Businesses landed with higher minimum wage

The Government has ignored business groups and increased the minimum wage to £5.80/hr. Bad timing?

Last Updated: 31 Aug 2010

The minimum wage for over-21s will rise by 7p to £5.80 per hour from October, the Government said today. The announcement means it's decided to accept the recommendations of the Low Pay Commission - despite arguments from business groups that any increase should be deferred until the economy improves. Although in fairness, Chancellor Alistair Darling (he of the rose-tinted specs) probably thinks the recession will all be over by October anyway...

The latest hike, which follows a 21p increase this time last year, comes at the behest of the LPC - which according to Business Secretary Lord Mandelson, 'carefully examined the latest economic data before making their recommendations... balancing the needs of workers and businesses'. It means over-21s will get an extra 7p an hour (that's an extra bar of chocolate every day), while 18-21-year-olds will get £4.83, up 6p, and the rate for 16 and 17-year-olds increases 4p to £3.57. All in all, the Government reckons 1m people will benefit.

The sums involved might not sound like a lot - less than £150 a year per person, in fact. But employer groups were worried that it would be a mistake to burden employers with extra costs at such a difficult time - after all, when you're operating on wafer-thin margins, it doesn't take much to push you over the edge. So there's an argument that freezing the wage would actually be better for low-paid workers, because it might prevent job cuts. The British Chambers of Commerce certainly thinks so; it wanted the Government to hold off until the economy perks up a bit, and said sniffily this morning that a freeze 'would have been more help to businesses'.

True enough - but at least the rise was a fairly modest one, relative to previous hikes (as the BCC recognised, to be fair). The CBI, which sits on the Low Pay Commission, actually welcomed today's decision on these grounds, hailing its 'sensible, cautious approach'. By contrast, the kind of above-inflation hike that the unions have been calling for 'would have hit firms hard and put many lower paid workers on the dole,' it insisted.

There are two sides to every story, of course: poverty campaigners, who also wanted a bigger raise, point out that employees on the minimum wage earn about £11,500 a year, which they argue is still not enough to afford a basic standard of living. But ultimately, a higher minimum wage is no good unless companies can afford to pay it - and at the moment, the Government needs to be minimising their cost burden. So erring on the side of caution has to be a sensible idea. In fact, holding off until next year might have been more sensible still.

In today's bulletin:
Recovery hopes surge as Easter eggs on retail sales
Businesses landed with higher minimum wage
Enterprise Inns spends millions propping up its own bars
Why UK shoppers still don't trust the internet
Editor's blog: MP expenses are a dangerous distraction

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