Employers want minimum wage to keep 'real value'

Keeping the national minimum wage (NMW) in line with inflation is one of the main concerns for employers, a CIPD report has found.

The Low Pay Commission recently suggested a 19p increase in the NMW hourly rate, bringing it up to £6.50. The Government is looking at the proposals, which would take effect in October 2014 if adopted.

The CIPD report, 'Tackling Low Pay', which surveyed more than 1,000 UK companies, supports this, saying it is a sensible way to address low pay while not making unrealistic demands on employers. 

Almost two-thirds of employers (64%) said that policy makers should focus on ensuring the minimum wage keeps its real value. Almost a fifth (19%) did not believe this, with 17% saying they did not know. 

Almost all employers (89%) said that NMW should be linked to inflation as a way of ensuring it retains its real value.

CIPD reward adviser Charles Cotton told HR magazine that the two should keep on the same trajectory over time.

"If there is a large rise in inflation one year NMW can't be raised to keep up with it. It's all about anticipating what's going to happen and keeping them aligned in the long-term," he said.

The report recommends that an increase in the NMW should not be used as a potential driver for productivity and the NMW should only be increased if productivity rises.

"We're not convinced raising NMW would increase productivity," Cotton said. "If it is raised without productivity increasing first, companies will find it increasingly hard to pay in the long-term."

Since this story has been written The Government has accepted the proposals and changed the NMW to £6.50. Katja Hall, CBI, Chief Policy Director said: “The Government’s decision to accept the Low Pay Commission’s recommendation of a 3% rise in the national minimum wage is a sensible one and will not put jobs at risk.

“This rise will strike the right balance between protecting jobs whilst ensuring those on minimum wage benefit as the economic recovery takes hold.”