpayer. If Mr Javid or his successors need a fig-leaf of economic respectability for whatever they want to do, I’m sure that the overstaffed Treasury can oblige. It’s used to making up numbers to serve a political purpose.

Talking of scrapping things, our dishwasher broke down recently. As I have the mechanical skills of a newborn, we got a bloke in. The estimated cost of repair was astronomical and so we ended up buying a new one. The European Commission, which works night and day to produce new rules about everything, has decided that household appliances must last longer, and that replacement parts must be made available.

All well and good, you may say. But, as my regular correspondent Paul Fear points out, the Commission has been prevailed upon to require that spare parts for lighting, washing machines, dishwashers and fridges should only be made available to registered repairers and not to mechanically-minded amateurs. This obligation will almost certainly apply in Britain irrespective of Brexit.

As I say, I’m the mechanical equivalent of illiterate, but I know many people who can repair just about anything. As Paul suggests, limiting sales of parts to licensed groups is probably the result of lobbying.  It’s yet another example of the way in which governments support occupational exclusivity and raise costs to the public.

In the USA, where occupational licensing is even more prevalent than here, some states have cottoned on to this problem and instituted ‘right to repair’ legislation which requires manufacturers to offer spare parts more widely.

By reducing competition for registered repairers, the European Commission could paradoxically make it more likely that people will scrap white goods rather than repair them – the exact opposite of what it wants to achieve.

So the slogan of the day is ‘scrap the LPC and don’t scrap dishwashers’. You heard it here first.


Editorial and Research Fellow

Len Shackleton is an Editorial and Research Fellow at the IEA and Professor of Economics at the University of Buckingham. He was previously Dean of the Royal Docks Business School at the University of East London and prior to that was Dean of the Westminster Business School. He has also taught at Queen Mary, University of London and worked as an economist in the Civil Service. His research interests are primarily in the economics of labour markets. He has worked with many think tanks, most closely with the Institute of Economic Affairs, where he is an Economics Fellow. He edits the journal Economic Affairs, which is co-published by the IEA and the University of Buckingham.

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