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Labour and Tory pledge to increase National Minimum Wage could put low income jobs in danger, IFS warns

The tax and spending thinkthank said both parties' policies could penalise the group they are supposed to help the most

Zlata Rodionova
Thursday 11 May 2017 09:58 BST
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The national minimum hourly rate currently ranges from £3.40 for apprentices and £4 for under 18s to £7.20 for people aged 25 and over
The national minimum hourly rate currently ranges from £3.40 for apprentices and £4 for under 18s to £7.20 for people aged 25 and over

Proposals by both Labour and the Conservatives to “dramatically“ increase the minimum wage could put the jobs of lower paid workers at risk, according to a new report by the Institute for Fiscal Studies (IFS).

The Conservatives plan to increase the national living wage to £8.75 by 2020. Under plans proposed by Labour it would rise to £10 per hour in that time.

However, the IFS, which is a highly respected tax and spending thinktank, said both parties’ policies could backfire, particularly penalising the group they are supposed to help most, because employers will be unable to foot the ballooning bill of hiring.

The proportion of employees who are aged 25 or above and are paid the national living wage currently stands at 8 per cent. According to IFS analysis, under the Conservatives, the figure would jump to 12 per cent by 2020 and by 22 per cent under plans proposed by Labour.

Also under a Labour scenario, more than a quarter of private sector employees aged 25 or above would be paid the minimum. A total of 60 per cent of workers aged between 18 and 24 would be paid minimum wage and many could even lose their jobs.

“There may well be a case for further gradual increases in the minimum wage but increases on the scale and at the speed being proposed create big risks,” according to the IFS.

The research found that the minimum wages proposed by both parties are high relative to other comparable countries. Labour’s plans would result in a UK minimum wage level relative to average earnings, broadly on par with that in France, where it is the highest among all comparable countries, according to the IFS.

Part-time, female and private sector employees and those in the North of England as well as in the Midlands and Wales would most likely be affected by the proposed increases, the IFS said.

“Carefully set minimum wages can be a useful policy tool for governments seeking to help those on low wages. But at some point, higher minimum wages will reduce the employment of lower skilled workers,” said Jonathan Cribb, a senior research economist at IFS, and one of the authors of the report.

“Since we do not know where that point is, sudden large increases are risky. They endanger the jobs of those they seek to help.”

The national minimum hourly rate currently ranges from £3.40 for apprentices and £4 for under 18s to £7.20 for people aged 25 and over.

In February, around 350 businesses in Britain were named and shamed by the Government for underpaying thousands of workers a total of nearly £1m.

Earlier this week, the John Lewis Partnership, which includes John Lewis and Waitrose stores, said it has set aside £36m to cover potential back payments to staff after admitting it may have breached national minimum wage rules.

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