CBI CEO calls for Living Standards Strategy to power productivity & boost wages

CBI CEO Rain Newton-Smith is today (Wednesday) calling for a Living Standards Strategy to power productivity and boost wages at a speech at the Resolution Foundation’s “Setting a high bar: Celebrating 25 years of the minimum wage” event.

See below for the full speech.

“I want to start by thanking Torsten and the Resolution Foundation for inviting me.

And for bringing together the TUC, the CBI and government…

….to celebrate the anniversary of what our organisations achieved together.

It’s not the only example of the powerful impact social partnership…

…between unions, business and government…

…can have.

I remember vividly the hard work we all did…

…developing and improving the Job Retention Scheme during Covid which helped to support over 9 million jobs. It is so powerful when unions and business stand together as a collective voice.

And today I want to talk about where I think we can use that partnership approach again…

…with not just a living wage, but a living standards strategy.

First, I want to say a bit about how the National Minimum Wage was introduced – and its impact.

It didn’t come out of nowhere – it was the result of painstaking groundwork…

… founding the impartial Low Pay Commission…

… gathering hundreds of expert submissions…

… drawing on global comparisons from countries who had already done it.

That gave the CBI at the time the confidence to back it…

…along with the TUC.

Which gave the Minimum Wage deep roots in the UK.

Since then, it and the National Living Wage, have directly and indirectly helped millions of people a year.

Most of all, as we’ve heard from Nye and the Resolution Foundation…

…it reversed the injustice…

…of earnings at the lower end of the labour market growing more slowly than the top.

Now wage inequality is falling…

…and those on the lowest wages have seen their annual pay increase by up to

£6,000.

That’s a huge achievement.

That’s partnership and evidence-led policy – delivering for people.

I don’t need to tell you though, how different the world was…

…when the Minimum Wage Act was passed in July ‘98.

Blur had just headlined Glastonbury. The Truman Show had just hit cinemas. And I

was a fresh-faced student of economics and philosophy at university.

The economy I was studying there – was a very different beast.

For 1998 as a whole, growth was 3.4 per cent – actually down on almost 5 per

cent in ’97. That’s higher than the US last year.

Inflation, too, was at just 1.6 per cent.

Compare that to today.

In January, GDP fell by 0.3 per cent on the year.

Meanwhile, inflation is still high at 3.4 – though down from over 11 per cent one-and-a-half years ago.

And we all know the events that caused that eye wateringly high inflation.

The pandemic, global supply chain pressures – and the Russian invasion of Ukraine.

All have played their part.

And all have had a severe impact on living standards.

Half of families say their cost of living is still rising.

And that’s not only those on National Minimum or Living Wage.

It’s people in the middle of the earnings distribution, who are being squeezed too.

It might be tempting to think minimum wage policies can ease that…

…but the fact is they can’t solve it alone. Improving living standards needs to go hand in hand with a long-term strategy for sustainable growth and productivity

And here we have to look at the other side of the story – the voice of business and our members.

They have been hit hard by inflation too…

…by pipeline cost pressures.

From big firms to the smallest SMEs, whose margins are often much thinner and their resilience lower…

…businesses are being squeezed from all sides.

So when the National Living Wage increased last April…

…nearly half of firms affected told us they had to pass it on in price rises.

And more and more members are worried about the increase next month.

How they can accommodate it against a weak economic backdrop…

…and growing pressure on their bottom line.

All that pressure also means firms don’t have the headroom to invest…

…To spend on the tech and innovation that can actually raise productivity.

In fact, business investment is set to fall 5 per cent this year.

That matters – because in the long term, productivity growth is the only effective and sustainable way to raise living standards.

So that’s the dial we have to shift.

To do that, what we want is a Living Standards Strategy not for 1998, but 2024.

A holistic strategy that drives up wages – by powering productivity.

There are two parts to that.

First, government action to boost the supply side of our economy and help reduce price pressures.

In areas like energy and housing, for example...

…where unclogging our planning system could help get more low carbon houses built…

…to bring down rents and mortgages and improve energy efficiency.

And we think the Low Pay Commission should continue to be part of this strategy.

With the National Living Wage rise and expansion next month, it will have hit its target…

…of two-thirds of the median wage.

We will have ended relative low pay…

…but with more people feeling low paid than ever.

That’s what happens when you focus on minimum wages without driving growth.

To fix that, the LPC needs a new remit to make sure the lowest paid share in the benefits of growth...

…by continuing to track two-thirds of median pay.

Meanwhile, business and government should focus on economic momentum to actually raise median pay.

Because that’s how you sustainably raise the minimum wage.

That’s the second part of the strategy.

We need government to create conditions where business can play their part…

…and invest more in the skills, tech and innovation to drive productivity growth.

That’s about incentivising investment…

…Through a real, long-term industrial strategy – where industries partner for growth instead of competing for funding.

It’s about giving investors confidence…

…Through a 10-year trade and investment strategy – building on the Harrington Review and growing our trading sectors.

And it’s about empowering political leaders to raise living standards too...

…Through a commitment to park politics and show how UK Mayors can become an alliance for economic growth.

That’s our vision…

A partnership for productivity – to boost real pay…

…with a National Living Wage so everyone gets their fair share.

Thank you. “