Matthew Hancock MP: A modern Conservative party must be on the side of the low paid

Matthew Hancock is the Member of Parliament for West Suffolk and Minister for Skills in the Departments of Business and of Education. Follow Matt on Twitter.

I used to be an economist. Worse, for a while I was an economic forecaster. My only defense was that I was young and naïve. But while forecasters may have been invented to make astrologers look good, there’s another aspect of the economists’ trade which makes me cringe: the idea that low pay is a necessary evil of globalised competition.

There are some on the right who argue, rightly, that Britain needs to be more competitive but then argue, wrongly, that lower labour unit costs are the way to get there. This argument makes the fundamental mistake of treating labour unit costs as a means to an end rather than an end in itself. After all, one person’s labour unit costs are another’s wages, so low labour costs are just a euphemism for low pay. But pay means prosperity - which is the whole point of becoming more competitive in the first place. Higher pay does not make a country less competitive, it makes it more prosperous.

Then there are those on the left who make the opposite mistake, they accept the importance of higher pay, but they reject competitiveness as the route to get to it. They argue that higher taxes or more borrowing are the route to higher pay. But this ignores the crucial question of where the pay – the prosperity comes from. We have no God-given right to pay and prosperity higher than most of the rest of the world. We have to earn it, not borrow it from our children.

For me, tackling the root causes of low pay are what being a modern Conservative is all about. Of course a modern Conservative Party also needs to be comfortable with modern Britain. We must constantly reassert our strong and heartfelt commitment to public services: we must be passionate about an NHS free at the point of delivery, and about raising standards in education for all. And we must recognise Britain’s social and cultural changes. Today, the Tories are the energetic, forward-looking party, excited by new technology, optimistic about the future. Where once we’d campaigned against phone masts, now we’re rolling out superfast broadband across the country, for example. But being comfortable with modern Britain isn’t enough.  A modern Conservative Party is, must be, and must be seen to be, on the side of the low paid.

This means being fair in the way we share the responsibilities of deficit reduction: that we are all in this together. The biggest burden rightly falls on those most able to bear it, with the top ten per cent bearing the greatest burden, so that in 2010/11 inequality actually fell sharply to a level last seen under the last Conservative Government. It’s also why raising the tax threshold is such an important policy: so if you’re on the minimum wage your income tax bill has been cut in half.

Where we directly control pay, in Government, the public sector pay freeze has excluded those earning less than £21,000. Our public sector pension reforms benefitted the lowest paid, and the highest paid took the greatest hit.

But we also need to tackle low pay across the economy, outside areas directly under Government control. And here the policies of the centre right are best placed to deliver.

Being a modern Conservative Party means ruthlessly supporting each and every person to reach their personal best, which where the modern, inclusive, social policies, and the economic policies, become intertwined.

Because we cannot compete unless every person reaches their potential. And the best way to do that is by radical education reform.  Nor can we deal with our deficit without tackling the social injustice of youth unemployment. And that means radical welfare reform, supporting those who work hard and want to get on in life. It’s why we are bringing in measures like Traineeships announced today, and high quality Apprenticeships to give all young people the skills they need to get a job, and then a better paid job.

The only way to compete in the global race is to tackle low pay by tackling low productivity, to ensure globalisation is a race to the top, not a race to the bottom. That’s not just an economic challenge but a vitally important social challenge too.

Supporting the low paid in this way means tackling immigration. While challenging for some businesses, it is right for the low paid whose wages were undercut. It means building housing by reforming planning, so people can afford to buy a home. It means passionately supporting the minimum wage, and indeed strengthening it, as we did when we introduced the Apprenticeship minimum wage.

Capitalism is always stronger when the link between effort and reward is stronger, at every level of the income scale. That’s why, in the past, I’ve railed against rewards for failure for the highest paid.  Now we must deliver rewards for success for the lowest paid. Supporting those who want to work hard and get on in life: that is modern Conservatism in action.