This month, the Low Pay Commission, which sets the rate, is expected to mandate a ‘modest’ annual rise, while George Osborne has gone on record hinting at a significant rise. Should the minimum wage rise significantly, and would that help boost the economy, or would it affect job creation and hurt smaller businesses?
HR magazine asked Alexander Jackman, head of policy, the Forum of Private Business for his views:
The Forum of Private Business has been opposed to all but small increases in the National Minimum Wage (NMW) until the UK has seen a sustained recovery and businesses are in a position to afford it. We have not yet reached that point, and an above-inflation increase could damage job creation.
Let’s take the example of an increase of 69p to £7 an hour – a figure the chancellor said the NMW would be now if it had risen with inflation. A small business paying nine employees the NMW would have to find an extra £12,000 for its annual wage bill, before we take into account the associated increases in pension contributions, National Insurance taxation and employee benefit uprating. That is a sizeable impact on many small businesses and could well stunt further job creation or lead to job losses.
Furthermore, the economic data doesn’t currently support a need to increase wages so dramatically. Inflation is down to 2% and there have been reports of wage growth at its highest level for a number of years.
More important are the misleading statistics. While the NMW has fallen in real terms since 2010, it grew above inflation between 1999 and 2007 (14% from 1999 to 2001, and 18% from 2001 to 2004). In that context, the NMW remains comfortably ahead of the retail and consumer price indexes over the same period, so the assumption that the rate needs above-inflation increases to ‘catch up’ is wrong.
While the current political narrative of a cost-of-living crisis is a strong one, solutions to it should not be sought by increasing the costs faced by small businesses, which have also seen spiralling prices in recent years. Growth in the NMW can happen, but it needs to be a proportionate increase, not a political one.
