National living wage could be frozen amid Covid uncertainty

Low Pay Commission warns planned rises may be ‘unaffordable’ for employers in a recession but TUC urges government not to ‘renege on its commitment’

The Treasury is apparently considering putting a hold on a planned rise to the national living wage (NLW) as a result of the coronavirus pandemic. 

According to a report in The Telegraph, the government has been discussing applying an “emergency brake” to the NLW for workers aged 25 and over, which was set to increase by 6.2 per cent as of April 2021, with hourly wages rising from £8.72 to £9.21 per hour. Those aged 21-24 were set to benefit from the biggest increase of 6.5 per cent, amounting to an hourly rate of £8.20.

These targets were set last December by the then chancellor of the exchequer, Sajid Javid, and it was also expected that the NLW would be extended to workers aged 23 and over from next April.

But members of the Low Pay Commission, which advises the government on annual increases to pay rates, reportedly believe the increase in April could now be unaffordable for many companies struggling in the wake of the pandemic and subsequent recession, and could result in an increased number of job losses.

The commission will meet at the end of October to decide on a number of recommendations for the upcoming autumn budget, and the panel could freeze the planned rise if evidence suggests it could be “damaging for the lowest-paid workers”.

The change would be announced by chancellor Rishi Sunak during the autumn budget alongside other policies to help the nation through the coronavirus pandemic.

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Bryan Sanderson, chairman of the Low Pay Commission, told The Telegraph that the commission “always advises the government based on a thorough review of the evidence and detailed discussions with workers and businesses”, and this was “more important than ever” given the “profound impact” of Covid-19.

“We’ve carefully listened in recent months to the views of employers and trade unions, and we’ll continue to look at the latest economic data over the autumn, before agreeing recommendations on next year’s minimum wage rates in late October,” Sanderson said.

The Low Pay Commission warned the pandemic “currently represents a very challenging set of circumstances for workers and employers alike, and will require us to review whether an emergency brake is required”.

The commission is also reportedly considering recommending that the planned increase be reduced. Another option could be that the target of raising the NLW to two-thirds of median earnings be pushed back from its original 2024 target to 2025 or even later. 

Gerwyn Davies, senior labour market adviser at the CIPD, told People Management pay restraint was "emerging as a key tactic" on the part of both employers and employees to help minimise redundancies during the pandemic, and this move by the government could make sense given the current economic climate.

"Given that the NLW disproportionately affects the wages of those in hospitality, retail and other low-paid sectors, who are also among the worst-affected sectors by the pandemic, it seems sensible to apply the emergency brake on the NLW to avoid more job losses," Davies explained. "Such an approach would also help boost hiring intentions as the economy starts to recover.”

A spokesperson for manufacturer’s organisation Make UK echoed Davies’ sentiment on this, saying firms would back moves to keep the NLW down. “Any measure that can reduce the cost pressure on business will be supported by those companies facing a battle to stay afloat and protect jobs at all levels, but especially the lower paid,” they said.

However, Frances O’Grady, general secretary of the TUC, said the possible backtracking on the wage rise would be “totally wrong” in the wake of the pandemic. She said many key workers “who have got us through the crisis” are on the minimum wage, and it would be wrong of the government to “freeze their pay”.

“The government must not renege upon its commitment to raise the minimum wage,” O’Grady said. “Millions of low-paid workers are struggling to make ends meet. That’s not right during a pandemic – or at any time.”

She called on the government to raise the minimum wage to the same level as the real living wage, a voluntary measure of pay that is currently £10.75 in London and £9.30 across the rest of the UK.

A recent survey of more than 1,000 businesses by the Learning and Work Institute and Carnegie UK Trust – conducted at the start of the coronavirus outbreak – found the majority of employers supported an increase in the statutory minimum wage. 

More than half (54 per cent) of businesses supported the government’s policy of increasing the NLW to two-thirds of the median income by 2024, with a similar number (54 per cent) saying a higher minimum wage could help boost UK productivity. 

However, many employers said government support would be necessary to help manage an increase in the minimum wage. More than a third (37 per cent) said they would welcome help with investing in skills and training, while a third (33 per cent) said they would like to see any living wage increase accompanied by a temporary reduction in national insurance contributions.