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.
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.
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.