Raising minimum wage won't end in-work poverty

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​Raising the minimum wage should be part of a broader approach to ending in-work poverty, the Low Pay Commission (LPC) has said

The National Living Wage has begun to reduce low pay, according to an independent review published yesterday (4 November). However, it also stated that the wage’s scope to reduce low pay is limited, and that an uplift in wages alone will not end in-work poverty.

The LPC advised the government that increasing the minimum wage for workers over the age of 25 will only be effective if it is backed up by strong employment, economic growth, productivity growth and good-quality jobs.

It also warned that plans announced by chancellor Sajid Javid in September to raise median earnings in the next five years to £10.50 an hour are 'too ambitious'.

The LPC’s advice on these matters was submitted to the government in September and August respectively, in advance of the chancellor's pledge to increase the National Living Wage to two-thirds of median earnings within five years.

Chair of the LPC Bryan Sanderson said that while the body aims to end low pay, it has not yet set out guidelines around raising the minimum wage. “We share and support the government’s ambition to end low pay. We did not take a view on the appropriate level and timing of a new minimum wage target but, regardless of how far and how fast the minimum wage increases, the Low Pay Commission needs the flexibility to recommend varying its path and the end date of any target if economic conditions are not favourable,” he said.

This advice came in response to the government’s announcement in the 2018 Budget that it will set a new remit for the LPC with the ambition of raising the minimum wage to ‘end low pay’.

Changes to the minimum wage must be seen as part of a wider effort to combat low pay, Sanderson added: “Our report also sets out the limitations of the minimum wage when it comes to ending low pay and alleviating poverty. The National Living Wage cannot achieve these goals alone, and we strongly recommend that it is seen as one element of a broader approach to these vital issues.”

A second report from the Low Pay Commission also called for the government to lower the age at which a worker can receive higher rates of pay from 25 to 21. It said that there is no basis for treating younger workers differently in the minimum wage structure, and recommended a 'phased' approach for employers to implement this.

Sanderson welcomed the government's decision to act on the recommendation: “We were delighted when the government announced in September that it had accepted our recommendation for a phased extension of the National Living Wage to 21- to 24-year-olds. We think this will restore fairness in the minimum wage system, raising pay for young workers with little risk of negative effects.”

This comes as HM Treasury has also published a report by professor Arindrajit Dube on international evidence around minimum wages.

Dube concluded that while there is room for a higher minimum wage the government should look to improve the evidence base and the quality of data used in assessing the impact of minimum wages.

Nye Cominetti, senior economic analyst at the Resolution Foundation, said that the review was "encouraging" but advised both Conservatives and Labour to take on Dube's call for an evidence-based approach.

“With both main political parties committed to a higher minimum wage in the next parliament, it’s encouraging that this independent review from a world-leading expert supports an ambitious new approach. This would build on recent increases that have lifted almost a million workers out of low pay since 2015," he said.

“But whoever wins the election must continue to be guided by the evidence as they raise the UK’s wage floor because future increases will take the UK to the top of the international league table of minimum wages, alongside New Zealand and France.”

The Resolution Foundation argued earlier this year that the minimum wage must rise at a steady rate that doesn't outpace overall wage growth. As part of the Resolution Foundation's analysis, Cominetti added that raising the minimum wage must be a balancing act between politics and evidence.

It is unclear when the government will formally announce plans on the minimum wage, particularly as there are no Budget plans for this Autumn.

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