UK Politics

What is the minimum wage?

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The UK could have one of the highest minimum wages in the world if ambitions set out by both the government and the Labour Party become reality, according to a report by think tank the Resolution foundation.

Twenty years on from its introduction, how has the minimum wage changed people's pay, and what might happen if it was raised further?

What is the minimum wage?

The UK national minimum wage sets out the least a worker can be paid per hour by law.

As of April 2019, it stood at £8.21 an hour for people aged 25 and older - the government refers to this main rate as the National Living Wage.

There are four minimum wages below this amount for younger workers and apprentices:

  • 21-24 years old: £7.70
  • 18-20 years old: £6.15
  • Under 18: £4.35
  • Apprentice: £3.90

The rates are decided each year by government, following the recommendations of independent advisory group the Low Pay Commission.

It makes it recommendations based on the state of the economy - how many people are in work, what's happening to everyone's earnings and how much they are having to pay for essentials such as food and housing.

It estimated that in 2018 there were 1.6 million jobs paying people the National Living Wage.

Employers not paying the minimum wage can be investigated and fined by the UK tax authority, Revenue & Customs (HMRC).

There are some exceptions to the law though.

People with disabilities or those in long-term unemploymentwho take part in a government work programme are paid fixed amounts at different stages of the programme, which amount to less than the minimum wage.

Work done by prisoners is paid at a minimum of £4 a week, while students on work placements of less than a year as a required part of their studies are not entitled to be paid anything.

When was it introduced?

The law to introduce the minimum wage was passed in 1998 by the Labour government and it came into force the next year.

It started at £3.60 for those 22 and older, and £3.00 for 18-21 year olds.

What was the effect?

Before the minimum wage was introduced, the lowest paid people consistently saw the slowest growth in their wages.

The introduction of the minimum wage reversed this trend, according to the Low Pay Commission, which was set up alongside the introduction of the minimum wage to advise government.

Since 1999, the wages of the lowest paid have grown faster than for other workers - apart from during the period just after the financial crisis, when the government decided on a smaller than usual annual increase to the minimum wage.

The latest figures, set out in a report by the Resolution Foundation, suggest the proportion of employees in low pay has fallen for the first time in 40 years.

This shift happened after the National Living Wage, a higher minimum wage for over-25s, was introduced in April 2016.

Low pay is defined as two-thirds of the median - that is, the wage that would be in the middle if you listed everyone's earnings from lowest to highest.

In 2018, 17% of employees were in low pay, compared with 21% in 2015, according to the Resolution Foundation.

The Low Pay Commission estimates that nearly a third of all workers have benefited directly or indirectly from the minimum wage.

That third of workers is more than just those on the minimum wage. There is a "spill over" effect, where some people in the middle also get bumped up along with the lowest paid.

Did it cost jobs?

There was a widespread concern ahead of the introduction of the minimum wage was that it would cost jobs, as employers compensated for their higher wage bill by hiring fewer people, according to the Low Pay Commission.

But this didn't turn out to be the case.

There's no evidence of an overall loss of jobs linked to the minimum wage, and only weak evidence of negative impacts on some groups of workers.

None of the 30 studies commissioned by the Low Pay Commission since 2000 found effects on employment for low paid workers overall.

It said that this was "consistent with international evidence suggesting that carefully set minimum wages do not have noticeable employment effects".

Instead, employers have managed increased wage bills by accepting a loss of profits, passing on costs to customers or cutting other non-staff costs.

It's possible that there is a tipping point after which a minimum wage increase could affect job numbers or hours, and the Low Pay Commission has said it will continue to monitor this.

What about the 'real living wage'?

The Living Wage Foundation charity says the "real living wage" is £10.55 an hour in London and £9 in the rest of the UK.

It's calculation is based on an estimation of how much people need to live, including housing costs, travel and childcare.

This shouldn't be confused with the government's "National Living Wage" for 25-year-olds and over, which is currently £8.21 an hour.

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