Minimum wage set for smallest rise in a decade, but Government should stick to plans to abolish low pay

The covid crisis means the UK’s two million minimum wage workers are set to receive the smallest pay increase since 2010  – of around 15p – next April, but the economic shock does not mean the Government should abandon its pledge to abolish low pay by the middle of the decade, according to the Resolution Foundation’s annual Low Pay Britain report published today (Thursday).

Low Pay Britain 2020 takes stock of low pay on the eve of the pandemic, how low-paid workers have been affected by the crisis, and what this means for both the forthcoming rise in the National Living Wage (NLW), and the Government’s ambition to abolish low pay.

The report finds that the UK entered the covid-crisis with the proportion of low-paid workers across Britain falling for a six successive year to 15.5 per cent of the workforce – its lowest level since 1978 – following the introduction and raising of the National Living Wage.

However, low-paid workers have found themselves at the heart of the covid crisis – facing the widest health risks and biggest economic hit.

Low paid workers were 50 per cent more likely to continue to work outside the home during lockdown. And with around two million workers in low-paid sectors such as hospitality and leisure still on furlough at the end of July, this group faces by far the highest unemployment risk in the months ahead.

The Foundation notes that this has both strengthened the case for rewarding low-paid staff by abolishing low pay, while also highlighting the need for caution in raising the NLW as unemployment starts to rise.

Fortunately, the Foundation says that both of these seemingly contrasting objectives can be achieved. That’s because the Government’s ambition to end low pay is flexible enough to cope with economic shocks, as it is set not in pounds and pence but relative to earnings in the wider economy. The target is to raise the National Living Wage up to the low-paid threshold of two-thirds of typical hourly earnings by 2024.

The Low Pay Commission, which recommends the rate of the National Living Wage (currently set at £8.72 an hour) had previously been expected to propose increasing the minimum wage by 50p next April.

But with forecasters now forecasting wages to be 4.5 per cent lower next April than expected pre-crisis, Resolution Foundation analysis indicates that the Low Pay Commission is likely to propose an increase of well under half that.

The report shows that even a cautious rise in the minimum wage next April of around 15p per hour would still leave the Government on track to raise the NLW to two-thirds of typical earnings by 2024.

The Foundation says that combining short-term caution with long-term ambition is the best way to help low-paid workers through the crisis, and towards a better-paid future.

It adds that the Government should also look to other ways to reward low-paid workers beyond a higher minimum wage, such as stronger enforcement of the legal wage floor, a new right to a contract that reflects the actual hours they work, and a right to compensation where shifts are cancelled without reasonable notice.

Nye Cominetti, Senior Economist at the Resolution Foundation, said:

“Britain’s low-paid workers have been at the heart of the covid crisis.

“At the height of lockdown, low-paid workers helped keep Britain afloat by looking after our loved ones and ensuring that we all had food to eat.  But as Britain enters the next phase of the crisis, low-paid workers in sectors such as hospitality and leisure also face the biggest risk of redundancy.

“Given the shock to the economy, the minimum wage looks set for its smallest rise in a decade next April. While caution is justified the case for rewarding these workers is stronger than ever, and there is no reason for the Government to back away from its target of abolishing low pay entirely.”