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Modest minimum wage promises would be sunk by no deal

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Higher wages for the lowest paid workers sounds like good news, but any progress would be wiped out by a no-deal Brexit

The Chancellor of the Exchequer made some modest promises on the National Living Wage in his speech today.

Higher wages for the lowest paid workers are always good news at face value, but the real worry is that any potential progress would be readily reversed by a no-deal Brexit.

21-24-year olds to be included in the National Living wage 

Sajid Javid made some minimum wage promises at the Conservative Party conference.

The TUC has been demanding that 21-24-year olds should be eligible for the national living wage ever since it was introduced three years ago.

It is very hard to argue that 21-year olds are not adults, in both social and economic terms.

They generally have a high level of education and IT-savvy, especially compared to baby boomers like me! 

We still need to see the timetable for including 21-year olds, and whether it delivers this much needed change fast enough.

But righting this wrong is something to be welcomed, as it could benefit almost half a million workers in this age group.

Younger workers deserve to be treated fairly.

Why should 21 to 24-year-olds getting less pay than their colleagues for the same work, when they face the same expenses as other adults and are highly productive?

A minimum wage of up to £10.50 in five years’ time

Again, this looks like a step forward, but we need to see the fine print.

It appears that the Chancellor is taking forward his predecessors 2018 budget “aspiration” to update the current target of 60 per cent of median earnings to two-thirds of median, which is a well-known international low pay threshold.

Our reasoning is as follows – the latest low pay commission report estimates that the 60% target will yield a National Living wage of £8.62 by next April.

Assuming that earnings continue to grow by about 3.0% a year, the hourly rate will increase by a further £1 by 2024.

However, if the target were increased to 2/3 of median earnings that would imply a rate of £10.68 by 2024, adding about a further £1 to the 60% target.

There’s good evidence that businesses can afford a higher minimum wage:

  • Net corporate profits are higher now (12.2%) than they were before the recession (10.7%) _
  • companies are currently holding record cash and bank deposits of £748 billion. reserves increased by £56 billion (8.3%) last year. 
  • Since 2009, dividends have risen by 85% and wages by 27% in nominal terms. Real wages (taking account of inflation) are still slightly lower than they were a decade ago whilst total dividends have outstripped inflation threefold.

Clearly if forced to choose between the targets mooted by the current government, we would prefer the higher of the two.

However, neither look very ambitious, given that the Labour Party has promised a rate of £10 by 2020, which has long been the TUC’s goal. 

No deal poses the biggest risk to workers’ wages

But for all the promises today, workers face a huge threat to their wages with the prospect of a no-deal Brexit.

The negative economic impact of “no deal” would drive down forecast wages growth.

It’s important to remember that the government’s target is pegged to what happens to wages across the economy.

Even if the government were to stick to the new two thirds of median earnings target, if wages growth were to drop to 1% over the coming period, then the outcome would be a 2024 rate of less than £10.

If the economy takes a tumble, then aspirations for a higher minimum wage could to be the first casualty.

This further underscores the strong risk that pursuit of Brexit at any cost risks leaving working people worse off.