UK’s rapidly rising minimum wage has delivered a £3bn pay boost to workers

minimum wage
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Minimum wage increases since 2015 delivered a £3bn pay boost to low-paid workers last year, showing that while they should proceed carefully, both main parties are right to propose plans for an even higher wage floor, according to new Resolution Foundation analysis published today (Monday).

Ain’t no minimum high enough examines the impact of the minimum wage since its introduction in 1999 and the main parties’ plans for it in the next parliament, including the opportunities and risks associated with a significantly higher minimum wage.

Looking at the introduction of the National Living Wage in April 2016 (the legal wage floor for workers aged 25 and over), the report finds that low-paid workers received a £3bn pay rise last year, relative to pay in 2015. In contrast to the firm evidence of gains for low paid workers, there is no evidence that warnings of significant job losses have come to pass.

The Foundation says this major income boost to low paid workers, worth up to £1,500 a year for a full-time worker, shows that arguments that politics should never inject more ambition into the minimum wage are misplaced.

It notes that the recent success of the minimum wage has been underpinned by the new cross-party consensus over the need for a higher wage floor. In contrast, widespread opposition to the minimum wage 20 years ago from business and the Conservatives led to excessive caution over the rate in its early years.

This new cross-party consensus means that the minimum wage is set to rise rapidly again in the next parliament. The Conservatives have set out plans to raise the National Living Wage to £10.50 by 2024 – a level that would effectively end low pay (set at two-thirds of typical hourly pay). They also plan to gradually reduce the age threshold for this higher wage floor to those aged 21 and over.

The Labour Party want to go even further and introduce a £10 minimum wage to all workers aged 16 and over in 2020, labelling this a mandatory real Living Wage.

This would give the UK one of the highest minimum wages in the world, either marginally above or below France’s wage floor, under Labour or Conservative plans respectively.

It would also mean the UK labour market going from having one of the biggest low pay problems of any advanced economy – over one in five workers were low-paid as recently as 2014 – to one where low pay was virtually eliminated (measured in hourly pay), in less than a decade.

The Foundation notes however that while that this new political consensus has created a huge opportunity to boost millions of workers’ pay, it also presents new risks if the parties’ ambitions run too far ahead of the evidence.

The report shows that the proposed changes would represent a huge change to our labour market. If even the less ambitious Conservative plan was in place today, it could more than double the number of workers on the wage floor, with more than one in three part-time workers and more than one-in-five workers across Wales, the Midlands and the North of England, earning the legal minimum.

Among younger workers, around a third of 21-24 year olds currently earn less than the Conservatives’ target minimum wage rate, while half earn less than Labour’s proposed £10 minimum wage. This group is particularly at risk from setting the UK’s wage floor too high, says the Foundation.

The Foundation says that whichever party forms the next government should move cautiously toward meeting its target, and be prepared to adjust the wage floor in light of changing economic conditions. The Low Pay Commission, who have been key to the minimum wage’s success over the past 20 years, should continue to play a key role.

Nye Cominetti, Economic Analyst at the Resolution Foundation, said: “The two main parties fought tooth and nail over whether a new minimum wage would boost pay or kill jobs in the run up to the 1997 election. Now, 20 years on from its introduction, the electoral battle over the minimum wage has completely changed. Both main parties are promising to deliver one of the highest minimum wages in the world.

“This new ambition is welcome. Rapid rises in the wage floor over the last three years have delivered a £3bn pay boost to low-paid workers.

“But both main parties need to recognise that the higher we go, the greater the risks – particularly for younger workers. So they must listen to the experts on the effects of the minimum wage, and be prepared to change course if needed.”