Thursday, 16 January 2014

Increase the Minimum Wage: it’s a no-brainer

This year marks the fifteenth anniversary of National Minimum Wage (NMW). It has boosted pay at the bottom without leading to a loss of jobs, and now has wide industry support as a result.

Before it was introduced, some people were paid as little as £1 an hour.  For example, the Low Pay Unit found someone working in a chip shop earning just 80p an hour. It also found a factory worker earning £1.22 an hour and a residential home worker earning £1.66 an hour.

When the NMW was being proposed, there was widespread opposition from business organisations and from Conservative and Liberal Democrats. Neither David Cameron nor Vince Cable like being reminded of their opposition, as they both claimed that a NMW would inevitably lead to job losses and increased unemployment.

More recently, a number of Conservative MPs have tried to scrap or diminish the policy.  In 2012, Andrea Leadsom MP said that businesses with three employees and fewer should be exempt from minimum wage, as well as regulation like maternity and paternity rights.  Leadsom said:

“I genuinely think we have to focus on deregulation. …..No minimum wage; no unfair dismissal; no maternity or paternity rights; no national insurance or employer pension contributions; a flat rate of tax; no red tape.”

Dominic Raab MP has called for the minimum wage to be suspended for 16-21 year olds. Philip Davies MP said employers should be allowed to pay disabled people less than the NMW. Another group of Conservative MPs have argued that employees should be allowed to opt out of the NMW altogether.

For the first decade of its life, the NMW increased at a faster rate than inflation. NMW generally increased above or in line with average earnings. Following years of rising inequality, the lowest earners began to catch up with middle-earners after the introduction of the NMW.

However, since 2010, the value of the NMW has fallen by 5% in real terms. If the minimum wage had increased in line with inflation over this period, low paid workers would be earning 32p an hour more than they are now. Today the UK has the second highest rate of low pay in the OECD, with more than five million workers paid less than the Living Wage in the UK.

Just as worrying is that the Government has completely failed to ensure proper enforcement of the minimum wage so that vulnerable workers are protected.  Despite annual Ministerial statements that employers flouting the law would be named and shamed, they haven’t named a single one yet.

Despite the pitiful number of enforcement staff, since 2009, HMRC has investigated 10,777 firms for allegedly breaking the law on low pay, collecting £15.8m in arrears payments and imposing £2.1m in fines. In the last 4 years, just two employers have been prosecuted for paying below the NMW, despite an estimated 300,000 people being paid less.

It is little wonder that many frustrated job-seekers feel that they are being undermined by people being paid less.

Of course, there always has to be a balance between wage growth and the impact on employment. However, it is clear to me that urgent action should be taken to restore the value of the NMW and to enforce it. This would actually cut public expenditure, as there would be savings from lower tax credits and benefit payments, as well as increased tax revenues.

It’s a no-brainer really.