Minimum wage falls for fifth year in a row

Rate is £1,000 a year lower than in 2008 after inflation. Minimum wage would have to rise to £7.81 by 2017 to recover lost value

Today (October 1) the adult minimum wage goes up from £6.19 an hour to the new rate of £6.31. This increase means the minimum wage will fall in real terms – for the fifth year in a row – because it is not keeping pace with rising prices.

This year’s change in the minimum wage means a fall in real terms of 0.9 per cent (on the basis of RPI inflation), according to analysis from independent think tank the Resolution Foundation. Since 2008 the minimum wage will have fallen by a total of 8.1 per cent or 55 pence in real terms.  (On the basis of CPI inflation the minimum wage will fall by 0.6 per cent this year and will have fallen by 5.4 per cent or 36 pence in total since 2008.)

This year’s new minimum wage of £6.31 an hour will be worth £11,480 a year to a full-time minimum wage worker, compared to an annual value of £12,490 a year in 2008 in today’s prices. This leaves the minimum wage £1,010 lower a year than it was in 2008. 

Around 1 million adult workers in Britain are paid the minimum wage (earning within 5 pence of the adult rate) while as many as 2.4 million workers earn within 50 pence of the minimum wage. The majority of these workers are women. More than one in 10 female employees (12 per cent) now earn within 50 pence of the minimum wage.

The minimum wage is the legal minimum rate. Its value is recommended by the Low Pay Commission and is enforced by the government. The minimum wage differs from the Living Wage, which is the amount deemed necessary for a basic standard of living. The Living Wage, which is a voluntary campaign, currently stands at £7.45 an hour (£8.55 in London). 

Political debate and future prospects for the minimum wage

Leading figures from all three main parties have said they want to find ways of strengthening the minimum wage. Announcements have been made to this effect at both Liberal Democrat and Labour conferences and there have been reports of further possible announcements at Conservative conference. There is particular interest in how the lost value of the minimum wage could be restored as the economy recovers.

Today’s new analysis from the Resolution Foundation also shows how the minimum wage would need to rise in future to keep up with prices and to restore the value it has lost since 2008. It reveals that:

• Just to keep up with prices, maintaining its current value in real terms, the minimum wage would need to rise from £6.31 an hour today to £7.18 by October 2017 (based on RPI inflation).  On the basis of CPI inflation, it would need to rise to £6.81
• If the minimum wage is to recover the value it has lost since 2008, it would need to rise to £7.81 an hour by October 2017 (based on RPI inflation). On the basis of CPI inflation, it would need to rise to £7.20 an hour. Restoring the value of the minimum wage by 2017 (on the basis of RPI) would require year on year above inflation increases in the minimum wage averaging 2.1 per cent a year in real terms.

James Plunkett, Director of Policy at the Resolution Foundation, said:

“The Low Pay Commission has been right to play it safe with the minimum wage in difficult times.  But five years of decline mean we now need to ensure the minimum wage restores its lost value as an economic recovery takes hold.

“So far, this conference season has presented promising signs from all parties on their desire to strengthen the minimum wage. Our numbers show there’s a long way to go for the minimum wage even to make up the ground it’s lost in recent years.

“Parties are searching hard for ideas to tackle low pay – not least because, by 2015, the lowest paid 5 million people in Britain will earn below the threshold for paying income tax. That means they won’t gain a penny from any pre-election pledge to cut income tax, whether by raising the personal allowance further or re-introducing a 10p band.

“All parties need to show they have solid ideas to make sure Britain’s lowest paid workers share in the proceeds of any economic recovery.”