The minimum wage needs to keep up

According to a report a fifth of workers – nearly five million people – now earn less than the “living wage” judged necessary for a basic family life

Disputes over the minimum wage are no longer a question of whether it should exist but rather at what level it should be set. Now, with living standards squeezed by both the financial crisis and persistent inflation, politicians across the spectrum are – rightly – looking for ways to raise it.

Few dispute that the question of pay is growing urgent. While employment levels proved surprisingly resilient in the economic downturn, the trade-off has been stagnant wages, fewer hours, or both. Nor will recovery necessarily reverse the trend. Meanwhile, sub-inflationary increases in the minimum wage are compounding the problem. According to a report from the Resolution Foundation today, a fifth of workers – nearly five million people – now earn less than the “living wage” judged necessary for a basic family life.

No wonder payday lender Wonga is reporting profits surging to more than £1m a week. There is a place for short-term, unsecured loans – in helping meet one-off emergencies, say. But their ballooning use reflects deeper, more concerning, trends.

There is much to be done. The first step is to enforce the rules. Despite the high number of well-known scams – charging staff for uniforms, for example – there has been little progress in clamping down on unscrupulous employers.

The basic rate will still need to be raised, however. The minimum wage is simply too far behind living costs. So much so, in fact, that experts predict that by 2017 it will be lower, in real terms, than in 2004, when it was introduced.

Finally, calls for employers voluntarily to adopt the living wage deserve full support. Given the balance to be struck between income and employment – get it wrong, and the low-paid will lose their jobs altogether – a voluntary system, with rates that vary according to location, has much to recommend it.