David T Breaker expands on his conversation with Betapolitics

Nick (@Betapolitics) blogged on these pages earlier about his recent Twitter discussion with me (@Davidtbreaker) regarding the “living wage”, and how these internal party discussions show that coalitions are nothing new. On this point I very much whole-heartedly agree; we are the party of Disraeli and Thatcher, Heath and Churchill, but all are held together by the common bond of an over-arching umbrella of conservatism, an impossible to precisely define world view that works remarkably well as a governing philosophy.

I must however disagree that there is “a tug-of-war going on between economic liberal Thatcherites and the socially orientated Disraelite brigade…[over] where Conservative priorities should be, in fostering a Big Society or promoting small government?” I feel particularly strongly on this issue because, generally, I’m part of both so called factions – an economic libertarian cheerleader for the Hilton/Letwin Californian style of thinking, a believer in a small state and a big society. Neither being economically liberal nor being a Disraelite are mutually exclusive; indeed a big society needs a small state, and a small state needs a big society.

The living wage argument is a case in point.

Advocates of the Living Wage assert that there is a moral, social and economic case for a Living Wage set by Government to increase the living standards of the low paid. Unfortunately life isn’t that simple. Increasing minimum wage levels increase the costs of employing staff, reduces demand for labour and leaves more people out of work. That is no way to run a country.

That doesn’t however mean that there isn’t a case for improving the living standards of the low paid – because there is – it just isn’t an arbitrary, flat, labour demand reducing wages policy diktat.

If Conservatives are genuinely keen on improving living standards we must use conservative means rooted in economic reality to achieve our social ends. We may share desired intentions with it, but the Living Wage is a simplistic socialist means to those ends. A simple socialist means best left to simple socialists.

The liberal-conservative way to increase wages is the market – indeed it is the only way to genuinely do so – and comes in a three pronged attack. Increasing the demand for labour, reducing the tax burden on low income earners, and reforming welfare.

Tax reform could boost labour demand by abolishing Employer National Insurance Contributions – reducing real wage bills, making the UK more competitive – whilst manufacturing could be boosted further by shifting the tax burden from production (paid only by firms manufacturing in the UK) to sales (paid fairly by UK and foreign firms). Increasing demand for labour through a thriving economy – facilitated by this kind of low tax, deregulated, pro-enterprise free market – and also reducing the labour supply through controlled immigration, is the genuine way to increase pay. It’s supply and demand. Take home pay could be further boosted by cutting Employee NIC, increasing income tax thresholds and lowering rates.

There are then conservative means to increase the incomes of the low paid beyond the market. Welfare reform to make work pay, perhaps topping up wages of the low paid, or perhaps – more radical yet – a Negative Income Tax.

My point, I guess, is that the conservatives are united in our aims. What we mustn’t let happen is allow issues such as the Living Wage tear us apart by conflating means and ends. And as for those such as myself more rooted in economic liberalism, we need to start promoting economic liberalism as a means to social ends.

David T Breaker blogs at www.davidbreaker.com as well as ConservativeHome, and is @Davidtbreaker on Twitter.

Coalitions are nothing new. The main political parties in Britain have always been coalitions of compromise between separate groups, competing to dominate decisions over direction. The Conservatives contain economic libertarians who are social authoritarians, and social liberals who back a certain amount of state intervention. Some of us believe that decisions related to the environment are the most important we will take. Others are convinced that environmentalism is as scientific as astrology. But, while these factions lean in different directions, all our feet are firmly rooted together in the cause of conservatism. The ‘wets’ backed Thatcher in the same way she and the neo-liberals publicly supported the actions of the Heath Government.

Currently there is a tug-of-war going on between economic liberal Thatcherites and the socially orientated Disraelite brigade. Where should Conservatives priorities be, in fostering a Big Society or promoting small government?

Earlier in the week my Platform 10 colleague, David Skelton, blogged about the need to embrace the ‘living wage’ campaign. This led me to have a twitter debate with Conservative Home contributor David Breaker, which highlights the broader debate happening in the Party.

@davidbreaker

Worried by Tories such as @DJSkelton advocating a wages policy under new moniker #livingwage.

@betapolitics

There should be balance. Where business doesn’t get it right, it’s ok to put pressure on. Morality has a place in capitalism.

@davidbreaker

The issue isn’t “morality” or “balance”, the issue is that it’s wrong for Gov to decide what you can/cant offer as a wage.

The “balance” should always be decided by individual people and individual employers. The Gov has no role dictating wages.

@betapolitics

What happens to others affects the society I live in. It’s wrong to remove ‘morality’ from decisions. Especially with cash.

Politicians should deal with what concerns people. Nothing is out of bounds, certainly not the markets.

@davidbreaker

No, lots of things should be out of bounds. Gov must always respect individual freedom over tyranny of majority

Why is a “living wage” moral anyway? Setting higher minimum wage reduces demand 4 labour, meaning more unemployment!

And what happens to others is their business, no one else. Living wage will leave people out of work.

@betapolitics

Tryanny of the majority could be interpreted as tyranny of those who have the majority of resources.

People are free to join together, pool their power, and lobby for what they think is right.

Everyone in an organisation should profit from success. Millionaires paying subsistence wages doesn’t feel right.

@davidbreaker

Not everyone running a business is a “millionaire” and so what if they are, its their company! Don’t like wage? Don’t do the job.

If everyone should profit from success, should everyone pay for failure? And isn’t having a job at all a form of profiting?

