Plans to hike minimum wage could 'cost low-paid jobs'

Plans by both Labour and the Conservative party to increase the national minimum wage could put lower paid workers’ jobs at risk, according to the Institute for Fiscal Studies (IFS).

The Conservatives plan to raise the National Living Wage (NLW) for people aged 25 and over to £8.75 per hour by 2020, while Labour said the NLW would rise to £10 per hour by 2020 if the party was elected to government.

According to the IFS thinktank, both policies could do more damage than good to the lowest paid workers they are designed to benefit.

The IFS said: “Both parties’ plans imply big increases in the costs of employing workers. The Conservative plan raises the cost of employing at least 2.8 million workers by 4% on average, the Labour plan raises the cost of employing 7.1 million workers by almost 15% on average. 

“If employers did not cut employment or hours of work, total employer costs from wages and employer National Insurance would rise by £1bn per year under the Conservatives, and by £14bn per year under Labour. There are possible substantial knock-on effects on those with earnings just above the proposed minima, which may be considerable.” 

The national minimum hourly rate currently ranges from £3.40 for apprentices and £4 for under 18s to £7.20 for people aged 25 and over.

Under the Conservative plans the average increases in cost to an employer per employee will rise £50 per year (0.1%) and £530 per year under a Labour government (1.5%).

“Lower paid workers could lose out if the higher minimum wage leads to reduced employment. Hence, whilst a carefully applied minimum wage may well be a useful policy lever to boost the earnings of low-wage workers, it is a policy lever that could harm those it intends to help,” the study also said. 

James Lowman, Association of Convenience Stores chief executive, said: “The introduction of the National Living Wage in the last Parliament has led to retailers delaying investment plans and reviewing the number of staff hours in their business, ultimately contributing to a decline in employment opportunities in the sector. Wage rates should be set based on independent economic deliberation by the Low Pay Commission without reference to politically-set targets and election bargaining. Retailers need certainty to be able to plan for the long term and using wage rates as a political football undermines investment in the sector.”

A draft Labour Party manifesto leaked online this week includes plans to ensure energy costs are affordable for consumers and businesses, and banning zero-hour work contracts and unpaid internships.