Brexit could knock almost £800 off the annual wage of the country’s lowest-paid workers by the end of the decade, a major new report has found.
The research concluded that an uncertain economic outlook in the wake of the UK’s European Union referendum could drive down average pay growth, with a direct effect on how the minimum wage is set.
It comes after Treasury papers showed Britain could lose up to £66bn a year if it pursues the hard Brexit option – leaving the single market and EU customs union.
Theresa May’s Conservative conference speech signalling the UK will prioritise immigration over single market access in Brexit talks also sent confidence in pound sterling tumbling last week.
While the longer-term economic impacts of Brexit are yet to unfold, today’s report from the Resolution Foundation think-tank suggests the lowest paid could be hardest hit.
In April this year the Government’s new £7.20-per-hour National Living Wage (NLW), announced by ex-Chancellor George Osborne, replaced the minimum wage for people over 25.
From now on the rate is set based on median earnings, with the Office for Budget Responsibility (OBR) predicting in March that the NLW would hit £7.60 per hour in 2017.
Chancellor Philip Hammond should confirm next year’s rate in the Autumn Statement next month, but today’s Resolution Foundation report predicts it will be 10p lower that the OBR thought due to weaker wage growth – meaning £200 a year less for the lowest paid in 2017.
By 2020 the think-tank says faltering pay-growth means the NLW may only reach £8.60 instead of the Government’s original £9 pledge, wiping a full £780 off annual wages.
Resolution Foundation Policy analyst Conor D’Arcy said: “While there is much uncertainty over Britain’s long-term economic outlook, most economists agree that wage growth in the next few years is likely to be weaker than expected prior to the referendum. That means we’re unlikely to see the £9 National Living Wage that George Osborne talked about in this parliament.”
What experts have said about Brexit
What experts have said about Brexit
1/11 Chancellor of the Exchequer Philip Hammond
The Chancellor claims London can still be a world financial hub despite Brexit “One of Britain’s great strengths is the ability to offer and aggregate all of the services the global financial services industry needs” “This has not changed as a result of the EU referendum and I will do everything I can to ensure the City of London retains its position as the world’s leading international financial centre.”
2/11 Yanis Varoufakis
Greece's former finance minister compared the UK relations with the EU bloc with a well-known song by the Eagles: “You can check out any time you like, as the Hotel California song says, but you can't really leave. The proof is Theresa May has not even dared to trigger Article 50. It's like Harrison Ford going into Indiana Jones' castle and the path behind him fragmenting. You can get in, but getting out is not at all clear”
3/11 Michael O’Leary
Ryanair boss says UK will be ‘screwed’ by EU in Brexit trade deals: “I have no faith in the politicians in London going on about how ‘the world will want to trade with us’. The world will want to screw you – that's what happens in trade talks,” he said. “They have no interest in giving the UK a deal on trade”
4/11 Tim Martin
JD Wetherspoon's chairman has said claims that the UK would see serious economic consequences from a Brexit vote were "lurid" and wrong: “We were told it would be Armageddon from the OECD, from the IMF, David Cameron, the chancellor and President Obama who were predicting locusts in the fields and tidal waves in the North Sea"
5/11 Mark Carney
Governor of Bank of England is 'serene' about Bank of England's Brexit stance: “I am absolutely serene about the … judgments made both by the MPC and the FPC”
6/11 Christine Lagarde
IMF chief urges quick Brexit to reduce economic uncertainty: “We want to see clarity sooner rather than later because we think that a lack of clarity feeds uncertainty, which itself undermines investment appetites and decision making”
7/11 Inga Beale
Lloyd’s chief executive says Brexit is a major issue: "Clearly the UK's referendum on its EU membership is a major issue for us to deal with and we are now focusing our attention on having in place the plans that will ensure Lloyd's continues trading across Europe”
8/11 Colm Kelleher
President of US bank Morgan Stanley says City of London ‘will suffer’ as result of the EU referendum: “I do believe, and I said prior to the referendum, that the City of London will suffer as result of Brexit. The issue is how much”
9/11 Richard Branson
Virgin founder believes we've lost a THIRD of our value because of Brexit and cancelled a deal worth 3,000 jobs: We're not any worse than anybody else, but I suspect we've lost a third of our value which is dreadful for people in the workplace.' He continued: "We were about to do a very big deal, we cancelled that deal, that would have involved 3,000 jobs, and that’s happening all over the country"
10/11 Barack Obama
US President believes Britain was wrong to vote to leave the EU: "It is absolutely true that I believed pre-Brexit vote and continue to believe post-Brexit vote that the world benefited enormously from the United Kingdom's participation in the EU. We are fully supportive of a process that is as little disruptive as possible so that people around the world can continue to benefit from economic growth"
11/11 Kristin Forbes
American economist and an external member of the Monetary Policy Committee of the Bank of England argues that the economy had been “less stormy than many expected” following the shock referendum result: “For now…the economy is experiencing some chop, but no tsunami. The adverse winds could quickly pick up – and merit a stronger policy response. But recently they have shifted to a more favourable direction”
He said it is “sensible” that NLW, expected to lift more than 800,000 workers out of low pay by 2020, rises in line with wages of typical workers.
But the report’s findings add to concerns over the future impact of Brexit, and in particular a hard Brexit.
Liberal Democrat Leader Tim Farron said Brexit was creating “Breadline Britain” by hitting the poorest hardest.
He added: “Brexit was supposed to be about taking back control when actually it seems it is just taking out of the pockets of the people who can least afford it.”
A Government paper leaked to The Times this week suggested the UK’s gross domestic product could fall by as much as 9.5 per cent if it leaves the EU and reverts to World Trade Organisation rules – something suggested by some pro-Brexit MPs.
The document said: “The net impact on public sector receipts – assuming no contributions to the EU and current receipts from the EU are replicated in full –would be a loss of between £38 billion and £66 billion per year after 15 years, driven by the smaller size of the economy.”
The draft Cabinet committee paper is based on a controversial study published by George Osborne in April during the referendum campaign. But despite the vilification it received then, the Treasury says it still stands by the figures now.
Pound sterling fell to its lowest level against the dollar since the beginning of July following Ms May’s conference speech, in which she gave clear signals that the UK was heading for a hard Brexit.
In the House of Commons earlier on Monday Brexit Secretary David Davis also indicated that the UK could withdraw from full single market membership and the EU customs union.
The Government has said it will pursue “the best outcome for Britain” consisting of a “bespoke arrangement which gives British companies the maximum freedom to trade with and operate in the single market, and enables us to decide for ourselves how we control immigration.”Reuse content