From the TUC

What has the Chancellor announced on the minimum wage?

16 Jan 2014, by in Economics

The Chancellor’s announcement on the minimum wage at 5pm this evening has already been spun as a committment to a £7 an hour minimum. But importantly this is not what has been announced.

As I have previously written, the Conservative Party’s recognition of the importance of the NMW, and specifically the Chancellor’s statement today that there is a case for the adult rate to rise in real terms, is very welcome.

But this should not be overstated. The Chancellor has told the BBC that:

 I believe Britain can afford an above-inflation increase in the minimum wage so we restore its real value for people and we make sure we have a recovery for all and that work always pays.

He also said:

If for example, the minimum wage had kept price with inflation it would be £7 by 2015/16. It’s GBP6.31 at the moment, so, that’s an increase.

The next Low Pay Commission report will recommend a rate of increase for the period October 2014/15. So to start with the Chancellor’s example appears to cover this year’s LPC report and the next one.

But that point aside, his text does not offer his personal  support for a rise of this magnitude. While giving a welcome endorsement to the case for a real terms rise, he does not explicity say that his view/the view of the Treasury is that the NMW should be aiming to restore its lost value by 2015/16.

A ‘real terms rise’ is long overdue. But let’s be clear, and as I have previously set out, with employment growing, unemployment falling, the recovery finally taking hold and CPI at 2 per cent, it would be surprising if the Low Pay Commission did not recommend such a rise this year. With the adult rate currently £6.31, a ‘real terms rise’ could feasibly be as little as 2.1 per cent, worth 13p an hour more. Better than last year’s 12p uplift, but not a lot. The actual committment the Chancellor has given is not exactly a generous one.

Until the Government’s evidence to the Low Pay Commission is published we won’t know for sure what (if any) specific proposals their submission contains, but it seems unlikely that the Treasury is explicity backing the relatively steep rate of increase that would be needed to restore the NMW’s real value by 2015/16. 

We shouldn’t have long to wait for more details. The government’s evidence to the Low Pay Commission was submitted today, with the Business Secretary Vince Cable setting out that:

The National Minimum Wage is designed to strike a 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. This is why last September I asked the independent Low Pay Commission what economic conditions would be needed to allow for significant rises in the National Minimum Wage without damage to employment.

The government’s evidence does not set out final policy. It forms part of the annual process for NMW rate setting, and is considered by the LPC’s expert panel alongside other evidence before they recommend new rates.

The Government will publish this evidence ‘ shortly’. Perhaps at that point it will become clearer whether the Chancellor has overstated his hand. Until then, I challenge any journalist to obtain an on the record statement from George Osborne of his support for a £7 NMW by next year, including his assessment of the employment effects such a rise would bring.

Update: It is now being reported that the Chancellor would like to see the real value of the NMW restored by October next year. That would mean requiring the LPC to raise the rate by around 5 per cent this year and again in 2015, or perhaps by asking them to issue some sort of foward guidance with their report this Spring. But again, there is no written confirmation that this is what the govenment’s evidence to the LPC has implied.  Best to wait to read it.

6 Responses to What has the Chancellor announced on the minimum wage?

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    Mar 15th 2014, 3:59 pm

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