What does the future hold for the Minimum Wage?

National Minimum Wage UK | Employment Law | HR Solutions

The government’s goal to eliminate low pay and in-work poverty in the UK may take more than just increasing the minimum wage, warns the Low Pay Commission (LPC).

The LPC suggests that the government will only succeed in its ambitious plans to eradicate low pay once and for all, if increasing the minimum wage is matched by economic growth, productivity growth, strong employment, increasing pay and the affordability of increases to firms and the quality of jobs available. The independent body responsible for advising the government on the minimum wage has recently  published The National Living Wage Beyond 2020 report. The report highlights the case for reviewing the national living wage framework so it can quickly respond to changing economic circumstances.

Ambitious plans for minimum wage 2019 – 2020

Britain’s Prime Minister, Boris Johnson and the Conservative Party plan to go further than any other national government has so far attempted. The government aims for the national living wage to be raised to an hourly rate of £10.50, reaching two-thirds of average earnings by 2024. This increase, also recommended in an independent review by Professor Arindrajit Dube, would make the UK’s minimum wage become the highest in the developed world.

The LPC says that with these changes, the National living wage could cover up to a million more workers, but it warns that these plans may just be too ambitious. The Labour Party had pledged to go further and immediately introduce a minimum hourly rate of £10 for all workers aged over 16, if they had been successful in takingup office following the 12 December general election.

Minimum earnings 2018 – 2019

What happens to the minimum wage affects the lowest-paid people in the UK; but the UK already has one of the highest minimum wages in the world. For workers under the age of 25 and eligible to receive the minimum wage, they can currently expect to be paid an hourly rate as follows:

  • 21-24 years old: £7.70
  • 18-20 years old: £6.15
  • Under 18s: £4.35
  • Apprentices: £3.90

The LPC’s chief concern is that increasing the minimum wage too quickly could lead to job losses should the economy decline. The report also urges for more flexibility in response to economic changes and the current policy framework doesn’t give the LPC enough room to exercise its judgement when making recommendations on the speed of such an increase.

Reducing the age of eligibility

A second report by the LPC into the national minimum wage rates for workers aged 16 to 24 suggests there is a strong case for reducing the age that a worker becomes eligible to receive the higher rate of national living wage from 25 to 21. It also recommends that this threshold be lowered in stages, first moving to 23 years old from April 2021. It advises that the government should then closely monitor the impact of this change before reducing the threshold again to 21.

The review of the youth rates of the national minimum wage report says: “The changes we propose here will have a direct impact on the government’s ambitions for the minimum wage post-2020. The inclusion of younger workers in the national living wage population will lower the median wage on which any target is based and therefore lower the nominal values of the NLW rates in the future.

“This means there are some clear trade-offs: younger workers benefit in the form of higher pay, but older NLW workers will receive less than they otherwise would have. At the same time, the overall risk of job loss for those aged 25 and over will be lower than it otherwise would have been, but it will be higher for 21-24-year olds.”

 

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