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UK – Labour Party’s minimum wage increase plan a threat to jobs

22 September 2014

With the matter of the Scottish independence referendum resolved, the political parties are turning their attention to the general election set for May 2015. The Labour Party has charged out of the gate by promising to increase the national minimum wage to £8.00 per hour by 2020.

The current national minimum wage is £6.31 per hour for those over the age of 21, set to rise to £6.50 on 1 October 2014. Also by way of comparison, Germany, which plans to implement a minimum wage for the first time in January 2015 has established a rate of €8.50 (£6.69 at current exchange rates). Meanwhile, the minimum wage in France this year is €9.53 (£7.50 at current exchange rates).

Labour Party leader Ed Miliband said that his plan would save taxpayers hundreds of millions of pounds in welfare payments. The plan would add approximately £3,000 per year to the salaries of those on the minimum wage working 40 hours per week.

Business groups, however, have already warned Mr Miliband that job creation would be badly impacted by the increase.

Katja Hall, Deputy Director General of the Confederation of British Industry (CBI), cautioned that the minimum wage was already at the highest rate it can be without putting job creation at risk: “Raising wages in this way would put serious strain on businesses, particularly hard-pressed smaller firms with tight margins, which would end up employing fewer people.”

John Longworth, Director General of the British Chambers of Commerce added that, while the minimum wage must rise, forcing an increase from Westminster would have a negative impact: “Businesses are in favour of an evidence-based approach to the minimum wage rather than political parties using it to gain support from voters.”

John Allan, Chairman of the Federation of Small Businesses, said: “Our concern is that setting rates according to political need means that the impact of rises on employment, inflation and growth will not be fully explored. Sectors such as retail and social care are run on very fine margins, and will struggle with substantial increases to the minimum wage rate that fail to take wider economic conditions into account.”

Frances O’Grady, General Secretary of the Trade Union Congress (TUC), however, spoke out in support of Mr Miliband’s plans: “Raising the minimum wage and putting more money into the hands of low-paid workers won't just be welcomed by hard-pressed families, it will also be good news for local economies who will benefit from a boost in workers' spending power.”