Help low income earners with lower taxes & bigger allowance. Tapered benefits. Maybe a negative income tax.

It is obvious that on some things, in particular the role of the state in markets, David and I will always disagree. But I also know that there are many matters where we are strongly united. Having such internal debates, which encompass the spectrum of the party, allow for ideas to be tested and developed, thus strengthening our ability to govern. Sometimes you may lose the argument but through being together we all win by having an inclusive party that is able to make the best decisions for this formidably complicated organism know as society. Political parties are at their strongest when they are broad and inclusive. No single doctrine has an infinite monopoly on the truth.

Being in coalition government with the Liberal Democrats is a new factor in this battle of ideas. It will be interesting to observe how this situation will impact on our internal debates. If the Lib Dems start to join us in these conversations, rather than having their own separate strands, it will be a sure sign that we are moving towards a deeper arrangement.

Just for the record, as there seems to have been doubt in the past – I am a Conservative. I am not generally someone who is in favour of restricting people’s potential in any way. But I like today’s idea on restricting public sector salaries. There was a really interesting profile about John Lewis a few weeks ago, which mentions the idea of multiples – and for example, every partner there (ie every single person working there) gets the same percentage bonus each year.

I cannot see how many public sector employees have more responsibilities than the Prime Minister, and yet there are 31 council employees who earn more than him, and 323 across the public sector as a whole.

Most people, most of the time, do not choose a job just because it pays well (though I admit that, despite my non-facility with numbers, I was tempted by banking while at university because a friend was given a firm job offer and took the letter to her bank who gave her an enormous overdraft on the strength of it…) – most who have the choice will choose something with a bit of challenge, a bit of comfort zone, a bit of potential and a bit of vocation.

Politically the clever thing here is to restrict it not with a blunt cap (you’d just see higher bonuses, or even bigger pension contributions, or some other cunning plans) but to ensure that public sector pay is fair by only allowing a multiple of the lowest pay rank to be paid to the highest-paid.

Clearly there are still some quirks to be ironed out. But the general principle of fair salaries in the public sector is a good one. It makes for a more sensible use of public money, and it will eventually make for a more cohesive workforce. Who knows, some public bodies might even raise the lowest salaries instead of cutting the highest ones…

In American politics, it all too often looks like tribalism, political positioning and gridlock are the order of the day – with all too little actually getting done.  Last week, this impression was fundamentally left for dust as Barack Obama succeeded where mighty predecessors, such as Teddy Roosevelt, Harry Truman and Bill Clinton had tried and failed before him – with the passage into of health care legislation.  Despite Republican fear mongering and scare tactics of the worst kind, the legislation designed to help the most vulnerable in society became law.

With one stroke of a pen, Obama today signed into law the most important piece of domestic legislation, benefiting poorer Americans, since LBJ left office.  Obama was elected on the promise of reforming healthcare and he has delivered on that promise.  After eight years of Bush’s Presidency that saw the divide between rich and poor widen; the economy reach its lowest nadir since the disaster of Hooverism;  and the number of Americans without health insurance sky rocket, it is greatly heartening to see health care pass.  It is legislation in the great tradition of William Jennings Bryan and Franklin D Roosevelt, Harry Truman and Lyndon B Johnson.

At the same time as Obama is delivering on his campaign promises, the Republicans have grown further and further away from the traditions of Lincoln and Teddy Roosevelt.  The campaign against health care reform was, all too often small minded and petty – driven by a bandying around of words like ‘socialism’; an irresponsible use of scare tactics such as Sarah Palin’s ‘death panels’; and an increasingly primitive ideology.  They are further away from the election winning centre ground than at any time since Barry Goldwater’s humiliation.    I have seen little evidence of opponents of healthcare reform coming up with suggestions about how to deal with the issue of 30 million plus Americans without health insurance or the problem of sky rocketing health care costs.  I have seen little evidence that they are concerned with Americans losing their homes because of the cost of healthcare.

It is time to stand back and salute a tremendous achievement on the part of President Obama.  This was the week when ‘Yes We Can’ became ‘Yes We Did’.

On Friday, the Office for National Statistics raised its estimate of the economy’s growth in the fourth quarter of last year from 0.1% to 0.3%. This is, of course, good news, but the most interesting growth question at the moment is not “Are we up or are we down?” but “How likely is it that the economy will expand enough in 2010 to prevent big rises in unemployment?” Unfortunately, there is no reason to think anything more than “unlikely.”

Since the recession started many firms have asked their employees to work fewer hours or take pay cuts. This bargain has been underpinned by employers hoping that demand for their goods and services would pick-up again, and that their staff needed to take the partial and temporary hit of a poorer job in order to avoid the big hit of not having any job.

In the jargon, someone who is working but wants to do more hours is “underemployed”. There will always be people who want to work more, but there has been a big rise in their number recently. In the year to the third quarter of 2009, 605,000 extra people declared that they were underemployed when the Office for National Statistics asked them about their job status. It is this group that is under threat from growth not being good enough to keep them in work.

This is worrying, not least because many of them will have to claim unemployment benefits when they do fall out of work. As a Policy Exchange report out this week will show, they will fall into a welfare-induced poverty trap that can make working look like a bad idea. Some claimants will, when they see how their benefits are withdrawn when they move into work, realise that they are likely to end up working for less than £1 per hour. Would you work for that?

Lawrence Kay is a Research Fellow in the Policy Exchange Economics Unit. “Escaping the Poverty Trap: How to Help People on Benefits in to Work” will be out this week.