The UK Government has been urged to hold firm on its commitment to boosting the minimum wage over the course of this parliament, in order to give low paid workers a much needed pay rise. But the government must also take wider measures to boost job quality and tackle poverty, and provide additional support for employers to adapt to higher minimum wage.
New research published by the Carnegie UK Trust and the Learning and Work Institute argues that despite the pandemic and the recession it has triggered, the ambitious minimum wage targets of the next four years are both deliverable and vital for low paid workers.
In 2019, the Government pledged to increase the National Living Wage – the legal minimum wage for workers aged 25 and over – to two thirds of median pay by 2024, and to extend this rate to workers aged 21 and over. Polling commissioned by Learning and Work Institute and Carnegie UK Trust shows that a majority of workers (66%) and businesses (54%) support the move.
The report argues that increases in the minimum wage must be part of a wider mission to support ‘good work’ across the economy.
Polling of employers as part of the research found that 22% of employers with a high proportion of workers on low pay said they may respond to a higher wage floor by using more insecure job contracts, with 17% saying they would cut back on non-pay benefits. 12% of low pay employers said they may remove supervisory or managerial roles in response to a higher minimum wage, risking more ‘bunching’ of workers at or near the wage floor and making progression more challenging.
The report calls for the increase to the minimum wage to be part of a wider strategy for good work, including promoting sectoral collective agreements in low pay sectors, in order to agree common standards beyond the minimum wage.
While recent increases in the minimum wage have been successful in reducing the number of people on low pay, the number of people in in-work poverty has continued to rise.
This is in part because increases in the wage floor have been accompanied by cuts to in-work benefits for those on low incomes and with high living costs, which have pushed more working people into poverty. Any increases in the wage floor need to be accompanied by better support through the social security system, including through retaining the £20 uplift in Universal Credit which is due to end in April.
The report considers support needed to help employers who are hard hit by the coronavirus pandemic to adapt to the new wage floor.
It calls for a temporary re-balancing of employer national insurance contributions (NICs) as a transitional measure to support employers to adapt and minimise any risks to employment of a higher minimum wage.
Through both increasing the threshold at which employers start to pay NICs, and increasing the rate at which NICs are paid, government could reduce the tax burden on employers who are impacted by the increase, supporting them to adjust to higher wage costs, whilst protecting overall revenue for the Treasury.
Douglas White, Head of Advocacy at Carnegie UK Trust, said: “Good work has a vital role to play in supporting wellbeing – and decent pay is of fundamental importance. Many low pay workers have been on the frontline during the pandemic and we were pleased that November’s spending review confirmed a rise in the minimum wage.
“Our report sets out a path towards future sustainable minimum wage increases – providing support for employers as they recover from the pandemic and ensuring that workers receive the pay rise that they deserve and need.
“We also urge government to be ambitious in driving forward other crucial aspects of their good work agenda, including supporting workers to train and re-skill and making progress to build back a resilient labour market from the pandemic”.
Joe Dromey, deputy director of research and development at Learning and Work Institute and author of the report, said: “Government can still achieve its commitment to boosting the minimum wage, but this will be trickier after the pandemic. A temporary rebalancing of employer national insurance contributions would help businesses to adapt to a higher wage floor, minimising any potential job losses.
“While increasing the minimum wage would deliver a much-deserved pay rise to millions of low-paid workers, this alone will not tackle the scourge of in-work poverty. Government must ensure sufficient support through the social security system, starting by retaining the £20 increase in Universal Credit.”
We have published the final report in our series looking at the future of the minimum wage, and exploring its impact on workers, employers and the economy.
The UK’s minimum wage is widely regarded as a successful policy which has achieved broad political support over the last two decades, and successfully reduced extreme low pay without damaging employment.
Despite these successes, a rising minimum wage has not been enough to tackle in-work poverty.
And even before the pandemic inflicted severe pressures on the economy, there was a need to understand the ability of businesses to adapt to a higher wage floor, and ask whether changes made by employers to accommodate higher pay might compromise other important aspects of job quality, such as progression or terms and conditions.
Our report makes recommendations about the future path of the minimum wage, and sets out proposals for how an increased minimum wage can be delivered as part of a wider labour market strategy that promotes good work and tackles in-work poverty.
We would be delighted to hear your views on the ideas in the report.
You can get in touch with us on Twitter @CarnegieUKTrust, using the hashtag #MinimumWage or you can let us know your thoughts by emailing Gail Irvine, Senior Policy and Development Officer, ongail.irvine@carnegieuk.org.
Kind regards,
Chief Executive, Carnegie UK Trust
Twitter: @CarnegieUKTrust
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