Labour to boost minimum wage to £8 to help make work really pay

Tue, 23/09/2014 - 14:05 -- nick

The Labour party has announced a new policy that could revolutionise life for Britain's worst-paid workers and help unemployed people afford to take jobs.

If they get into government at the 2015 election, Ed Miliband has promised to raise the minimum wage over the next parliament to £8 per hour by 2019.

The rate is due to rise to £6.50 shortly, equating to £13,520 per year for a full time worker doing 40 hours per week.

That same worker will earn £16,640 under Miliband's plan, £3,120 more than currently.

This represents a rise of 23% over four years, and with inflation likely to be low for some time to come this will make a huge difference to the low paid.

Iain Duncan Smith has claimed he wants to 'make work pay', but his only actions towards this have been on the side of making benefits ever-more unliveable through caps and cuts, with no interest in actually improving entry-level wages.

The Low Pay Commission has responsibility for the minimum wage, aiming to set it at a level which will cost no jobs.

Around 1.4 million people are in minimum wage work, but increasing it to £8 will mean more benefitting as those who are earning between £6.50 and £8.00 will be included as their pay becomes the new low.

There are currently more than five million people earning less than £7.71 - nearly one-in-five British workers.

It is not clear why Labour does not simply support the living wage, a concept which has the advantage of being based on a calculation of the real needs of the low paid rather than a notional value.

It currently stands at £7.65 across the UK, meaning the proposed £8 is likely to be near the living wage's value by the time it is introduced.

It also has the advantage that it is calculated separately for London, and the higher current cost of £8.80 for every hour worked in the capital would help spread economic prosperity as some firms chose to move to lower-wage areas.

Predictably the Confederation of British Industry (CBI) has stepped in, its deputy director general Katja Hall saying:

"Raising wages in this way would put serious strain on businesses, particularly hard-pressed smaller firms with tight margins, which would end up employing fewer people."

Businesses always oppose cost rises, but this is more complicated than it first appears.

Low paid workers usually have their wages topped up by tax credits, and these are paid for from general taxation.

Too many companies have been exposed as having avoided paying their fair share of tax through dodgy schemes, and this means the cost of employing their workers is partly being met from the rest of our taxes while many businesses pay ever-higher directors wages and dividends.

The Labour scheme may not be perfect, but anything that makes work more affordable for unemployed people while making firms meet their own costs should be welcomed.