A minimum wage increase is long overdue

George Osborne’s comments this evening that he wants to see an above-inflation increase in the minimum wage are long overdue.

Since peaking at 9.6 per cent above inflation in 2001, the value of the minimum wage has gradually been overtaken by inflation.

Inflation levels surpassed the minimum wage percentage in 2008, the biggest difference between the two coming in 2011, with inflation percentages being almost 2 per cent above the minimum wage.

As well as failing to keep up with the cost of living, an analysis by the Resolution Foundation last year found that a worker on the minimum wage would need to work for 380 hours a week to match the annual salary of someone in the 99th percentile.

The research was, interestingly, released just a week after the government announced that the minimum wage would rise to £6.31 from October 2013 – the fourth straight annual fall in the real value of the minimum wage once inflation is taken into account.

Today’s comments by Osborne have come as something of a surprise. Just last year the Low Pay Commission, which sets the minimum wage, was warned by the government that it ought to consider the impact on employment and the economy before agreeing future increases.

The economy is unarguably in a better position today than it was in April 2012, which in part explains the chancellor’s newly found optimism: “we should enjoy fruits of our hard work,” he said today.

A much bigger factor in the decision, however, will be politics. The Tories were caught off guard back in September by Labour’s pledge to freeze energy prices. They don’t want to be caught in such a reactive position again; and Osborne, canny political operator that he is, is making sure the cost of living narrative is not strictly Labour territory.