By Richard Johnstone | 19 May 2014
Labour has proposed linking the National Minimum Wage to average earnings in a bid to cut the cost of low pay to the public finances, estimated at more than £3.2bn.
Party leader Ed Miliband today backed the recommendations of a review commissioned by the Labour Party, which concluded changes were needed to the minimum wage regime to ensure it meets the challenge of the 21st century.
The report by Alan Buckle, former deputy chair of accountants KPMG, also published today, called for a five-year plan to be put in place over the next parliament ‘to increase the National Minimum Wage so that is gets closer to average earnings’.
This should form part of a new mandate for the Low Pay Commission, which currently sets the NMW rate, to give it responsibility to tackle poverty and raising productivity across the UK.
Current rules state that the Low Pay Commission must recommend the level for the minimum wage that will help as many low-paid workers as possible without any significant adverse impact on employment or the economy. It stands at £6.31 an hour for workers 21 and over, with lower rates for younger employees and apprenticeships.
Miliband said changes were needed to ensure low-paid workers were rewarded in work and to ‘cut the costs of failure to the social security system’.
Around one in five workers, or 5.2 million people, currently earn around the minimum, which costs the government more than £3.2bn as a result of income top-ups in tax credits and benefits, the report concluded.
Despite the introduction of the NMW in 1999, Miliband said the problem of low pay had grown.
‘Britain is still one of the lowest paid countries among the world’s advanced economies,’ he said.
‘So we have to go further, we have to write the next chapter in the history of Labour’s battle to make work pay. The next Labour government will restore the link between hard work and building a decent life for your family.’
He said Buckle’s report, which also called for greater enforcement of the NMW and encouragement for employers to pay the higher Living Wage by making it a condition of government contracts, showed how this would be possible.
‘That’s why today, I am proud to announce that the next Labour government will take new radical action against low pay: a new five-year ambition to restore the link between doing a hard day’s work and building a decent life for your family.
‘A Labour government will establish a clear link between the level of the minimum wage and the scale of wages paid to other workers in our economy. We will say workers on the minimum wage must never be left behind because those who work hard to create our nation’s wealth should share in it.’
He said the party would set out closer to the election how the party would work with businesses to introduce the new regime, so employers have the certainty they need to plan ahead.
Publishing the report, Buckle said the lesson from the introduction of the National Minimum Wage in 1999 was that employers are able to adapt.
‘The current system was designed in the 1990s to stop extreme low pay and abuse. But, with millions of people earning just above the minimum still living in poverty, we need a broader and more ambitious strategy to tackle low pay and move to a more high skill, high wage economy. Businesses have choices about how to compete, and policymakers should seek to create incentives to encourage more productive, higher value business models.
‘I believe that my core proposal of a clear goal to increase the minimum wage over the life of a parliament is achievable as part of a national mission to tackle the problem of low pay, and that achieving this will be good for citizens, business and the government.’
