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SALARIES / MAR. 15, 2014
version 8, draft 8

Cable Announces Above Inflation Rise for Minimum Wage

vince cable

Vince Cable, the Business Secretary, has announced that the UK minimum wage will rise to £6.50 per hour in October. It is estimated that over a million workers will benefit from the increase.

Having taken advice from the Low Pay Commission, Mr. Cable decided to implement their recommendation of a 3 per cent rise. This represents an increase of 19p from the present level. In light of the fact that the CPI rate of inflation is currently 1.9 per cent, it means that for the first time in six years the minimum wage will rise above inflation.

Mr Cable, no doubt mindful of the fast-approaching General Election in 2015, said: "The recommendations I have accepted today mean that low-paid workers will enjoy the biggest cash increase in their take-home pay since 2008. This will benefit over 1 million workers on national minimum wage and marks the start of a welcome new phase in minimum wage policy."

There were also 2 per cent increases for the other minimum wage bands: ages 18-20 will rise to £5.13, ages 16-17 to £3.79 and apprentices to £2.73.

Whilst plenty of workers will certainly be pleased to see this increase in their wage packet - it represents an extra £12.66 a week - there are many who will argue that is doesn’t go far enough. Dave Prentice, the head of trade union Unison, called the rise "timid." He added: "Across the country, people are struggling to make ends meet. The sooner we move to a living wage, the better."

The living wage, which has already been adopted by hundreds of employers in the UK, is basically calculated by estimating the amount of money needed to meet an individual’s basic requirements such as food, shelter, utilities, transportation and minimal entertainment.

The current hourly living wage rate is set at £8.80 for London, in recognition of the higher costs of living there, and £7.65 for the rest of the UK. It’s clear that if a living wage were to be made compulsory, millions of earners would enjoy a significant increase in their living standards overnight.

Given the large gap between the minimum wage and the living wage, is the minimum wage still fit for purpose? Professor George Bain certainly doesn’t think so. As founding chairman of the Low Pay Commission in 1998, he played a critical role in the introduction of the minimum wage in 1999. He has just finished chairing a review of the future of the minimum wage for Resolution Foundation think tank.  

Talking to BBC Newsnight, he said that he now believes the very nature of the minimum wage as it currently stands is “narrowly focused [and] short-sighted in the way it is set and passive in what it expects of employers.” He added: “This caution was important when we introduced a new policy into a hostile world. But today it has become a weakness, limiting what the minimum wage can achieve.” He now hoped that the Low Pay Commission could become a ’powerful new watchdog’ to help bring about an increase in the minimum wage.

Millions of workers up and down the country will be hoping Professor Bain convinces Vince Cable that his vision is the right one.

Photo By Financial Times (Flickr: Vince Cable & Stephen Hester) [CC-BY-2.0 (http://creativecommons.org/licenses/by/2.0)], via Wikimedia Commons

SOURCES
www.bbc.co.uk
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