You are here: Home - Household Bills - News -

Political parties’ minimum wage rises could cause more harm than good

0
Written by: Paloma Kubiak
11/05/2017
The Conservatives and Labour have each outlined plans to raise the minimum wage by 2020, but such moves could actually pose a risk to those who are set to benefit the most a think tank warns.

Currently the minimum amount workers are paid each hour is dependent on age. The National Living Wage for all working people aged 25 and over is £7.50 per hour, while the National Minimum Wage for those under 25 again depends on which age bracket you fall into (between £3.40 and £6.95 an hour).

For those aged 25 and over, the Conservatives plan to raise the minimum wage to £8.75 an hour in 2020, which is 5% higher than if it increased in line with average earnings.

Under a Labour administration workers aged 25+ would receive £10 an hour in 2020, which is 20% higher than under the average earnings indexation according to the Institute for Fiscal Studies (IFS).

It said that while a higher minimum wage may be effective at boosting the wages of low earners, a significantly increased wage for some workers is ultimately paid for by other households via higher consumer prices or lower earnings for higher paid workers.

The IFS said that crucially, there must be a point beyond which higher minimum wages have substantial negative impacts on employment and currently this point isn’t known which is why a wage spike could be risky.

In the years leading to 2020, the numbers receiving the minimum wage will rise from 4% of those aged 25 and over (in 2015) to 12% under the Conservative plans and to 22% under a Labour administration, revealing a significant increase.

As such the benefit from minimum wage increases is concentrated among middle-income households, not the lowest-income households. This in part is because many individuals on low wages are in middle- or high-income households because of the earnings of their partner, while many of the lowest-income households have no-one in work at all.

The IFS added that low-income households that do gain are likely to see significant reductions in means-tested benefits as a result of higher wages, offsetting some of the gains.

The report’s authors said the Conservative and Labour parties are both moving away from the previous model of minimum wage setting, in which the independent Low Pay Commission recommended minimum wage levels while carefully considering the consequences for employment.

“There may well be a case for higher minimum wages than we have had up to now. But we do not know at precisely what point a higher minimum wage will start having serious negative employment effects. Therefore, large and sudden increases create considerable risk that those who are supposed to be the beneficiaries of the policy end up paying the cost in higher unemployment or lower hours of work,” it stated.

There are 0 Comment(s)

If you wish to comment without signing in, click your cursor in the top box and tick the 'Sign in as a guest' box at the bottom.

Are you a first-time buyer looking for a mortgage?

Look no further, get the help you need by searching for your perfect mortgage

Five ways to get on the property ladder without the Bank of Mum and Dad

A report suggests the Bank of Mum and Dad is running low on funds. Fortunately, there are other options for st...

The essential Your Money guide to the April 2018 tax changes

As we head into the 2018/19 tax year, a number of key changes take place to existing policies while some new i...

A guide to switching energy provider

All you need to know about switching from one energy supplier to another.

What will happen if rates change

How your finances will be impacted by a rise in interest rates.

Regular Savings Calculator

Small regular contributions can build up nicely over time.

Online Savings Calculator

Work out how your online savings can build over time.

Having a baby and your finances: seven top tips

We’re guessing the Duchess of Cambridge won’t be fretting about maternity pay or whether she’ll still be...

Protecting family wealth: 10 tips for cutting inheritance tax

Inheritance tax - sometimes known as 'death tax' - can cause even more heartache for bereaved families. But th...

Travel insurance: Five tips to ensure a successful claim

Ahead of your summer holiday, it’s important to make sure you have the right level of travel cover or you co...

YourMoney.com Awards 2018

Now in their 21st year, our awards recognise the companies offering the best products and services to consumers

Money Tips of the Week

Read previous post:
2334205-energy-bills-gas
Energy customers face huge price hikes as 70 fixed-tariffs end

Energy customers who roll over onto standard tariffs face an estimated £333 hike in their bills according to research from...

Close