The government has approved a rise in the National Minimum Wage to £6.50 per hour later this year (2014), with more than 1 million people set to see their pay rise by as much as £355 a year.
The rise will take effect in October 2014, as Business Secretary Vince Cable has accepted in full the independent Low Pay Commission’s recommendations for 2014, including plans for bigger increases in future than in recent years.
The Low Pay Commission (LPC) has said the rise, the first real terms cash increase since 2008, is manageable for employers and will support full employment.
The National Minimum Wage rates from 1 October 2014, as recommended by the LPC, will be:
- a 19p (3%) increase in the adult rate (from £6.31 to £6.50 per hour)
- a 10p (2%) increase in the rate for 18 to 20 year olds (from £5.03 to £5.13 per hour)
- a 7p (2%) increase in the rate for 16 to 17 year olds (from £3.72 to £3.79 per hour)
- a 5p (2%) increase in the rate for apprentices (from £2.68 to £2.73 per hour)
Business Secretary Vince Cable said:
The recommendations I have accepted today (12 March 2014) mean that low paid workers will enjoy the biggest cash increase in their take home pay since 2008. This will benefit over 1 million workers on National Minimum Wage and marks the start of a welcome new phase in minimum wage policy.
The independent Low Pay Commission plays a crucial role in advising the government about the minimum wage. This is why I asked them to look at how we could restore the real value of the National Minimum Wage as the economy recovers.
The LPC’s new forward guidance gives us a much better understanding of how an economic recovery can be translated into faster and significant increases in the National Minimum Wage for low paid workers, without costing jobs.
The experts will continue to advise government on future wage rises to help the low paid, and in the meantime I urge businesses to consider how all their staff - not just those on the minimum wage - can enjoy the benefits of recovery.
The Business Secretary officially welcomed the LPC’s assessment that 2014 will mark the start of a new phase of bigger increases, provided economic conditions continue to improve.
This analysis of the prospects for rises that could restore the value of the National Minimum Wage to its peak in real terms, follows a specific request by the Business Secretary for the LPC to provide forward guidance on what economic conditions would be necessary to allow faster increases in National Minimum Wage without harming employment rates.
It is the first time the government has been provided with a broader evaluation of the issues that affect low pay, and it outlines what kind of economic recovery is needed to ensure greater rises in National Minimum Wage.
Notes to editors:
1.The independent Low Pay Commission was established following the National Minimum Wage Act 1998 to advise the government on the National Minimum Wage. It is made up of representatives from all sides of industry.
2.The LPC’s recommendations follow consultation with academics, businesses and workers representatives, together with extensive research and analysis. The recommendations reflect unanimous views of all the Commissioners. In reaching unanimity on their recommendations, the LPC has balanced the need to protect the earnings and jobs of low paid workers against the difficulties faced by employers and businesses, paying particular attention to the employment prospects of young people.
3.This year’s (2014) increase in the adult rate will increase the real value of the minimum wage for the first time in 6 years through the biggest percentage increase since 2008. The LPC predicts that an increase in line with their recommendation would increase the number of jobs covered by the minimum wage by over a third, to around 1.25 million and would lift NMW workers’ pay relative to other earnings too.
4.A worker on the adult minimum wage rate working a 36-hour week, 52 weeks a year would receive £355 a year more in their pay packet under the new £6.50 per hour minimum wage rate as of October 2014.
5.The LPC has said we would need the following conditions to see a faster rise in National Minimum Wage:
- sustainable rise in real wages in the economy generally
- stable or rising employment
- an expectation of sustained economic growth
6.The LPC makes recommendations to the government in its annual report. For more details and copies of the report see the Low Pay Commission’s website on Gov.uk.
7.The LPC monitors and evaluates the impact of the NMW, with particular reference to the effect on pay, employment and competitiveness in low paying sectors and small firms; the effect on different groups of workers; the effect on pay structures; and the interaction between the minimum wage and the tax and benefit systems. The Commission reviews the level of each of the NMW rates and makes recommendations, if appropriate, for change.
8.The government published the remit for the LPC’s 2014 Report in June 2013. For more information on the announcement see the press release.
9.The government’s economic policy objective is to achieve ‘strong, sustainable and balanced growth that is more evenly shared across the country and between industries’. It set 4 ambitions in the ‘Plan for Growth’, published at Budget 2011:
- to create the most competitive tax system in the G20
- to make the UK the best place in Europe to start, finance and grow a business
- to encourage investment and exports as a route to a more balanced economy
- to create a more educated workforce that is the most flexible in Europe
Work is underway across government to achieve these ambitions, including progress on more than 250 measures as part of the Growth Review. Developing an Industrial Strategy gives new impetus to this work by providing businesses, investors and the public with more clarity about the long-term direction in which the government wants the economy to travel.