The minimum wage for millions of people could have to be capped or frozen in future if it risks damaging jobs or the economy, the Government has said.
It has told the Low Pay Commission, which sets the minimum wage, that it must formally consider its impact on 'employment and the economy', before agreeing future increases.
It has told the Low Pay Commission, which sets the minimum wage, that it must
formally consider its impact on “employment and the economy”, before
agreeing future increases.
The change, which will be written into the Commission’s new terms of
reference, raises the prospect of the first ever across-the-board freeze or
cut in the minimum wage for everyone if the economic uncertainty continues.
The national minimum wage is established in law and is traditionally announced
in March every year by the Commission, after negotiations with employers,
unions and the Government.
The rate increased from £6.08 to £6.19 for those aged over 21 last October,
but the hourly rate employees aged 18 to 20 were frozen at £4.98.
A three-yearly review of the Commission disclosed that the Department for
Business has been frustrated that not enough attention has been paid by the
Commission to successive rises in the minimum wage on the economy.
The review was carried out by Department for Business which annually sets out
what ministers want the Commission to consider when setting the annual
minimum wage.
Previously, Commission has been in the past asked by ministers “to take account” of the impact on the wider economy. But the review uncovered evidence of “tension” between the department and the Commission over “strict adherence to the annual remit”.
It found that “the Government-endorsed goal to have ‘a minimum wage that helps as many low-paid workers as possible without any significant adverse impact on employment or the economy’, was not included explicitly in either the Act or remit”.
It said therefore that the Commission's new terms should include “the understood and accepted goal to raise the wages of the lowest paid without damaging employment or the economy”.
Ministers have repeatedly warned that the minimum wage was starting to have a “small adverse” impact on employment opportunities.
Employment minister Jo Swinson said in February: “The level of employment is now above its pre-recession peak, but the employment rate is below the pre-recession peak.
“This means that we believe that caution is required - particularly as the minimum wage rate is now at its highest ever level relative to average earnings for adults, and remains high for young people.”
Convenience stores have warned about the damaging effect of recent increases in the minimum wage. Research found that eight out of 10 small shops have had to lay off staff in the past year because of rising costs.
A similar proportion, according to the research by the Association of Convenience Stores, said the minimum wage should be frozen at its current level.
Last year a survey from off licences urged the Commission to freeze the minimum wage because they were struggling to cope with rising staff costs.
Last October, the Government hinted at the change when ministers said the case for a rise in the national minimum wage next year needed to be treated with “caution”, because of the “difficult” economic conditions.
Matthew Hancock, the business minister, said there is “evidence that in these tough economic times the minimum wage level may have an impact on the employment opportunities” of young people.
The news will alarm anti-poverty campaigners who have been urging the Government to adopt the higher “living wage”, which is estimated to be £7.45 this year.
Labour leader Ed Miliband is reported to be considering making the living wage, which is also set annually by campaigners, a key part of Labour’s 2015 election manifesto.
A Business, Innovation and Skills spokesman said: "The Government is committed to the minimum wage because of the protection it provides to low paid workers and the incentives to work it provides.
"It is important that we have a minimum wage that helps as many low paid workers as possible, while at the same time making sure that we do not damage their employment prospects by setting it too high."
Previously, Commission has been in the past asked by ministers “to take account” of the impact on the wider economy. But the review uncovered evidence of “tension” between the department and the Commission over “strict adherence to the annual remit”.
It found that “the Government-endorsed goal to have ‘a minimum wage that helps as many low-paid workers as possible without any significant adverse impact on employment or the economy’, was not included explicitly in either the Act or remit”.
It said therefore that the Commission's new terms should include “the understood and accepted goal to raise the wages of the lowest paid without damaging employment or the economy”.
Ministers have repeatedly warned that the minimum wage was starting to have a “small adverse” impact on employment opportunities.
Employment minister Jo Swinson said in February: “The level of employment is now above its pre-recession peak, but the employment rate is below the pre-recession peak.
“This means that we believe that caution is required - particularly as the minimum wage rate is now at its highest ever level relative to average earnings for adults, and remains high for young people.”
Convenience stores have warned about the damaging effect of recent increases in the minimum wage. Research found that eight out of 10 small shops have had to lay off staff in the past year because of rising costs.
A similar proportion, according to the research by the Association of Convenience Stores, said the minimum wage should be frozen at its current level.
Last year a survey from off licences urged the Commission to freeze the minimum wage because they were struggling to cope with rising staff costs.
Last October, the Government hinted at the change when ministers said the case for a rise in the national minimum wage next year needed to be treated with “caution”, because of the “difficult” economic conditions.
Matthew Hancock, the business minister, said there is “evidence that in these tough economic times the minimum wage level may have an impact on the employment opportunities” of young people.
The news will alarm anti-poverty campaigners who have been urging the Government to adopt the higher “living wage”, which is estimated to be £7.45 this year.
Labour leader Ed Miliband is reported to be considering making the living wage, which is also set annually by campaigners, a key part of Labour’s 2015 election manifesto.
A Business, Innovation and Skills spokesman said: "The Government is committed to the minimum wage because of the protection it provides to low paid workers and the incentives to work it provides.
"It is important that we have a minimum wage that helps as many low paid workers as possible, while at the same time making sure that we do not damage their employment prospects by setting it too high."
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