Tuesday, 17 March 2015

Minimum wage to rise to £6.70 - where does that leave Labour's £8 by 2020?

... Andrew Fisher crunches the numbers

Six months ago, we crunched the numbers on Labour's pledge that they would, if in government, ensure that the minimum wage was at least £8 per hour by 2020 (see our analysis here).

But with the announcement that the minimum wage will rise in October by 3% (3.076923% to be precise) to £6.70 per hour - where does that leave the relative merits of £8 per hour by 2020?

If we assume 3% rises are here to stay - and in fact I've been precise and used 3.076923% rises in each of the following years - then by 2020 the national minimum wage rises to £7.80 (see table below):

By contrast, the Labour pledge would imply an annual increase in the minimum wage of around 3.6% every year after 2015 to get to £8 per hour in 2020.

In terms of pounds in your pocket, that extra 20p per hour translates into nearly £400 extra per year if working full-time at the minimum wage.


There is some better news for apprentices from October 2015, they will receive a 20% increase from the pitiful insult that is £2.73 per hour to a whoppingly generous £3.30 per hour. N.B. when the minimum wage was introduced in 1998 it was set at £3.60 per hour.

While this is a nominally big increase in the apprentice rate, it is woefully insufficient to tackle the problem of 'fake apprenticeships' - employers calling short, regular on-the-job training 'an apprenticeship', simply to dodge paying the going rate (see our post on wage avoidance).

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