Chancellor Wants £7 Minimum Wage

The Chancellor, George Osborne, has called for an above inflation rise in the National Minimum Wage…

With the inflation rate currently hitting its target of 2% after years of the Consumer Price Index (CPI) being stubbornly high, George Osborne has stated that the National Minimum Wage should next rise at a rate above inflation.

The figure that the Chancellor is looking for is a rise from the current £6.31 an hour to £7 an hour – a rise of over 10% the current rate.

The news comes just days after the man at number 11 urged caution over a 50p rise, expressing concerns over a "self-defeating" increase, and now wants a near 70p per hour increase.

Recent soundbites from the Labour party have included repeating the phrase "cost of living crisis" which relates to inflationary rates of nearly 5% over the past 5 years with salary inflation coming in well below that figure.

George Osbourne blames the Labour Party for the failure of the minimum wage to rise adequately enough to improve living standards despite his party being in power as part of the coalition government for nearly four years now.

Recommended minimum wage rate rises are decided by the independent Low Pay Commission (LPC).

Whilst some Conservatives have agreed that increasing the minimum wage will be a good move toward demonstrating the party’s attitudes towards the working poor, it was the same party that initially opposed the idea of the National Minimum Wage back in 1999.

Mr Osborne appears to be balancing the increased cost of low paid labour with the Employment Allowance due to come into force on the 6th April this year.

The Employment Allowance will allow small firms to claim up to £2,000 off their National Insurance Contributions every year, but that benefit could be eroded by businesses paying more with the 10% increase in lowest wages.

Speaking in an interview with the BBC’s political editor, Nick Robinson, Mr Osborner said:

“I want to make sure we are all in it together, as part of the recovery, which is why I want to see above-inflation increases in the minimum wage, precisely because the British economy can now afford that.”

John Cridland, Director-General of the CBI, said of the Chancellor’s coments:

“Recommending the rate of the national minimum wage must be a matter for the Low Pay Commission, as the Chancellor recognises.”

“An unaffordable rise would end up costing jobs and hit smaller businesses in particular.”

“Any increase in wages must reflect improved productivity.”

The Federation of Small Businesses has chimed in with its National Chairman, John Allan, adding that the rise should not be above inflation:

“Small businesses agree that after a period of wage restraint now is the time to look at raising the minimum wage but this should be at the rate of inflation for the coming year. The Low Pay Commission will recognise that in some industries, such as retail and social care, small businesses operate very fine margins and are still struggling with rising costs in areas such as utilities and business rates.”

The FSB Chairman also noted that the economic recovery remains fragile in some regions of the country and that restraint in raising the minimum wage would help to "strike the right balance" between raising incomes and supporting businesses and job creation.

Alex Jackman, Head of Policy at the Forum of Private Business (FPB) backed up the notion that the minimum wage should not rise unless the UK was in a sustained recovery and that businesses are in a position to afford an above inflation wage rise, but doubted that was the position the country was in:

“With many companies not yet profitable enough to service their own debts the last thing we need is a huge, inflation busting rise in the Minimum Wage, which will cost jobs in some sectors. We are clear that efforts to tackle the cost of living should not increase the costs of doing business.”

Business Secretary Vince Cable has submitted the government’s final analysis to the LPC which will consider this when making recommendations for National Minimum Wage rates this year.

In Spetmeber 2013, Dr Cable asked the LPC what economic conditions would be needed in order to allow significant rises in the minimum wage.

The LPC will make its recommendations for 2014 in the spring.

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