National Minimum Wage – reaction and briefing notes from the Resolution Foundation

Today’s announcement at a Resolution Foundation event by Business Secretary Vince Cable that the National Minimum Wage will increase by 1.9 per cent to £6.31 for an hour for adults means that  the wage floor is set to fall in real terms for the fourth year in succession – to around its 2004 level.

In order to maintain the spending power of the current minimum wage (£6.19 an hour) against a background of rising prices, it would have needed to increase to £6.39 an hour for 2013-2014.

However the Resolution Foundation said the government deserved some credit for accepting the Low Pay Commission’s recommendation to increase the minimum wage in line with average earnings – despite earlier speculation that ministers might impose a cash freeze.

Vince Cable’s announcement that he will take “tough new measures” to enforce the minimum wage was warmly welcomed by the Resolution Foundation, which says that turning this into action must be an urgent priority.

Gavin Kelly, chief executive of the Resolution Foundation, said: ““A below-inflation rise in the minimum wage will be a tough blow for all those struggling to get by on low pay. This will be the  fourth straight annual fall in the minimum wage after taking account of inflation. It underlines the need for new thinking on the future of the minimum wage so that it can recover lost ground quickly when the jobs market becomes healthier again”.

James Plunkett, director of policy at the Resolution Foundation, said: “Today’s announcement on the minimum wage reminds us again of the continued weaknesses in the jobs market. The respected Low Pay Commission has maintained its cautious approach, being careful to set a rate that won’t harm employment, and the government is absolutely right to support that approach rather than impose a cash-freeze.”

The Resolution Foundation’s Commission on Living Standards has argued that the government should broaden its approach to the minimum wage into a genuine low pay strategy.  The Commission – which included leading employers, the TUC and key economists – strongly supported the work of the LPC and its record to date but recommended this success be built on with a broader remit.

This would be done by giving the LPC a new role of judging which sectors of the UK economy could afford to pay more than the national minimum wage without employment effects, setting a non-mandatory “affordable wage” for each sector.  Although the rate would not be binding, it would support employers and campaigners arguing for fair pay and provide a crucial evidence base that is currently missing.

The recommendation stemmed from research showing that many sectors of the UK economy could afford to pay more and yet feel little upward pressure to do so.