Why an increase in minimum wage means the poorest will be poorer than ever

So. It’s the last week of September and we already have selection boxes and mince pies in the shops. Still, on Saturday it will be October and the Christmas rush can start in earnest.

However, 1 October also means that the National Minimum Wage rates will rise in accordance with figures already announced. The rates will become:nmw table

Which is good news, right?

Well, that depends on how you look at it. You see, the main rate of NMW is increasing by 2.5%, the 18-20 rate is increasing by 1.2%, 16 and 17 year olds are getting a 1.1% increase and apprentices a whopping 4% on top of the previous rate. None of these generous increases therefore come close to the current RPI rate of inflation (5.2%) or even the Government's preferred (lower) rate of CPI inflation at 4.5%.

This means that those who are getting NMW, who are presumably the least well off people in the country are getting an increase in pay matched to less than half the main inflation rate. So those with the least money now have to find even more money just to stand still. Sounds like a great plan to me.

However, no matter how much we might like to, we can't lay this at the door of the Government.  The new rates announced were those recommended by the Low Pay Commission back in April, whose Chair, David Norgrove said:

“Our recommendations this year are, as ever, based on sound economic evidence and take account of the prospects for the UK economy.  The UK economy is forecast to grow, but the pace is uncertain.  We believe our recommendations are appropriate and balance the needs of low-paid workers and the challenges faced by businesses."

David Norgorve has previously worked as Margaret Thatcher's private secretary and on the Board of blue chip companies like Marks and Spencer, so it is probably safe to assume he has never been on the levels of Low Pay he presides over. However, in fairness to him, he and some of his fellow Commissioners at the Low Pay Commission do not claim the fees (this type of role often pays in excess of £300 per day) to which they are entitled. The other non-claiming Commissioners are Frances O'Grady, Susan Anderson, Neil Goulden and Heather Wakefield.

coinsStill, the Commission saving a few quid won't help the millions of people relying on NMW.

We called the Low Pay Commission to ask what they thought of the lowest people being worse off owing to inflation but they had no comment, other than to refer us to the economic 'evidence' the Commission uses in setting the rate. Assuming the economists knew what they were talking about, then, the Commission knew this would happen and set the rate anyway. Incidentally the RPI and CPI rates available in April 2011 when the rates were announced were 5.2% and 4%.  So tough cheddar.

Good job things like tax credits and other benefits are being beefed up to help out those in trouble. Oh, wait...


  • Mel
    Do strippers pay taxes? I'm asking for a friend...
  • Kevin
    My wages have been frozen for the last 2 years so people on the minimum wage are getting a better deal than I am even if it is well below the rate of inflation. And of course if they were given higher rates of increase that in itself is inflationary so would only make it worse!
  • MrRobin
    What Kevin said... Additionally, NMW workers will be the group impacted the most (proportianally) from the increase in basic rate tax threshold so their take home pay percntage increase will be quite high. (I can't be bothered to work out whether this will be over inflation or not)

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