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Miliband’s linking minimum wage to earnings could benefit up to 5m low-paid

PeanutLow pay in Britain is scandalous, and it has got considerably lower since 2010. Low pay is conventionally defined as the number of workers paid less than the Living Wage of £7.45 per hour outside London and £8.80 in London, and on that basis workers on low pay have increased by almost 2 millions since the last election. In 2010 there were 3.4 million paid below that level, and now it is 5.2 million, which represents 1 in 5 of all workers and 1 in 3 of all women at work.

But what makes matters a lot worse is that these very low rates of pay are not linked to a moving upper threshold, and are therefore stuck at the bottom of the wage pyramid until raised by some minuscule amount in an opaque administrative process influenced by the CBI. Thus it is proposed to increase the minimum wage later this year from £6.31 an hour to £6.50. Another major flaw in this current system is that, even if it is raised by these tiny amounts, many employers simply ignore it and there is a wholly inadequate number of wages inspectors to enforce it and derisory penalties imposed even in the rare cases where employers are booked.

Miliband proposes to cut through this failed system by requiring the minimum wage to be linked to the upward moving escalator of median salaries. The beauty of this is that it won’t cost the public purse anything, indeed the Treasury will make a saving, because at present employers are let off the hook of paying a decent wage by government paying tax credits (i.e. using taxpayers to supplement employers’ too low wages).

Government would gain by not having to pay these subsidies, plus it would increase its revenues from the extra income tax and national insurance contributions payable on higher earnings. This is thus a win-win-win situation: the lowest paid workers get a significant lift to their pay, the government actually makes a saving, and employers already paying a decent wage will no longer be undercut by their chiselling competitors.

Ed Miliband won’t spell out before the election exactly the percentage of median earnings at which the minimum wage will be set. But it will certainly be significantly higher than the current level, which was fixed at 54.6% of average earnings last year. The Resolution Foundation has suggested it might be linked at 60%. If so, the uplift for most of the 12 million people, including 3 million children, currently living in poverty would have a big positive impact on family budgets.

Image Copyright: zkruger / 123RF Stock Photo

3 Comments

  1. PoundInYourPocket says:

    We need policy details before getting over-excited.
    But it will I expect still be a state legislated wage (with CBI approval) insufficient to live on. Has the substitution of union bargained wages for a state legislated minimum or “default” wage realy brought improvement ? Wouldn’t the best way to increase low pay levels be to re-emower the unions. Otherwise we will continue to have state determined pay levels that rely on state benefit top-ups.

  2. Robert says:

    If you up the min wage by a penny it will benefit people, the question is what happened to his other great plan for helping the hard working the Living wage, seems the big business or smaller business did not like it so he.s dropped it out side of London

  3. Pauline Sharp says:

    Well labour have a year to start taking action to support those on very low pay. I want to vote for the plarty of the working class again. Start shouting louder for poor people for gods sake

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