Low Pay Commission

Summary

This paper sets out the TUC’s response to the Low Pay Commission’s current inquiry. The LPC is will be making recommendations to government on the National Minimum Wages (NMW) rates that will apply from 1 April 2018.

The TUC’s response argues for strong increases in the NMW rates and for better enforcement.

The National Minimum Wage is a key plank in the incomes of many low paid workers and their families. While it alone cannot perform all of the heavy lifting of preventing family poverty, it can make a real difference.

The need for that difference is striking. Research by the Joseph Rowntree Foundation published this year showed a working family on the National Minimum Wage with two kids would still not reach the level of income required to achieve a minimum acceptable standard of living.[1]  Even more strikingly, official statistics show that in 2015/16, the majority of households living below the poverty line were in working families.[2]

In this submission we make the economic case for why increases in the National Minimum Wage are both affordable and desirable. It is also important to remember the broader case for developing the NMW as strongly as possible, which is that workers deserve decent rates of pay that allow them to live a decent life. A wealthy country like the UK should be able to put an end to in-work poverty.

Our call for higher minimum wage rates rests on the following economic and labour market evidence 

The economy has, so far, survived the impact of the Brexit vote

• Employment is at record levels, and we note that youth employment is growing.
• Big businesses are seeing high levels of profitability and are holding very high levels of reserves. Furthermore, there are a record number of small businesses. There is no case that employers, as a whole, cannot afford to pay their workers more.

However, this economic performance has not translated into higher wages, except where the bottom rates have been pushed up by the NMW.

• Real wages are currently falling again, as inflation has once again overtaken the growth in average earnings.
• Part of the problem has been caused by the fall in Sterling, which has resulted in higher inflation.
• But the rate of increase in wages has also fallen. Private sector employers seem to be sticking firmly to a 2% ceiling on nominal pay increases. This is in stark contrast to the 4% norm that prevailed before the recession.
• Some of the problem may be due to growing insecurity at work, meaning that workers are less willing to demand higher pay.

Low wages are not only bad for workers but could also pose risks to the wider economy

• Historically, growing wages have helped to support demand.
• Low wages may now be depressing demand, as evidenced by weak business investment.
• Lack of investment by both business and government means that the economy is very reliant on consumer spending. This approach is unsustainable when real wages are falling and household debt levels are increasing.
• Stronger wage rises are not only affordable by business, but can help ward off the risks of weakening consumer demand, as NMW workers tend to spend any wage increases in the local economy.
• Increasing the NMW is a signal of continuing government confidence in the UK economy.

Enforcement matters

Higher rates of the National Minimum Wage need to be enforced to be meaningful. While we have welcomed the additional resources put into NMW enforcement over the course of the year, there is clearly more to do. The TUC estimates, on a conservative basis, that underpayment affects at least 250,000 workers. HMRC action helped just over a fifth of this number last year.

Priorities to ensure everyone receives the pay they are entitled to include:

• Government should guarantee NMW arrears when employers have dissolved in order to avoid their responsibilities.
• Ensuring that enforcement continues to see an increase in budget to cope with the enhanced coverage of the NMW.
• A workable prosecution strategy, and an increase in the maximum fine for NMW offences.

The NMW and insecure work

The TUC understands that Matthew Taylor’s review of modern employment practices will make a number of recommendations around how the national minimum wage and the Low Pay Commission could help to address insecure work. With the Commission’s permission, we will submit a separate note on these proposals once we have had a chance to consider them.