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National Minimum Wage rises above inflation

New National Minimum Wage (NWM) rates which come into force today (1 October 2014), are set to benefit over one million of Britain’s lowest-paid workers.

The hourly rate will rise to £6.50, the first real terms cash increase since 2008,  and follows the recommendations from the independent Low Pay Commission (LPC) in March this year and the call for faster, affordable rate rises by Business Secretary Vince Cable.

The National Minimum Wage rates from 1 October 2014, as recommended by the LPC, are:

  • a 19p (3 per cent) increase in the adult rate (from £6.31 to £6.50 per hour)
  • a 10p (2 per cent) increase in the rate for 18 to 20-year-olds (from £5.03 to £5.13 per hour)
  • a 7p (2 per cent) increase in the rate for 16 to 17-year-olds (from £3.72 to £3.79 per hour)
  • a 5p (2 per cent) increase in the rate for apprentices (from £2.68 to £2.73 per hour)

The rate increase will mean more than one million people are set to see their pay rise by as much as £355 a year.

Business secretary Vince Cable said:

“The National Minimum Wage provides a vital safety net for the lowest paid, ensuring they get a fair wage whilst not costing jobs. This year’s rise will mean that they will enjoy the biggest cash increase in their take home pay since the banking crisis, benefiting over one million people in total.

“I believe it is vital that the Low Pay Commission’s recommendations – not political considerations – should set national minimum wage rates. As signs of a stronger economy start to emerge, we need to do more to make sure that the benefits of growth are shared fairly across the board. The Low Pay Commission will continue to advise government on future wage rises and ensure the minimum wage keeps pace with inflation”.

Earlier this year the Business Secretary asked the LPC to extend its expertise to help government and business understand how they can deal with the issue of low wages in the economy. In particular, he asked it to look at what economic conditions would be needed to allow the National Minimum Wage to rise in the future by more than current conditions allow, and restore its real value.

The LPC’s assessment that 2014 will mark the start of a new phase of bigger increases, provided economic conditions continue to improve, has been welcomed by the business secretary. It is the first time the government has been provided with a broader evaluation of the issues that affect low pay.

However, Mike Kelly, head of Living Wage at KPMG has suggested that the new increase will still not be enough for a large number of Britain’s lowest paid workers and is urging businesses to consider whether they can offer staff a Living Wage, currently set at £8.80 for London and £7.65 for the rest of the UK. He said:

“Increasing the National Minimum Wage to £6.50 per hour is recognition that the UK’s many employees are caught in a working poverty trap.  The proportion of people on low pay climbed as a result of the 2008 crash and, with the cost of living continuing to rise, the chances are that more people on low wages will find themselves unable to pay the bills, despite holding down a regular job.

“The fact remains that more than 5.2 million people are earning less than they need to live on.  Too many families still struggle to afford the basics, meaning we face a scenario that, in 2014, should have long been consigned to the footnotes of history.

 “More than 900 organisations have recognised that employing staff stuck in the working poverty trap is bad for business.  It may not be possible or practical for everyone, but all organisations need to do what they can to address the problem of low pay. The focus should not be on what the minimum wage is that companies can get away with, but on how they can afford to pay staff enough to live on. We have seen the benefits of paying a Living Wage in terms of lower staff turnover and increased productivity.  Put simply, it means moderate investment for maximum return.”

Paying any less than the minimum wage is illegal. If employers break the law the government will take tough action, including enforcing steep financial penalties and publicly naming flouters.

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