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The government has approved an increase in the national minimum wage (NMW) to £6.50 an hour to take effect in October this year, as recommended by the independent Low Pay Commission (LPC). This change is expected to boost take-home pay for more than one million employees who could see their wage increase by as much as £355 a year, reports the Chartered Institute of Personnel and Development (CIPD).
However, the rise fell short of calls from Chancellor George Osborne last January, which suggested boosting the NMW to as much as £7 an hour for workers aged 21 and over.
Business Secretary Vince Cable officially accepted the LPC’s recommendations for 2014, which also included plans for higher minimum wage increases in the future than in recent years. The LPC said the rise, the first real-term cash increase since 2008, would be manageable for employers and will support full employment.
Mr Cable commented: “The recommendations I have accepted [12 March 2014] mean that low paid workers will enjoy the biggest cash increase in their take home pay since 2008. This will benefit over one million workers on national minimum wage and marks the start of a welcome new phase in minimum wage policy.”
Unite, the country's biggest trade union, were less impressed and described the increase as "timid". Len McCluskey, Unite's general secretary said, "The government claims it is on the side of working people but companies are sitting on a cash mountain of £500bn and they should be forced to share more of it with the lowest paid”.
Meanwhile, Mr Cable has also asked the LPC to examine how the government could restore the real value of the minimum wage as the economy recovers.
“The LPC’s new forward guidance gives us a much better understanding of how an economic recovery can be translated into faster and significant increases in the NMW for low paid workers, without costing jobs,” he added.
Mr Cable urged businesses to consider how all their staff, not just those on the minimum wage, can enjoy the benefits of recovery.
From the 1st of October 2014 NMW rates will be:
- a 19p (+3%) increase in the adult rate (from £6.31 to £6.50 per hour)
- a 10p (+2%) increase in the rate for 18 to 20 year olds (from £5.03 to £5.13 per hour)
- a 7p (+2%) increase in the rate for 16 to 17 year olds (from £3.72 to £3.79 per hour)
- a 5p (+2%) increase in the rate for apprentices (from £2.68 to £2.73 per hour)
In addition, a report from the CIPD has revealed that the majority of employers support a minimum wage linked to inflation in the future to prevent erosion of real pay.
According to findings in the CIPD’s 'Tackling Low Pay' report, 64% of employers think policy makers should be trying to ensure that the NMW keeps its real value, with nine out of 10 believing that the NMW should be linked to a measure of inflation.
Mark Beatson, Chief Economist at the CIPD, said: “Falls in real terms of the NMW undermine its purpose and credibility, and create the kind of ‘cliff edge’ of affordability business now faces as pressure mounts for gradual real terms falls over a number of years to be reversed in a far shorter time period. The LPC and government should consider this in future reports.”