Warning on stalling factory pay in North as City’s salaries soar

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STAGNATING wages in the manufacturing sector and soaring pay in the City are further exacerbating the North-South divide, a study has warned.

Experts from Sheffield University say there is no evidence the economy is rebalancing towards manufacturing, with both pay and skills declining in the sector.

Manufacturing is concentrated in the North and Midlands but their report claims the coalition’s growth strategy favours big business in London, despite Ministers hailing the “march of the makers” as the key to future growth.

The findings come amid reports Ministers could back a substantial rise in the minimum wage to combat Labour criticism over declining living standards.

Analysis for Downing Street is said to suggest a 50p an hour increase could save the Government £1bn, as people pay more tax and claim less benefits.

The study by the Sheffield Political Economy Research Institute said there was no evidence the economy was rebalancing towards manufacturing, with both pay and skills declining in the sector.

It warned falling pay could leave the sector in danger of becoming a “rump”, both smaller and less productive. In contrast, pay in the finance and insurance sector was soaring once again, and the gap between financial services and manufacturing pay increasing.

Research fellow Craig Berry said that while pay in the housing and property sector remained behind manufacturing, there was evidence it was catching up, which could mean skilled workers moving to a relatively low-skill sector with poor job security where they can earn more money.

He added: “In 2011 George Osborne promised a ‘march of the makers’ as part of economic rebalancing.

“But the latest evidence on pay suggests that the UK manufacturing sector is becoming less productive relative to other sectors, and is characterised by low-skilled work. At the same time, the City has returned to business as usual.

“The failure to rebalance the economy in terms of sectors also represents the failure of geographic rebalancing. The manufacturing sector is concentrated in the North and the Midlands, but the Government’s growth strategy appears to favour the London-based finance and real estate sectors.”

Supporters of improved low pay have already backed measures to offer the living wage of £7.65, calculated on the amount needed to ensure people can provide a decent standard of living.

Last year, Liberal Democrat Business Secretary Vince Cable asked the Low Pay Commission to consider whether the current £6.31 minimum hourly rate for adults can be pushed up, after falling 10 per cent in real terms since the 2008 credit crunch, although he has said the universal adoption of the living wage could cost up to 160,000 jobs.

The Conservatives have been struggling to find a riposte to Labour’s argument that ordinary workers are not feeling the effects of wider economic recovery. Cabinet Office minister Oliver Letwin is said to believe a strong move on the minimum wage would prove the party is not just “posh boys who don’t know the price of milk”.

The cost for employers could be offset by cuts in national insurance. The commission is due to report by the end of next month. Ministers can overrule its findings, but they have done so only twice – including last year when they opted for a higher rate for apprentices.

Mr Cable said: “The national minimum wage strikes a key balance between protecting the low paid and making sure they can find work. But as the economy starts to recover, the benefits of growth must be shared fairly and equally by everyone.”

Council chiefs in Scarborough have adopted the living wage and urged others to follow suit. They will in future give businesses that pay the living wage preference during procurement.

In York, the city council, the Joseph Rowntree Foundation and Housing Trust and York Citizens’ Advice Bureau are among those joining insurance giant Aviva, which already pays the living wage, in a coalition to encourage more employers to take it up.