How Theresa May can help those “just about managing”

How Theresa May can help those “just about managing”

17th November 2016

If you’re “just about managing” this is a government that has put itself firmly on your side. Ministers now use this phrase as a shorthand way of describing a group of voters who might not live in the poorest communities or suffer the greatest social disadvantage but find that life seems to get harder and harder.

In her first comments as prime minister, Theresa May said: “When it comes to taxes, we’ll prioritise not the wealthy, but you.” This change will help to achieve this and see money go directly into the pockets of people who are reliant on in-work benefits, in other words those who are just about managing. Whilst I unreservedly welcome her remarks; the outstanding question is how to deliver on them.

First, to help those who are struggling to get by the government should re-examine cuts made to Universal Credit contained in last year’s Budget. In 2015, £3.4bn was cut from work allowances contained within the Universal Credit budget, a move which led to three million low paid workers seeing a £1,000 reduction in their income and which further undermined incentives to take on more hours in paid work as money is clawed back by the state.

The Chancellor has an opportunity in the coming weeks to demonstrate the government’s support for the “just about managing” and pay for it by raiding the planned increase in the personal allowance income tax threshold.

Every penny invested in Universal Credit goes to low-paid workers. In contrast, only 25 pence of every £1 invested in the income tax personal allowance goes to this same group. Investing in Universal Credit is a far better way of supporting those who need it most, removing punitive barriers to working additional hours or taking on better paid work.

Second, the prime minister can now begin to reconfigure our economy to fix our low levels of productivity to help the low paid earn more and get on. No single silver bullet exists that would solve our productivity crisis, it requires intelligent and integrated policy that addresses the many areas of economic and social life that have contributed to the productivity slowdown.

Low productivity rates are a component part of stagnating wages. Over recent years the UK has seen a collapse in income growth for voters in the 30th percentile from 5.8 per cent between the years 2002-2007 to 2.3 per cent from 2008 to 2014. At a national level UK productivity growth has slowed considerably since 2007/8 to the point where we have the second slowest growth rate in the G7.

The government has re-introduced the phrase “Industrial Strategy” into the political lexicon. In developing a large scale national plan for our economy any industrial strategy should be re-pointed to help low paid workers develop new skills and earn more per hour.

In other countries government intervenes to help businesses invest in skills, training and developing the national workforce. This in turn helps those in employment in low paid roles seek to take on new responsibilities and move up the income ladder. Alongside new large scale infrastructure, targeted at areas where the decline in traditional economies has hit hardest and incubating the industries of tomorrow, we can reverse our productivity decline.

Lastly the prime minister needs to get Brexit right for the “just about managing.” This means achieving a settlement on migration that improves opportunity for those who want to take on more work and find better paid employment.

The impact of immigration on wages for low and semi-skilled workers is stark. The Bank of England estimates that for every 10 per cent increase in immigration in low or semi-skilled jobs wages in those jobs are reduced by 2 per cent. This downward pressure on pay is felt most acutely by the very group Theresa May is seeking to help most.

The simplest solution would see EU nationals looking to come to the UK for work subject to a system of work permits which already exists for non-EU migrants.

Where the issue of a permit is being considered, the Department of Work and Pensions regional Job Centres could be involved to check whether there is actually a shortage of UK labour in that area or in a specific town before issuing permits to business. The new Universal Credit system and Universal Job Match systems ensure that the DWP now has readily available information on what skills are available in the working age population in the relevant travel to work area and nationally.

Government is never short of ideas, there will no doubt be plenty of informal advisors offering their own bespoke solutions to help the government match its rhetoric with action. The three point plan above covers some of the biggest policy levers the government has available to help increase the pay packets of those who find life is increasingly difficult. The prime minister has, I believe, the opportunity to build on the ground breaking reforms we initiated to ensure the UK leads the world in ensuring the economy meets the needs of the many not just the few.

Now that would be a lasting legacy.

This article originally appeared on Prospect Online.