The 2015 election was an almost unmitigated disaster for Ed Miliband and the Labour Party.  Yet there was one significant success – an intellectual one.  Commentators laughed when Mr Miliband talked about ‘predistribution’ – an infelicitous term he had taken from the Yale political scientist Jacob Hacker.  Yet the most significant announcement in George Osborne’s post-election budget was the adoption of ‘predistribution’ as a central plank of Conservative government policy.

In the years from 1997-2010, when  Gordon Brown was Chancellor and then Prime Minister, the dominant influence on British economic policy was a doctrine which I have called redistributive market liberalism (RML).  The thrust of RML is a separation of production and distribution, of efficiency and fairness.  Broadly speaking, the market should be allowed to get on with the job of providing goods and services, and the state should intervenes only to remedy adverse distributional results.  RML abandoned the traditional socialist goal of control of the means of production, while re-emphasising the concern of the left for social justice.  RML was one attempt to describe a ‘third way’ between market fundamentalism and state planning.

Redistributive market liberalism has always had a significant following among economists. Economists are by training predisposed to applaud the virtues of the market, but many, especially in universities, have leftist political inclinations;  and the doctrine of RML plays a large part in the thinking of economists involved in policy-making in finance ministries and international organisations. Its somewhat technocratic character means, however, that it has never had much wider political appeal.

The most important practical manifestation of the doctrine was the tax credit scheme which Mr Brown introduced in 1999 and progressively extended to the point at which its cost today represents around one third of total expenditure on welfare in the UK.  Operated through the tax system – and dogged by administrative failures and allegations of fraud – the primary purpose of tax credits is to top up the wages of low paid workers, especially those with families.  Bells and whistles were repeatedly added.  

         When Iain Duncan Smith became Work and Pensions Secretary in the Coalition Government in 2010, he launched an ambitious plan to combine tax credits and other benefits into a single universal credit. But the roll out of the new plan is again affected by the implementation failures common to so many government technology programmes.  So the Chancellor has adopted a quite different tack:  a 40% increase in the minimum wage, designed to substantially reduce the dependence of low paid workers on benefits and cut the cost of welfare.

This is predistribution.  Instead of fixing the results of the market, you try to fix the market itself.  Britain’s first statutory minimum wage was introduced in 1999 at £3.60 per hour.  A wide range of studies  showed that this sensibly cautious introduction did not have the widely predicted negative effects on low skilled employment, and that has allowed substantial increases – to £6.50 – to be implemented since then.

           The ‘living wage’ campaign, encouraging large employers to pay more than the statutory minimum – its advocates propose £7.85 per hour – has gained considerable traction; only this week IKEA has become the first major retailer to sign up to the scheme. And the use of social and commercial pressure has many advantages over legal prescription, allowing more flexibility, discouraging gaming of the rules, and embedding the community obligations of business in its practice.

          So Mr Osborne’s proposal to use statute is, in a sense, more dirigiste than his leftist opponents would favour. Still, the shift is radical.      

Once his plan is implemented, the real wages of the lowest paid workers will have risen by about 50% in the first two decades of this century.  Policies to fix markets, when supported by good evidence, make good sense.