Minimum Wage Increase Positions Osborne for Leadership

His support for a higher minimum wage is part of George Osborne’s plan to lead the Conservatives.

Britain’s coalition government has already had a remarkably busy new year on the economic front, with announcements about wholesale changes to the country’s financial map. The man largely at the center of all of this is Chancellor of the Exchequer George Osborne. Coming off a banner 2013 in which The Times named him “Briton of the year,” he has moved from topic to topic and done more to shape the look of his Conservative Party in recent months than even the prime minister, David Cameron. Among other things, he has proposed a £25 billion spending cut, given the European Union a stern talking to about reform and, most recently, promoted a minimum wage increase.

Osborne started January by warning that 2014 will be a “year of hard truths” and he promptly infuriated many of his Liberal Democrat coalition partners by proposing a £12 billion cut for housing benefits to Britons under the age of 25 and recipients otherwise too wealthy to receive government subsidies.

While cutting housing benefits is not a bad idea in and of itself, it fails to address the largest component of government welfare spending — pensions. Indeed, pensioners receive 50 percent of the country’s entire welfare budget but have been declared off limits for spending cuts.

Osborne’s plan also takes a narrow view of opportunities for budget cuts, failing to focus on the raft of government spending earmarked for other projects and programs, such as developmental aid — a fact pointed out by London’s Conservative Party mayor, Boris Johnson.

But whereas pensioners straddle party lines and many may vote Conservative, public housing residents do not and alienating them is hardly a major concern of the current government. Of course, not present in Osborne’s speech of hard truth was any plan to cut benefits enjoyed by his party’s supporters. A Conservative chancellor discussing difficult policies and then applying them only to people outside his party’s voter base is cynical at best and channels political calculation instead of sacrifice.

George Osborne has also used this month to speak harsh words to the European Union. He told Euroskeptic members of Parliament that the body must “reform or die.” What this means in reality to the chancellor and members of his party is for the United Kingdom to have the right to veto any European law which it opposes. This is untenable and would not be accepted by the other member states, as even William Hague, a former Conservative Party leader and now foreign secretary, has pointed out. But this is exactly the right note to play in winning over both his own party and Euroskeptics in the more right-wing United Kingdom Independence Party.

Osborne also advocated general Conservative Party economic principles: Europe should reduce borrowing rates, welfare spending and taxes. All of which sounds fine in principle but seems to fail to recognize that other European countries, much like Britain, are seeing a great deal of their welfare spending going to pensioners. This is fundamentally more of a demographic problem than one of fiscal waste. It also seems to blatantly ignore market behavior for political point making. As spreads on ten year Spanish government bonds show, even the European economies in the worst shape are able to borrow relatively cheaply. In Spain’s case, it is matching its 2010 borrowing rate — before the crisis really took off in that country.

In comparison to both his plan to cut welfare spending and his remedy for the European Union, Osborne’s support for an increase in the minimum wage seems bewildering. This would see it rise to £7 pounds per hour, adjusting it over its loss to inflation for the past five years.

Some of this is straightforward economics: more money in more people’s pockets should see more activity in the British economy while diminishing overall welfare outlays.

But the Conservatives are usually skeptical of minimum wage increases, fearing job losses as a result. They even opposed the mere introduction of a minimum wage in 1999. Osborne’s move is a noteworthy break from the past.

It must be seen within the context of an emboldened opposition Labour Party that is proving popular with many British voters by advocating populist economic policies, such as freezing energy rates and confiscating private lands to build houses on.

A minimum wage increase could also give the Conservatives’ coalition partners something to take home to their base; this in a partnership that has seen the Liberal Democrats lose many of their supporters’ faith.

But what all three proposals amount to is really a concerted effort by Osborne to place himself as the next logical leader of the Conservative Party. He appealed to Conservatives’ Euroskeptic fervor with his speech on reform, managed to push his agenda on budget cutting without taking anything from his supporters and then still appear magnanimous and appealing enough to the average voter by promoting a minimum wage increase — one that happens to correlate closely with the Confederacy of British Industry’s call in December for businesses to raise wages