Ed Miliband’s proposal to raise the minimum wage to £8 may have brought the house down at the Labour party conference in Manchester, but business voices aren’t singing along. The CBI and the British Chambers of Commerce have both spoken out against the move (surprise surprise).
Katja Hall, the Deputy Director-General of the CBI, said the hourly minimum wage was already at the highest level it could be without putting job creation at risk. ‘Raising wages in this way,’ she said, ‘Would put serious strain on businesses, particularly harder-pressed smaller firms with tight margins, which would end up employing fewer people.’
Unemployment is falling in Britain as the recovery gathers pace, but wage growth remains sluggish. Recently, Bank of England Governor Mark Carney told the TUC that flat pay had effectively ‘purchased job creation’, as businesses and workers spread the burden of the recession.
The CBI’s comments were echoed by John Longworth, Director-General of the British Chambers of Commerce, who said that ‘businesses are in favour of an evidence based approach to the minimum wage rather than political parties using it to gain support from voters’.
Both organisations favour leaving decisions about the minimum wage to the thrilling Low Pay Commission, an independent advisory body containing employers, academics and trade union representatives. Both also believe the solution to low wages is a greater focus on productivity gains.
Miliband told The Sunday Telegraph the planned hike was to help the many people ‘treading water, working harder and harder just to stay afloat’. The minimum wage for adults is due to increase 3% for adults (from £6.31 to £6.50) on October 1st.
In theory, Miliband's claim the policy would reduce the benefits bill is true. But companies will always find a way to circumvent it - whether by cutting hours, sacking staff or putting more people onto zero hours contracts.