Should we increase the minimum wage?

With the value of UK workers’ wages falling, what is hindering employers from increasing employee pay?

Earlier this year the Trades Union Congress (TUC) called for the UK to move towards a £15-an-hour minimum wage, but it may not be the solution to all the UK’s pay problems. 

Pay is the current hot topic. Despite many employers boosting salaries to mitigate against the well-documented skills shortage, and to help staff with the cost of living, the value of take-home pay is plummeting.

Pay and the cost of living crisis:

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In the three months to June 2022, ONS data showed that real pay dropped by a never-seen-before 3%.

Coupled with stories about workers’ struggles to pay for food, rent and bills, as well as ongoing cross-sector industrial action, pressure is increasing on employers to help those at the bottom of the income scale.

Sainsbury’s is just one big-name employer facing these calls. This year its investors asked for the supermarket’s workers to be paid the Living Wage (at the time £9.90 an hour outside of London).

Yet the TUC is urging for a more universal approach, publishing a road map towards a £15 minimum wage for all UK workers by 2030.

In part, it is a response to measurable issues with Britain’s pay, as OECD figures show Britain comes 29th out of 33 countries for wage growth since 2007, with on average UK CEO pay 109 times that of the workers they employ.

While it might seem that an across-the-board turbocharging of minimum wage rates might be the fix for this inequality, many hold concerns about the impact it would have on the economy, as well as HR practices.

There are fears minimum wage hikes spark spiralling wage-push inflation, whereby rising wages increase the price of goods and services creating the need for further wage increases.

Although a 2016 study from the WE Upjohn Institute for Employment Research found that, in reality, this doesn’t happen, others worry that minimum wage rises impact product quality as organisations turn to international outsourcing to maintain profit levels.

Separately, some argue that minimum wage hikes cause widespread unemployment, although the 2021 Nobel Prize for economics was awarded to researchers who disproved this theory.

Nevertheless, with businesses facing the same inflationary pressure as workers Gemma Parry, co-founder of The Work Consultancy, argues that economic reality does often stop employers from raising pay.

She says: “The same cost of living which is impacting upon employees is also creating difficulties for many organisations.

“That said, some organisations are also paying huge dividends to their shareholders and could afford to make a very real difference to the lives of their employees.”

Kate Ablett, people director at commercial cleaning firm Mrs Buckét, attests that it’s not just economic conditions that dictate HR’s thinking around raising pay.

She says: “There are worries that it erodes the perception of reward for higher-level skills due to lower pay differentials and we do want people to feel rewarded for the roles they perform.”

There is also evidence that higher wages can impact customer retention.

When Ablett’s organisation became an accredited Real Living Wage (RLW) employer – meaning it paid above the £9.18 National Minimum Wage for those aged 23 and above – it lost clientele.

“Some felt they couldn’t stay with us when their employees would be being paid less than our staff,” she says.

Another factor in pay conversations is the leadership’s exposure to their workforce, says Parry.

She adds: “Many senior leaders are completely out of touch with the realities of what the lowest people in the organisation are paid.”

Jamie Lawrence, a financial wellbeing expert at Wagestream, agrees, adding that employers rarely prioritise pay as they do mental and physical wellbeing.

He says: “Employees build their lives around income, yet employers overlook how central it is to the employee experience.”

Idris Arshad, HR business partner at St Christopher’s hospice says this is exacerbated in workplaces where people keep quiet about financial struggles, and employers can misunderstand what low-paid workers deliver.

He says: “Pay concerns are often geared towards specialist and leadership roles, but organisations often don’t recognise the value of low-paid workers.”

Additionally, Gethin Nadin, CIO at Benefex, says organisations misconceive what pay can be: an investment, rather than a cost, that can benefit the business when it provides an acceptable standard of living for staff.

"Employees build their lives around income, yet employers overlook how central it is to the employee experience"

He says: “We need to start seeing adequate pay as a well being issue. It then becomes easier to make the case that fair and adequate pay makes your people, and subsequently your organisation, better.”

If the function does understand the impact pay has on core people and business metrics Lucy Gilmore, UK HR lead at Lattice, argues that HR’s ability to communicate in business language is perhaps one of the last blockers to a higher-paid model.

She says: “HR needs to operate strategically. They will need to tackle the organisation design, talent management and performance processes confidently and effectively to drive a better working environment.”

For Samantha O’Sullivan, policy lead at the Chartered Institute of Payroll Professionals (CIPP), this approach can then underpin a step-by-step move toward pay rises using workforce planning.

She says: “The CIPP supports increases to pay [but] any changes to minimum wage need to be carefully considered and planned out to ensure that one approach is appropriate for [both SMEs and large organisations].”

Afzal Rahman, policy officer at the TUC, helped create the £15 minimum wage campaign. The roadmap he worked on includes provisions for freezing faster minimum wage rises if they prove to be unfeasible, as well as stipulating ways for the government, the Low Pay Commission and employers to link productivity, pay and the economy in a way that benefits all.

He says: “If workers have money in their pockets they can go and spend it in businesses in their communities. It’s a question about what type of economy we want.”

Yet, as it stands, a £15-an-hour wage floor is still hypothetical.

And, with a recession looming, some employers could become even more reticent about engaging in pay increase conversations.

To get around this, Mona Akiki, chief people officer at Perkbox, says that HR could consider alternate financial support levers.

She says: “HR should investigate impactful cost-savings supported through their wider rewards and benefits offering.”

However, for Charles Cotton, senior reward and performance adviser at the CIPD, such a difficult moment should get HR thinking holistically about its more fundamental business role.

He says: “The only way that higher wages are affordable in the medium-to-long term is through improved productivity, so HR teams should help their employers redesign work, tasks, and the workplace.”

In this way, wages aren’t just something that HR understands as a cost, a reward mechanism or a hygiene factor, but an active participant in making business, work and lives better.


This article first appeared in the September/October 2022 print issue. Subscribe today to have all our latest articles delivered right to your desk.