Brexit means the government will miss its target of a £9 per hour minimum wage by 2020, a leading labour market thinktank has warned.
Low-paid workers are set to lose about 40p per hour from their pay packets as a result of the projected slowdown in economic growth, according to the Resolution Foundation.
The reduction in the planned rise in the national living wage is likely to be seen as soon as next month, when the chancellor, Philip Hammond, announces the increase from April 2017. The government had intended the wage floor for workers aged 25 and over to rise from £7.20 to £7.60 per hour, but it is now on course to rise only to £7.50, Resolution said.
George Osborne promised parliament in his 2015 budget speech that the national living wage, or NLW, would reach £9 per hour by 2020, while the shadow chancellor, John McDonnell, said last month that a Labour government would increase it to above £10.
The economic headwinds holding back the pay floor are likely to result in lower than expected earnings across the workforce, against which minimum wage levels are set. Average earnings are likely to be £850 lower in 2020 than had been expected in June, before Britain voted to leave the European Union, Resolution has predicted. It also found that in 2015, nearly one in five employees – or 5.7 million people – were low paid. The median wage in April 2015 was £528 per week before tax, although there were wide regional variations. Those working in north-east Derbyshire had the lowest weekly wages of £389, compared with £921 in the City of London.
“Most economists agree that wage growth in the next few years is likely to be weaker than expected prior to the referendum,” said Conor D’Arcy, a policy analyst at Resolution. “That means we’re unlikely to see the £9 national living wage that George Osborne talked about in parliament.”
Changes to minimum wage rates matter to more and more people in Britain. The proportion of workers earning minimum wages has increased dramatically from one in 50 in 1999, when the minimum wage was introduced, to one in 20 in 2014. With the introduction of the higher NLW for workers aged over 24, that is expected to increase to about one in seven in 2020, according to Resolution.
Slower minimum wage growth is likely to be welcomed by some employers. On Tuesday, a leading insolvency firm said there had been a 23% spike in the number of firms paying the NLW that had been classed as in a state of financial distress. Begbies Traynor, the corporate recovery consultancy, said that on 1 October 2016 there were 97,342 businesses experiencing financial distress within the sectors most affected by the NLW. That represents a 23% increase from six months earlier, when the wage floor was introduced.
“For growing numbers of low-wage employers in these sectors, the future looks decidedly uncertain,” said Julie Palmer, a partner in the firm. “All eyes will now be firmly fixed on the autumn statement to see whether the new Conservative leadership will stay committed to George Osborne’s original national living wage policy or whether, in a post-Brexit world, the government’s priorities have shifted.”
Despite the predicted slower rise, Resolution said the NLW would reduce by 800,000 the number of Britons in low pay between 2015 and 2020. Even a 10p rise next year would mean a pay rise of up to £600 a year for full-time staff aged 25 and over.
“It’s clear that the national living wage is set to transform low pay across Britain,” said D’Arcy. “But ambitious policy announcements need equally ambitious implementation plans to make them a success. With over 4 million workers set to be earning the new legal minimum by 2020, ministers need to work closely with employers to ensure they’re not just able to pay the legal minimum, but can offer staff a route out of low pay altogether.”
The Resolution Foundation found that by 2022, almost a quarter of workers in central Lincolnshire, which includes Boston, the town that voted most heavily for Brexit, will be in low pay, compared with 8% in London.
A spokeswoman for the Department of Business, Energy and Industrial Strategy said: “The government is committed to building an economy that works for all and the national living wage is doing just that, with more than 1 million workers already benefiting from a pay rise. The independent Low Pay Commission is chiefly responsible for making recommendations for national minimum wage rates, and now has additional responsibilities to help deliver the national living wage.”
