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£15 UK minimum wage may not be the best way to tackle poverty

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Labour members on Tuesday backed a £15-an-hour minimum wage at their annual party conference in Brighton. Although the vote was not binding and the policy is unlikely to be adopted by Keir Starmer, it has kicked off a debate over whether the legal pay floor should rise or whether an increase would drive up unemployment as the economy emerges from the coronavirus pandemic.

Who suggested the figure is not clear but it does echo the “fight for $15” campaign of US activists, a sum that McDonald’s workers in Britain have said should be paid in sterling. Their campaign, backed by the Bakers, Food and Allied Workers Union, was touted on a banner that Starmer was pictured standing near two years ago. The motion passed at conference on Tuesday was tabled by the GMB union. Starmer has pledged a £10 minimum wage, the same as in the 2019 Labour manifesto and still lobbied for by the TUC.

Almost 2 million workers earn close to the wage floor, which is set at £8.91 an hour for those aged 23 or over and is called the national living wage by the government. Figures from the Low Pay Commission, which advises the government on setting the rate, suggest 6.6 million workers – about a fifth of the total workforce – earn less than £10.90 an hour.

Steady gains have been made in the minimum wage over the two decades since its launch under Tony Blair in April 1999 at an initial rate of £3.60 for over-22s. Since then it has risen faster than average earnings and inflation without damaging jobs, taking the UK’s minimum wage from the middle of the pack among wealthy nations to one of the highest in the western world.

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Although opposed by the Conservatives at first, successive Tory-led governments have raised it, hitting a target for the headline rate to stand at 60% of median earnings by 2020. The Tories have promised to “end low pay” by lifting the minimum wage to two-thirds of median earnings – about £10.50 an hour – by 2024. No EU or G7 country has a minimum wage approaching two-thirds of median earnings.

Median graphic

However, the benchmark against which the minimum is pegged has barely shifted. This is because the UK has had the worst decade for average wage growth since the 19th century, with a worker earning about the same per week in July this year as in February 2008 after taking account of inflation.

According to the latest official figures, median hourly pay in the UK was £13.65 last year, meaning an immediate rise to £15 would affect a wide range of jobs, including some occupations typically considered outside low pay brackets, such as media advisers and estate agents.

Although there is little evidence that the minimum wage has reduced UK employment levels over the past two decades, economists say a sudden jump would probably drive up job losses. Giles Wilkes, a senior fellow at the Institute for Government, said a rate of £15 could add £73bn to employers’ wage bills. “The jobs would disappear,” he said.

Stagnate graphic

Tom Ironside, the director of business and regulation at the British Retail Consortium, the trade body for some of the UK’s biggest employers, said: “Retailers support the objective of higher wages in the industry and have been working hard in recent years to secure the productivity improvements needed to ensure such increases are sustainable. However, increasing the national living wage to the level that has been proposed in some quarters would be unsustainable, adding very significantly to the cumulative pressures that are already facing the retail industry.”

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Kate Nicholls, the chief executive of UKHospitality, which represents thousands of restaurants, bars and hotels, said: “A sudden, significant leap to £15 at a severely challenging time for venues would risk both job losses and price hikes, both of which would damage the sector just as it is trying to recover from the costs of closures and trading restrictions during Covid.”

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A £15 rate is likely to become more realistic over time, particularly if earnings rise sharply, as expected by some economists amid mounting inflationary pressures and labour shortages in Britain’s post-lockdown economy.

OECD graphic

There are concerns that minimum wage rises have led employers to look for savings elsewhere by whittling away at terms and conditions. The widespread adoption of zero-hours contracts is seen as one way in which employers have sought to make savings by imposing more flexibility on workers.

The coffee shop chain Pret a Manger recently raised starting hourly pay to £9.40 but that came after it had stopped paying workers for breaks – so that someone on an eight-hour shift had already seen their pay fall by 6%.

When Morrisons said it would guarantee pay of at least £10 for workers in January, it admitted it offset a quarter of the cost by scrapping a discretionary annual bonus scheme. Tesco made the same move in 2019, while Sainsbury’s cut paid breaks, annual bonuses and premium pay for Sundays.

On the current minimum wage, an adult working a 37.5-hour week would earn about £17,400 a year. Government figures suggest that a £15 rate would place a full-time worker in the current top 40% of incomes in Britain before tax.

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“For me, that shows we might be reaching the limit of how much we can improve living standards by improving the minimum wage,” said Dave Innes, the head of economics at the Joseph Rowntree Foundation. “When we talk to workers living in poverty, they might not necessarily complain about hourly wages but what hours they have to meet their living costs, and if they can fit them around their family commitments.”

Experts believe a more powerful way to tackle poverty would be to bear down on zero-hours contracts and ensuring employees have more predictable work patterns.

Minimum-wage workers are more likely not to get the hours they require, with 15% of the lowest-paid tenth of UK workers wanting more hours, compared with only 3% among the highest-paid tenth.

Nye Cominetti, a senior economist at the Resolution Foundation, said: “It’s the predictability of hours that matters as well. Obviously, a change in hours, a few in either direction, could have a big impact on your pay each week. There’s more that can be done for low-paid workers than just the minimum wage.”

This article was amended on 4 October 2021. The national living wage applies to those aged 23 or over, not the “over-23s” as an earlier version said.