Minimum Wage Needs ‘Radical’ Overhaul, says FSB

The National Minimum Wage should be fundamentally reformed, according to the Federation of Small Businesses (FSB)

The business organisation’s call has come in response to what it terms the ‘far from ideal’ way in which rates are set, which, it believes, creates uncertainty for small businesses.

The Low Pay Commission (LPC) currently advises Government on changes to the minimum wage every year but doesn’t indicate what the rate should be beyond that point. The FSB has said that this, together with the fact that firms receive only six months’ notice before a rate rise, makes it difficult for employers to effectively plan ahead, hampering investment and recruitment.

The organisation has therefore proposed that the LPC take a longer term approach and recommend future annual rates, potentially over a five year period, in line with the Office for Budget Responsibility’s economic projections. It also suggests that the new rate should come into effect at the start of the financial year in April, rather than in each October.

John Allan, National Chairman of the Federation of Small Businesses has also called for the Chancellor to explore alternative options for boosting incomes of the lowest earners: for example, increasing the threshold at which employees start to pay national insurance.

He said:

“Setting an appropriate minimum wage, which helps to stem the fall in real wages without harming employment, is crucial. The Low Pay Commission has a great track record, but the time has come to reform radically the way the National Minimum Wage is set. Businesses need greater certainty of the future value of the minimum wage and that is why we are calling for a new, longer-term approach.

“There is no doubt that in recent years, wages haven’t gone as far as they once did and as economic conditions improve, we know our members want to pay their staff more. However while the minimum wage plays an important role, there are other ways of boosting the incomes of low earners which merit serious consideration, including through the tax system.”

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