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Warning that raising the National Living Wage would cost jobs

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Written by: Emma Lunn
16/11/2020
Job creation and economic growth could be put at risk if the government raises the National Living Wage, according to the Centre for Policy Studies (CPS).

The National Living Wage is currently £8.72 an hour which is 60% of median earnings. The government has set a target for the National Living Wage to reach two-thirds of median earnings by 2024, and extending it to cover those aged 21 to 25.

This would mean the minimum hourly income going from £8.72 to £10.50 for all those over the age of 21.

But the CPS has published a report highlighting the risks of such a policy for employment during the recession, saying it would disadvantage young workers.

The think tank is urging the government to prioritise protecting and creating jobs during the recession, especially in those sectors hardest hit by the pandemic.

It argues that raising the minimum wage, and extending it from 25 to 21 year-olds, will harm the employment prospects of younger workers, as well as disproportionately hitting sectors such as retail and hospitality that have been most affected by the pandemic.

The CPS says that increasing the National Living Wage so sharply, and extending it to cover those aged 21 to 25, would also impose heavy costs on those businesses that are already struggling as a result of the lockdown, and incentivise employers to discriminate against the young.

It would also have a heavy cost to the state, estimated by the CPS at a minimum of £2.4bn, which will be felt particularly in the social care sector.

Even before the pandemic, the Office for Budget Responsibility forecasted that the National Living Wage increase in April 2020 would increase unemployment by 50,000 and reduce real GDP.

The CPS is urging ministers to put on hold the planned increase in the National Living Wage, as well as its expansion to those under 25, to avoid punishing the most vulnerable workers and increasing costs for the companies hardest hit by the pandemic.

Jethro Elsden, CPS researcher and data analyst and report author, said: “The generosity of the impulse behind raising and expanding the National Living Wage can only be applauded. But going ahead with the current plans will harm the very people it is designed to help.

“This policy would not only threaten to increase unemployment, but would hit precisely those sectors, regions and age groups that have already suffered the most from the coronavirus, not to mention imposing a significant additional cost to the Treasury. It would also increase the burden on businesses at a time when their burdens are heavier than at any time in living memory. If anything, we should be cutting the cost of employment, not increasing it.”

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