Wages will continue to rise and there will be 600,000 new jobs by 2023 – but only if Britain can secure a smooth Brexit deal, the chancellor has announced.
In his Spring statement, Philip Hammond also indicated that previously announced apprenticeship reforms would be introduced a year early, and there would be a review into how minimum wage levels are set.
Announcing its latest findings in today’s “mini-Budget”, Hammond revealed that the Office for Budget Responsibility (OBR) had predicted the UK economy would grow by 1.2% this year, 1.4% next year and by 1.6% for the three following years.
Based on strong earnings growth since its last forecast, the OBR also predicted that wage growth will be 3.1% this year, up from the 2.5% it predicted in October. Average earnings growth will reach 3.3% by 2023, it said.
“With inflation now around the target throughout the forecast period, that means real wage growth in every year of the forecast,” said the chancellor.
However, the OBR believes unemployment will rise marginally to 4.1% in 2019 “as output falls below potential”, according to its fiscal outlook report. This will settle back to around 4% by 2023.
In his statement, Hammond argued that there will be a “deal dividend” if Brexit goes through in an orderly way.
The OBR estimated that the chancellor will have over £26bn of extra spending power he could unleash, once a no-deal Brexit is off the table. Before the summer parliamentary recess, there will be a three-year government spending review to decide where investment should be focused.
“The pay of a full-timer on national minimum wage has risen by £2,750 a year since 2016,” said Hammond. “We’ve confirmed the Low Pay Commission’s remit for the national living wage to reach 60% of median earnings by 2020.
“But later this year we will need to set a new remit beyond 2020. We want to be ambitious, driving productivity across the income distribution, with the ultimate objective of ending low pay in the UK. But we also want to take care to protect employment opportunities for lower paid workers.”
Later this year, the government will also undertake a review of how it sets minimum wage levels, and has appointed Professor Arindajit Dube to consider the latest international evidence on the employment and productivity effects of minimum wage rates. “This study will support the extensive discussions that we will be having with employer organisations, trades unions and the LPC itself over the coming months,” said Hammond. This will then inform how the government sets future national minimum wage levels from 2020.
The chancellor also announced that updates to apprenticeship reforms announced in last October’s budget will be brought forward to 1 April 2019, when the co-investment rate for non-levy businesses will be cut from 10% to 5%.
This will also enable levy-paying employers to share a greater portion of their funding across the
supply chain, with the maximum amount rising from 10% to 25%.
Hammond said: “We are committed to returning technical and vocational skills to the heart of our educational system with the new T-level system on track to deliver the first three routes in 2020; the first phase of the National Retraining Scheme starting this summer; and the apprenticeship programme rolling-out 3 million new high-quality apprenticeships.”
Hammond repeatedly raised the caveat that growth in wages and productivity could be at risk in the event of a no-deal Brexit. He told the House of Commons: “Leaving with no deal will mean significant disruption in the short term, including higher unemployment, lower wages and higher prices.”
Shadow chancellor John McDonnell called the chancellor’s statement a “toxic mix of callous complacency over austerity”.
Neil Carberry, Recruitment & Employment Confederation chief executive, said: “We will be interested to see what the National Retraining Scheme looks like in practice as REC members will have a big role to play. And while it is good news that the limited package of reforms to apprenticeships announced in the last Budget are to be brought forward, we still need to have the debate about changing the failing apprenticeship levy policy into a flexible skills levy that really works for business and workers.
“Even if we get skills changes right, UK competitiveness needs to be backed up with flexible immigration policies that meet our economy’s needs. There were some welcome steps today – but the real test is an open approach to attracting people to work in the UK after Brexit. REC data shows that candidate availability has been falling month-on-month in the last year.”