Rise is the highest ever in real terms, but experts are divided on its impact; TUC calls for end to separate pay rates for under-25s
The national minimum wage will increase for millions of workers on 1 October, amid an ongoing and increasingly fractious debate about its effects on the financial health of the lowest-paid employees, and the overall level of employment.
From tomorrow, 21 to 24-year-olds must be paid at least £6.95 an hour, while 18 to 20-year-olds receive £5.55 an hour. Both represent increases of 25p per hour, which equates to an extra £450 a year for anyone working 35 hours a week.
Under the changes, the legal rate for 16 and 17-year-olds will go up 13p to £4 an hour. Apprentices must be paid £3.40, a 10p rise on the current rate.
The changes were recommended by the Low Pay Commission as part of the government’s drive to ramp up the earnings of low-paid workers. Further increases are expected across all age groups in April 2017.
The new rates do not affect the national living wage (NLW) for over-25s, which currently stands at £7.20 an hour and will be reviewed next year as part of a drive to reach 60 per cent of median earnings by 2020.
But the move has reignited a debate about whether the timing of the rise – as the UK struggles with the implications of leaving the EU – is helpful to the broader economy, and whether the notion of different rates for over-25s remains politically desirable.
Professor Peter Urwin, director of the Centre for Employment Research at Westminster Business School, said raising minimum wages was counterproductive given the economic context.
“In the face of global competition and continuing technological development that spurs automation and offshoring across a range of lower-paid jobs, we are increasing the cost of employing lower-paid workers, providing further incentives for automation and offshoring,” he said.
“As low skilled, low earners continue to bear the brunt of globalisation and the technological revolution, one thing remains clear; raising minimum wages is not the answer.”
Pub industry body the Association of Licensed Multiple Retailers told the Low Pay Commission earlier this year that it should abandon plans to raise minimum wages until at least April 2017 in the wake of the EU referendum vote, a view echoed by a number of other trade bodies. But the CBI welcomed the latest rise as “sustainable”.
As the latest issue of People Management reported, there is little evidence that the introduction of the national living wage in April 2016 has so far affected employment levels or recruitment intentions.
UK employment has now reached its highest level for 45 years, and 46 per cent of organisations surveyed in the latest CIPD Labour Market Outlook predicted the NLW would have no effect on their wage bill.
The TUC has suggested these figures mean minimum wages should rise further. And today, it renewed its previous call for an end to separate pay rates. General secretary Frances O’Grady said: “There is no justification for paying people in their early twenties 25p an hour less than other adults.
“Their employment rate is rising and they work just as hard as older workers, yet are entitled to less at the end of the week. That’s simply not right.
“These young workers are getting a raw deal – it’s time for the government to bump them up to the full minimum wage.”
A spokesperson from the Department for Business, Energy & Industrial Strategy, said: ““The Government is committed to building an economy that works for all and the rise in the national minimum wage is doing just that.
“The rate rises are recommended by the independent Low Pay Commission, which takes the interests of both workers and businesses into account.”
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