Raise the floor: Why the next government should hike up the minimum wage

Low paid workers are speaking up for better wages. The next government must help make it happen.

Introduced two decades ago, the national minimum wage has been identified as the most successful policy of the 30 years.

This is partly due to its impact and to its staying power. Both the introduction of the minimum wage, and – more recently – the national living wage (a higher wage floor for workers aged 25 and above) have been found to have tackled extreme low pay, without costing jobs. Beyond this impact, the minimum wage has been remarkably successful in securing political consensus. Indeed at the upcoming general election, all major parties have committed to increasing the wage floor.

New polling conducted by Learning and Work Institute and BMG shows strong public support for increasing the minimum wage. The Conservatives have said they would increase the national living wage to £10.50, and extend it to all workers aged 21 and over. This is supported by two in three adults (66%), with just one in ten (9%) opposing.

Labour’s more radical proposals – an immediate £10 minimum wage irrespective of age – is strongly backed by a margin of over 2 to 1 (52% to 24%). Support for increasing the minimum wage is universal, but it is particularly strong among young people and low income households.

In addition to strong popular support, international evidence suggests we could be more ambitious in increasing the wage floor. In a recently released review for the government, Professor Arindrajit Dube found the national living wage could be increased from its current level of 59% of median earnings, up to two thirds of that figure, equivalent of a rise of over £1 an hour.

Both Labour and the Conservative proposals would involve increasing the wage floor to a level never seen in the UK, and a level higher than almost anywhere in the world. Whoever wins, the next government should set out a clear plan to increase the wage floor, which seizes the opportunities, mitigates the risks, and  is clear eyed about what the wage floor alone can achieve.

A higher wage floor would require higher productivity if we are to avoid reductions in employment. That would mean we need to up our game in investment in skills – from both government and employers – which are too low. It would also require an active industrial strategy in low-paid industries.

A higher wage floor would require a greater focus on progression. Estimates suggest that even under the Conservatives’ less ambitious proposals, the number of people paid at the wage floor would more than double to four million. So government would have to think about how to enable workers to progress off the wage floor.

A higher wage floor would require proper enforcement. The Low Pay Commission estimate that last year, nearly half a million workers are paid below the legal minimum. A significant increase in the wage floor could lead to more widespread illegal underpayment, so government would have to ensure that a higher minimum is enforced.

Finally, while a higher wage floor would reduce low pay, it will not eliminate in-work poverty. That’s because it’s not just hourly pay that matters, but the number of hours people can work, the costs they face, and the support they get from the social security system.

As the IFS have shown, only a small proportion of minimum wage workers live in the poorest fifth of working households, so much of the direct benefits from a higher minimum wage will go to people in middle and higher income households. Low income households would see much of their additional pay clawed back through reduced benefit income.

So, alongside a higher wage floor, if we want to eliminate in-work poverty, we need to see a reversal of the welfare cuts, and action to tackle the cost of living.

A higher wage floor is possible, it is popular, and it could help tackle poverty pay.

Joe Dromey is deputy director of research and development at Learning and Work Institute.

Over the next year, Learning and Work Institute and Carnegie UK Trust will be setting out how a higher minimum wage – as part of a wider workforce strategy – could help end in-work poverty.

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2 Responses to “Raise the floor: Why the next government should hike up the minimum wage”

  1. Boffy

    A higher minimum hourly rate is all well and good, but not much use if you only get 5-10 hours work in a week. This is not just about zero hours contracts, but part-time contracts too. Labour should set a Minimum Weekly Wage of £400, and a Minimum hourly wage of £12, effective immediately.

    Raising wages is the best way of reducing government spending on welfare, and thereby reducing government borrowing so that the resources can be used elsewhere. In fact, we need a Minimum Wage closer to £500, and a Minimum Hourly Rate of £15, so that we can quickly scrap individual in-work Benefits like Housing Benefit and Child Tax Credits. Saving the £9 billion a year that goes directly into the pockets of private landlords would free up a lot of resources tht could be used for house building, for example.

  2. Dave Roberts

    All good stuff but who pays for it?

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