Bold rise in minimum wage needed for both workers and the economy, says TUC

Not only can the economy support a significant increase in the National Minimum Wage (NMW) beyond £7, but there is a growing consensus that it will benefit long term growth and stability, the TUC has said today (Thursday) in its submission to the Low Pay Commission (LPC).

While the NMW rose above inflation last month for the first time in four years, at £6.50 it is still well below the peak of its real value. Had it kept up with rising prices it would be over £7 today.

The TUC, which presents evidence to the LPC today (Thursday) on next year’s minimum wage rates, says that the government must increase the minimum wage by more than the rate of inflation to avoid putting even further financial strain on low-wage families. A higher minimum wage will also reduce inequality, which a study by the International Monetary Fund (IMF) shows is associated with weaker growth.

Business leaders, the Treasury and leading politicians from all the main parties have joined the consensus for a faster real terms increase in the value of the NMW, while the Bank of England has also highlighted the need for wage growth.

Corporate profitability has increased during the past year, especially in the service sector where many minimum wage jobs are concentrated, so there is capacity for firms to pay a higher minimum wage.

TUC General Secretary Frances O’Grady said: “Britain needs a pay rise and workers on the minimum wage should be first in line. A wages-led recovery is the best chance we have of sustaining economic growth and restoring living standards.

“Politicians from all parties and many business leaders now agree that the minimum wage should increase far more rapidly. The Low Pay Commission will be pushing at an open door if it makes a bold recommendation for a significant rise.”

NOTES TO EDITORS:

- The LPC is currently considering the rates to apply from 1 October 2015. The Commission will report to the government in February and the government will announce its decision in the spring. As part of its evidence gathering programme, the Commission holds a two-day oral evidence session in November each year to question the TUC, CBI and others on their views on the development of the minimum wage in the following year.

- In addition to its oral submission, the TUC has made a full written submission to the Low Pay Commission, which can be found at https://www.tuc.org.uk/sites/default/files/LOW-PAY-COMMISSION-TUC-RESPONSE.docx

- The International Monetary Fund has recently issued a research paper warning that income inequality is bad for growth, finding that countries with high levels of inequality suffered lower growth than nations that distributed incomes more evenly. It can be found at http://www.imf.org/external/pubs/ft/sdn/2014/sdn1402.pdf

- The Bank of England also sees the need for stronger wages growth. In his statement accompanying the May Inflation Report, the Governor, Mark Carney, turned his attention to the role of pay, with a warning that: “the recovery is neither balanced nor sustainable. A few quarters of above trend growth driven by household spending are a good start but they aren’t sufficient for sustained momentum…..wage growth remains weak, and the household savings rate is likely to fall further”. His remarks can be found at http://uk.reuters.com/article/2014/02/12/uk-britain-boe-inflation-report-idUKBREA1B0SL20140212

- The Treasury’s analysis suggested that £7.00 was almost possible last year. BIS, “NMW – Government evidence for the Low Pay Commission on the additional assessment”, Jan 2014: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/273345/bis-14-534-national-minimum-wage-government-evidence-for-the-low-pay-commission-on-the-additional-assessment-2014.pdf

- An open letter from a group of senior business leaders published on 18 September 2014 stated: “Now, as the economy recovers, we believe the minimum wage should rise faster than it has in the recent past. A stronger minimum wage will benefit businesses, improve public finances, and help tackle low pay. The economy is growing again. But we must ensure that all employees are benefiting from the recovery – especially the lowest paid in society who find it hardest to make ends meet.” Signatories to the letter included Sir George Bain, the former chair of the Low Pay Commission; Alan Buckle, the former deputy chairman of KPMG; Jeremy Bennett, chief executive officer for Europe, Middle East and Africa at Nomura Holdings; Chris Britton, founder and partner at B&B Investment Partners and former chief executive, Findus Group; Sir Ian Cheshire, chief executive, Kingfisher; Iain Ferguson, chairman, Stobart Group; Steve Marshall, executive chairman, Balfour Beatty; Kevin Mcgrath, chairman, M&M Property Asset Management; Robert Stephenson-Padron, managing director, Penrose Care; and Craig Wilson, managing director, Hewlett Packard Enterprise Services, UK.

- All TUC press releases can be found at www.tuc.org.uk
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