minimum wage target

Government to miss £9 minimum wage target

George Osbourne promised in the 2015 budget speech that the national living wage would eventually reach £9 an hour by 2020. Last month, the shadow chancellor, John McDonnell promised that a Labour government would beat that target and increase it to at least £10.

The current rate is £7.20 which was increased earlier this year to mixed reactions from workers and employers.

 

The Brexit effect?

The Resolution Foundation has said that the government target will be missed, largely due to the effects from Britain’s decision to leave the European Union. They say that Brexit “will stunt minimum wage targetnational living wage growth by 10p an hour”.

The Resolution Foundation says that the government’s 2020 target is to be missed as weak pay growth will see the minimum wage rise by 30p instead of 40p. The thinktank predicts that the new rate will reach £8.60 by 2020 based on current forecasts.

This means that earnings are expected to be £850 lower in 2020 on average than were expected in June, before we voted to leave the EU.

The Resolution Foundation said that while the 10p an hour rise will still mean that over 4 million workers see annual rises of up to £600, this is down from the estimate of rises up to £800.

In contrast to the announcements of higher and higher wages, the proportion of people earning minimum wages in Britain has increased dramatically in recent years, from 1 in 50 in 1999 to 1 in 20 from 2014. This expected to rise to 1 in 7 after the introduction of the National Living Wage for workers over 24. The amount of people on low pay is expected to at least double by 2020.

 

Policy Analyst at the Resolution Foundation, Conor D’Arcy said that “while there is much uncertainty over Britain’s long-term economic outlook, most economists agree that wage growth in the next few years is likely to be weaker than expected prior to the referendum.

“That means we’re unlikely to see the £9 national living wage that George Osborne talked about in this parliament. As we approach the autumn statement we’ll soon learn what the [national living wage] will be next year. An increase to around £7.50 will deliver a welcome annual pay rise of up to £600 for full-time staff.”

A spokesperson for the Department for Business, Energy and Industrial Strategy said “the government is committed to building an economy that works for all and the national living wage is doing just that, with more than 1 million workers already benefiting from a pay rise. The independent Low Pay Commission is chiefly responsible for making recommendations for national minimum wage rates.”

According to research from the insolvency firm Begbies Traynor, 100,000 businesses are experiencing “financial distress” from the introduction of the higher wage. Further increases in wages over the next few years will likely increase pressure on businesses as well as worries for future employment figures as businesses continue to struggle.