Council tax is going up. Train fares are rising. Broadband will cost more, and so will electricity and water. April opens with a blizzard of price rises that will make it far harder for everyone to make ends meet, especially if they are on a low income. The one compensation is that the minimum wage is going up as well. There is just one catch, however. The UK now has one of the highest minimum wages in the world – and very soon it is going to become painfully clear it will start costing jobs.
It is the one statistic the government will be boasting about on Tuesday. The National Living Wage is rising from £11.44 an hour to £12.21, a rise of 6.7 per cent, significantly ahead of inflation, currently running at 2.8 per cent. For an eligible full-time worker, it will mean a pay rise of £1,400 a year. ‘Making work pay is good for workers, will strengthen businesses’ workforces, and will grow our economy for years to come,’ bragged the Chancellor Rachel Reeves, no doubt relived to have something other to discuss than whether she would have to break her fiscal rules, or raise taxes still further.
Of course, everyone agrees that raising wages for the people right at the bottom of the pay scale is a good thing, especially when very high levels of immigration mean that pay for relatively low-skilled work has been under a lot of pressure. Ever since it was introduced by the Blair government, and enthusiastically increased by the Tories, the minimum wage has been, in fairness, a successful policy. It has increased real earnings, and it has not reduced the number of jobs available, at least not noticeably.
The trouble is, it has always been set at a fairly modest level. Today’s increase will make it one of the highest in the world. According to the government’s own figures, the UK now has the second highest minimum wage relative to median wages in the G7, slightly behind France, but ahead of Germany, Canada, Japan, and the USA. At the same time, later this week the rate of National Insurance employers have to pay is going up steeply, while the threshold is coming down.
By next week, companies will have to pay their staff more, and pay higher taxes for each person they employ. Taken together, each person will cost 14.2 per cent more. Even the Resolution Foundation, hardly a right-wing think tank, estimates it will reduce employment by 80,000. But of course no one really knows. Many pubs, restaurants, and shops, typically employing many minimum wage staff, are already struggling to stay afloat. Some may have to shorten opening hours, others may lay off staff where possible, and a few may decide it is no longer worth the hassle of running the business if they can’t make any money. At some level, basic economics tells us a rising minimum wage will destroy jobs. Has the UK reached the tipping point? We will find out this week – and it could well prove a very expensive lesson.
Comments