Minimum wage increase
The Government has accepted the Low Pay Commission’s 2021 report in full. This means that, from April 2022, the minimum wage for those over the age of 23 will increase to £9.50 per hour.
When the minimum wage was introduced in 1999, following the Minimum Wage Act 1998, it had, and retains, an honourable purpose: to prevent the powers of capitalism pushing wages down for those in the lowest paid roles to unfair levels.
As a sprightly teenage bartender in Reading in 1999, at what is now a sadly defunct pub, the writer was generously paid significantly more than the minimum wage: £4.00 per hour, rather than the minimum of £3.00 for 18-21 year olds, or 3.60 for those 22 and older. However, recollections of only a couple of years earlier of many hours working in a newsagent, being paid the princely sum of £1.70 an hour, increased the gratitude felt even further.
Since then, with the exception of a strangely generous moment by Cameron / Osbourne, the minimum wage has increased following the Low Pay Commission’s recommendations, which is intended to prevent politicians politicizing the nation’s pay rate.
The issue is that, if inflation was applied to the 1999 figure, the minimum wage in 2020 would have been £6.38 per hour, rather than the £8.72 which was in force.
This is, of course, great news for employees who have benefited from the inflation busting pay increases. But when the government announces a payrise for the 2,000,000 lowest paid individuals in society, it fails to take into account the knock-on effects to other employees in the business.
For example, if a Supervisor this year has been paid £9.50 per hour and their team members were paid £8.72 per hour, when the increase comes in April 2022, the Supervisor will, understandably, want a commensurate pay rise to reflect that their team now earns the same as they do. So, we increase the Supervisor’s hourly rate to £10.20, but their manager was previously earning £10.00 an hour so they want a pay rise too. You can see how the chain of pay rises can keep going right the way through an organisation.
So, rather than having to fund a 9% payrise for the lowest paid staff members, a business could find itself funding significant payrises across the organisation. Now, how do they fund this? By putting up their prices of course!
At a time when inflation is making its long-awaited, but dreaded, return, this extra upward pressure on wages and prices could have the effect of wiping out the living standard gains that the minimum wage legislation sought to achieve in the first place which could be an own goal for everyone concerned.