Increases to national minimum wage rates should not be expected to “end” low pay and will need to be supported by a variety of government policies to reduce in-work poverty, the Low Pay Commission (LPC) has said.
According to the independent body that advises the government on minimum wage rates, the increasing the national living wage (NLW) for workers aged 25 and over will only have a significant impact if it is supported by: strong employment, economic growth, increasing pay, productivity growth, the affordability of increases to firms and the quality of jobs for workers.
National minimum wage and national living wage
There is also a case for reassessing the design of the NLW framework so it is able to respond to changing economic circumstances, the LPC’s The National Living Wage Beyond 2020 report says.
In particular, the government’s ambition for the NLW to reach two-thirds of median earnings by 2024 – as pledged by Chancellor Sajid Javid earlier this year and recommended in an independent review by Professor Arindrajit Dube today – is seen as too ambitious.
The LPC says its discretion to depart from a target when making minimum wage recommendations, based on economic evidence, should be safeguarded.
“Ending low pay is a worthy ambition. We hear too often from workers about the debilitating effects of low pay. But we should be under no illusions: a two-thirds target is ambitious and will be very stretching for businesses in low-paying sectors,” it says.
“Equally, a higher NLW target by itself will not end low pay under the most common measures, and will need to be accompanied by a broad slate of supporting policies if the government’s stated aim is to be met.”
LPC chairman Bryan Sanderson said: “We did not take a view on the appropriate level and timing of a new minimum wage target, but regardless of how far and how fast the minimum wage increases, the Low Pay Commission needs the flexibility to recommend varying its path and the end date of any target if economic conditions are not favourable. And our social partnership model and expertise will remain vital in building consensus around ambitious increases.”
Meanwhile, a second LPC report published today into the national minimum wage rates for workers aged 16-24 finds a strong case for lowering the age at which a worker becomes eligible to receive the higher-rate NLW from 25 to 21.
It recommends that the threshold is lowered in phases, moving first to 23 from April 2021. The government should then monitor the impact of this change before reducing it to 21 at a later date.
“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 NLW 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,” the review of the youth rates of the national minimum wage report finds.
“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.”
The government has not yet set out the minimum wage rates from April 2020 and with no Budget planned this autumn, it is unclear when these will be announced.