Monday, 15 April 2013

The National Minimum Wage: when an increase is a cut

Today it was announced that the minimum wage would increase by 1.9% from £6.19 per hour to £6.31 from October 2013. However with the headline inflation rate at 3.2%, this is real terms cut in living standards. In reality, as our previous post shows, the personal inflation rate of the poorest households is likely to be higher than the headline rate.

Someone working full-time (37 hours per week) on the minimum wage will be receiving £11,909.56 per year. That will rise by £230 next year (or £4.40 a week) as a result of today's real terms cut.

So what would have happened if the minimum wage had simply kept pace with the rate of inflation (RPI)? This would of course mean no real terms increase in living standards for the poorest, no improvement, no raising of the baseline, just treading water.

The table below shows what would have happened if from October 2008 the minimum wage had increased in line with RPI inflation:

The table shows that minimum wage would be over 7% higher in October 2013 (and 6% higher today) if it had been increased by RPI inflation since 2008. If low paid workers were to receive £6.76 per hour from October they would instead be getting a £1,097 annual pay rise (or an extra £21.10 a week).

At a time when corporations and the super-rich have just received tax breaks, yet another real terms cut in the minimum wage is an insult to millions of low paid workers - who have lost thousands of pounds due to consecutive real terms cuts.

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