Small businesses with less than 10 members of staff should receive a cut in employer taxes to help them adapt to rises in the National Minimum Wage (NMW), according to a new review headed up by the founding chair of the Low Pay Commission.
An interim report from think tank the Resolution Foundation, chaired by Sir George Bain, concludes that the minimum wage has “run its course” and needs reform for it to repeat the successes of its first 15 years.
It says the Low Pay Commission (LPC) could convene employers to discuss how to reduce the incidence and persistence of low pay, and point out to government some of the obstacles that prevent the minimum wage from rising, such as taxes on small firms.
The report proposes reducing employer taxes and increasing the gap between adult and youth rates to address the parts of the economy which struggle most when the NMW is raised.
The LPC’s remit could be broadened to tackle low pay as a whole, with 21% of the workforce earning less than two-thirds of the average hourly rate of £7.71 - the official definition of low pay. The NMW currently covers at most around 5% of the workforce.
“While the minimum wage has been highly successful at lifting most people out of extreme low pay, it has not had the upward ‘ripple effect’ that many expected,” the report said.
“As a result, many workers earn just above the minimum wage but still too little to get by. In some sectors, the minimum wage has become the going rate.”
Read the report, Minimum Wage Act II: Options for strengthening the UK minimum wage, here.