Plans to hike minimum wage could 'cost low-paid jobs'

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Plans by both Labour and the Conservative party to increase the national minimum wage could put lower paid workers’ jobs at risk, according to the Institute for Fiscal Studies (IFS).

The Conservatives plan to raise the National Living Wage (NLW) for people aged 25 and over to £8.75 per hour by 2020, while Labour said the NLW would rise to £10 per hour by 2020 if the party was elected to government.

According to the IFS thinktank, both policies could do more damage than good to the lowest paid workers they are designed to benefit.

The IFS said: “Both parties’ plans imply big increases in the costs of employing workers. The Conservative plan raises the cost of employing at least 2.8 million workers by 4% on average, the Labour plan raises the cost of employing 7.1 million workers by almost 15% on average. 

“If employers did not cut employment or hours of work, total employer costs from wages and employer National Insurance would rise by £1bn per year under the Conservatives, and by £14bn per year under Labour. There are possible substantial knock-on effects on those with earnings just above the proposed minima, which may be considerable.” 

The national minimum hourly rate currently ranges from £3.40 for apprentices and £4 for under 18s to £7.20 for people aged 25 and over.

Under the Conservative plans the average increases in cost to an employer per employee will rise £50 per year (0.1%) and £530 per year under a Labour government (1.5%).

“Lower paid workers could lose out if the higher minimum wage leads to reduced employment. Hence, whilst a carefully applied minimum wage may well be a useful policy lever to boost the earnings of low-wage workers, it is a policy lever that could harm those it intends to help,” the study also said. 

James Lowman, Association of Convenience Stores chief executive, said: “The introduction of the National Living Wage in the last Parliament has led to retailers delaying investment plans and reviewing the number of staff hours in their business, ultimately contributing to a decline in employment opportunities in the sector. Wage rates should be set based on independent economic deliberation by the Low Pay Commission without reference to politically-set targets and election bargaining. Retailers need certainty to be able to plan for the long term and using wage rates as a political football undermines investment in the sector.”

A draft Labour Party manifesto leaked online this week includes plans to ensure energy costs are affordable for consumers and businesses, and banning zero-hour work contracts and unpaid internships.

Readers' comments (2)

  • SICK AND TIRED OF THIS ARGUMENT.EITHER PAY THE STAFF PROPERLY OR DO ALL THE HOURS BETWEEN FAMILY MEMBERS UNPAID AS PEOPLE USED TO TELL THE TAXMAN .EVERYONE DESERVES A PROPER LIVING WAGE.GREED IS NOT GOOD AND NEITHER IS EXPLOITATION.

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  • The living wage is not going to go away and I expect both main parties to aim for that £10.00 an hour which will deliver the final blow to a large number of small convenience stores. I also agree with ACS in their assessment of the situation and where it’s leading. When a politically motivated decision is taken and the low pay commission doesn’t get a look in than we are not on a level playing field here. It’s not our job to maintain other people’s standard of living nor do I accept the language of greed and exploitation that applies in our sector. Yes that may be true of large Corporation where shareholder value dictates everything at the expense of workers whilst absolving their responsibility of paying fair taxes but surely not us.
    In fact the government sees us as an easy target whilst large corporation and coffee houses are consistently flouting tax loopholes. We on the other hand are exploited by loading us with hopelessly dated rates bill ignoring online businesses having an unfair advantage. They are often genuinely exploiting workers and we have seen examples of that in the national papers. And so the cost of employing people is not that simplistic, in addition to all the other expenses of pension fund contribution and other ever increasing red tape constantly churned out of Westminster coming our way.
    We must also bear in mind that large chains have recently gone into liquidation and many will follow. One of the main reason was the ever spiralling wage cost. Perhaps someone can now go and console those unfortunate out of job shop workers the meaning of exploitation.

    Arjan Mehr Londis Bracknell

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