How to weigh up minimum wage manifesto promises

While the principle of there being a minimum wage is, happily, no longer a matter of ideological contention in British politics, its future level is likely to remain a key labour market question in the general election campaign.

It matters. First and foremost for the 1.6 million workers who directly rely on it (as well as the millions of others paid slightly above it whose pay is still affected by the wage floor). But it is also of great consequence for large swathes of employers often operating in low-margin sectors, who need to adjust to it each year. Steadily raising the wage floor to two-thirds of median hourly pay has been an enormous policy success story of the past 25 years. Curiously, then, neither party has yet announced in this election campaign any specific plans for its future path. To date, the Conservatives have a policy for 2025 only – raising the minimum wage in line with earnings – while Labour have not spelled out what their policy of ‘taking into account the cost of living’ means in practice for minimum wage setting.

Economists and policy makers think about the level of the minimum wage relative to typical wages – the ‘bite’. This is sensible as it anchors the wage floor debate in the context of overall wage growth. Sometimes this approach makes its way into manifestos (e.g. the last two Conservative manifestos have framed their minimum wage commitments as reaching first 60 per cent, and then two-thirds, of median wages). But more commonly parties propose cash figures for the minimum wage – history suggests this is likely to happen again at this election. The three most recent Labour Party manifestos have presented their proposals in cash terms, as did the Conservative’s in 2015.

Targets set as cash figures – preferably nice round ones – are always favoured by party campaigners. But they trouble policy experts who rightly point out that whether they are met or not is determined by what happens to inflation and nominal wages rather than by improvements in the plight of the lowest earners relative to other workers. When nominal pay growth is faster than expected, a cash minimum wage promise can turn out to be not very ambitious after all – this was the case with Jeremy Hunt’s promise in 2023 to raise the minimum wage this year to at least £11 (fast wage growth meant the actual value turned out to be £11.44). The opposite was the case for George Osborne’s National Living Wage policy announcement in 2015 – he said this would reach £9 by 2020 (the OBR actually went further and forecast it would reach £9.35 in 2020), but in the end overall wage growth disappointed and the 2020 NLW was £8.72.

The wider point here is that, first, an ambition set solely in cash terms without a clear date attached is completely meaningless. Second, a purely cash figure tied to a clear date in the distant future is extremely hard to interpret in terms of its level of ambition, as this will be largely be determined by what happens to inflation in the intervening years. And, third, any cash figure that is itself based on an underlying ‘bite’ policy is only as useful as the wage forecasts it’s based on – the recent inflation shock should remind us that any long-term forecasts need to be taken with a grain of salt.

With these pointers and caveats in mind, how should we go about interpreting any minimum wage goal set by the parties for the next Parliament? To guide thinking on this, here we consider two simple scenarios: a ‘cautious’ approach which would simply maintain the current bite of two-thirds of median wages throughout the next parliament; and an ‘ambitious’ approach which would see the bite continue to rise in line with the (relatively rapid) post 2015 trajectory – reaching 73 per cent by 2029.

As the chart shows, based on the OBR’s current wage forecasts, the ‘cautious’ approach (the yellow dotted line) suggests a minimum wage rising to over £12.80 by 2029. Whereas the ‘ambitious’ strategy (the lilac dotted line) would see it rising to more than £14.10 by the end of the parliament. These future minimum wage levels would of course be different if wage growth turns out to be slower or faster than the OBR expects.

This latter trajectory should be seen as stretching for two additional reasons. First, we can’t be certain that it will be possible to raise the bite of the minimum wage at the same pace as since 2015 for five more years – we are, after all, starting from a far higher level now, and it is possible that undesirable side-effects (e.g. significant negative effects on employment) that have so far been avoided could emerge before that target is reached. Second, before the current general election was called the government set a one year policy of holding the bite constant between 2024 and 2025. To be on our ambitious path towards a 73% bite a new government would need to act quickly this autumn to overturn this ‘pause’ and instead announce a higher than currently planned increase for April 2025. (If a new government opted to persist with the one year pause in the bite before recommencing with the path of 2015-2024 increases the wage floor would be expected to be below £14, at £13.88, in 2029.)

Some will argue that even this ‘ambitious’ trajectory is too timid. But, to put this in context, a £15 minimum wage (to pick a round number) in April 2025 would mean a bite of 86% – the highest in the advanced world. This would result in an incredibly low differential between typical and low wages. Even aiming for £15 by 2029 would put us on course for a bite of 78% (based on OBR projections), representing a major acceleration in the, fairly rapid, rate of recent increases.

If either or both parties wish to pursue anything like the ambitious path to 73% by 2029 set out in the chart above (and that Resolution Foundation has previously advocated) this should run alongside a strengthened framework for the independent Low Pay Commission. Indeed, this should be a quid pro quo. Put simply, as we aim higher more care needs to be taken with each step; and there should be greater openness about potential trade-offs that may arise. If we want a minimum wage strategy that aims to stay on the upwards trajectory that we’ve experienced over recent years – and there are good reasons for seeking this – then we also need to  accept that sometimes the brakes will need to be applied.

These institutional details clearly won’t form a major part of a general election campaign. But they matter. Let’s hope that when the party manifestos appear there is more to them than a simple cash goal set in the distant future and that the detail carefully builds on the success of one of the UK’s greatest policy triumphs.