£4,000 Pay Rise for the Lowest Paid

The Chancellor has promised to increase the National Minimum Wage.

Conference commitment

Speaking at the Conservative Party Annual Conference in Manchester the Chancellor of the Exchequer Sajid Javid MP committed to giving the lowest paid workers a pay rise of £4,000 a year by increasing the National Minimum Wage (NMW) to £10.50 per hour by 2014.

Bucket of Salt

The Trades Union Congress (TUC) which has campaigned for a long time for an end to the age discrimination in the allocation of the NMW and an hourly rate above £10 suggested that the Chancellor’s pre-election promise should be taken with a huge bucket of salt.

TUC General Secretary Frances O’Grady said:

“The TUC has long campaigned for a minimum wage of over £10, and an end to the discrimination young workers suffer from lower rates. But she said the Chancellor’s pledge would be overwhelmed by the consequences of a no-deal Brexit.

The TUC believes that if the United Kingdom leaves the European Union (EU) without a deal, jobs will be lost, wages will fall, and public services will suffer.

Serious rupture of no deal

Dame Carolyn Fairbairn DBE, Confederation of British Industry (CBI) Director-General, agreed with the Frances O’Grady describing the Chancellor has put his money on a modern, connected, low carbon economy, which is exactly what business wanted to hear. But she feels he left a page out of his speech by failing to explain how the Government and the Treasury would respond to the serious rupture caused by failing to secure a deal with the EU – and the implications for the investments he announced.

Hard working families

The Chancellor is planning five years of growth in the National Minimum Wage so that by 2024 the level will be equivalent to two-thirds of median earnings over the next five years. That would benefit more than 4 million workers who would over that time see their pay increase by the equivalent of £4,000 for the average full-time worker who is currently on the National Living Wage.

The Chancellor said that it was the Government’s intention to support hardworking families in every part of the country.

Business vulnerable

The other side of the coin according to Mike Cherry, Federation of Small Businesses (FSB) National Chairman is that many small businesses, especially those in low margin service industries like hospitality, social care and retail that are dependent on low cost labour will find it difficult to afford to pay the new increases without support from the Government.

More difficult to get into workforce

Dropping the age at which people become eligible for the full National Living Wage could said Mr Cherry impact the chances of young people getting employment. Any increase said should be gradual.

A sudden drop in the eligible age to 21 said Mr Cherry would pose another real risk to jobs and the economy. Any he suggested should reduction should be gradual

Mr Cherry also suggested that the Low Pay Commission should assess the impact on employment levels after an initial reduction in the 25-year-old threshold before further changes are made.

Impact on living standards?

It is easy to say that paying people more will increase costs and that this will have a negative impact on businesses. It is also easy to identify that many of these costs will be met by companies increasing the prices of their products and that this will mean increased prices across the board. This could mean that the lowest paid workers will not really benefit because they will still be using the same percentage of their income on food and other living costs. Their standard of living will not improve.

Productivity is the key

Dame Carolyn said that business across the UK shares the Chancellor’s ambition to end low pay.

But instead of suggesting, as the FSB has that the Government provide some form of support for businesses, she suggested that the only way to create real sustainable pay rises that would also increase workers’ standard of living is to increase productivity.