Boost minimum wage and re-balance jobs tax in order to tackle low pay and protect jobs after coronavirus crisis

The Government has been urged to hold firm on its commitment to boosting the minimum wage over the course of the parliament in order to give low paid workers a much needed pay rise, but to introduce a temporary tax cut to minimise the impact on employers recovering from the pandemic.


10 02 2021

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New research – carried out by Learning and Work Institute and Carnegie UK Trust – argues that despite the pandemic and the recession it has triggered, the ambitious minimum wage target is deliverable and it is vital for low paid workers. But government must both support employers to adapt, and take wider measures to boost job quality and tackle poverty.

In 2019, the Government pledged to increase the National Living Wage – the legal minimum wage for workers aged 25 and over – to two thirds of median pay by 2024, and to extend this rate to workers aged 21 and over. Polling commissioned by Learning and Work Institute and Carnegie UK Trust shows that a majority of workers (66%) and businesses (54%) support the move.

Since the pledge, the coronavirus crisis has triggered a deep recession and a rise in unemployment. In order to minimise any potential negative impact on employment from a higher minimum wage, the report calls for a temporary re-balancing of employer national insurance contributions (NICs). Increasing the threshold at which employers start to pay NICs would reduce the tax burden on businesses who are impacted by the increase in the minimum wage, supporting them to adjust to higher wage costs. Through simultaneously increasing the rate at which NICs are paid for higher paid workers, government could ensure the change does not reduce overall revenue for the Treasury.

Future of the minimum wage

Final report

The report argues that increases in the minimum wage must be part of a wider mission to support ‘good work’ across the economy. Polling of employers as part of the research found that 22% of employers with a high proportion of workers on low pay said they may respond to a higher wage floor by using more insecure job contracts, with 17% saying they would cut back on non-pay benefits. 12% of low pay employers said they may remove supervisory or managerial roles in response to a higher minimum wage, which may make progression more challenging. The report calls for the increase to the minimum wage to be part of a wider strategy for good work, including promoting sectoral collective agreements in low pay sectors, in order to agree minimum standards beyond the minimum wage.

While recent increases in the minimum wage have been successful in reducing the number of people on low pay, the number of people in in-work poverty has continued to rise. This is in part because increases in the wage floor have been accompanied by cuts to in-work benefits for those on low incomes and with high living costs, which have pushed more working people into poverty. Any increases in the wage floor need to be accompanied by better support through the social security system, including through retaining the £20 uplift in Universal Credit which is due to end in April.

Joe Dromey, deputy director of research and development at Learning and Work Institute
Government can still achieve its commitment to boosting the minimum wage, but this will be trickier after the pandemic. A temporary rebalancing of employer national insurance contributions would help businesses to adapt to a higher wage floor, minimising any potential job losses. While increasing the minimum wage would deliver a much-deserved pay rise to millions of low-paid workers, this alone will not tackle the scourge of in-work poverty. Government must ensure sufficient support through the social security system, starting by retaining the £20 increase in Universal Credit.
Douglas White, Head of Advocacy at Carnegie UK Trust
Good work has a vital role to play in supporting wellbeing – a decent pay is of fundamental importance. Many low pay workers have been on the frontline during the pandemic and we were pleased that November’s spending review confirmed a rise in the minimum wage. Our report sets out a path towards future sustainable minimum wage increases – providing support for employers as they recover for the pandemic and ensuring that workers receive the pay rise that they deserve and need. We also urge government to be ambitious to driving forward other crucial aspects of their good work agenda, including supporting workers to train and re-skill and progress to build back a resilient labour market from the pandemic.
1. Employers with a high proportion of low paid workers refers to those employers with 25% or more of workers earning below £10.50/hour. This was equivalent to 2/3 of median hourly pay, equivalent to the amount given by Government as their target for the National Living Wage by 2024. 2. The employer survey of 1,002 employers was conducted by YouGov in March 2020. Data was weighted to be representative of businesses by size and industry. 3. The public survey of 1,502 adults across Great Britain was carried out by BMG in October 2019. Data was weighted to reflect the profile of adults across the country by age, sex, region, IMD, income general election results and referendum results.