Labour to make pledge to raise minimum wage

Election manifesto may include latest drive to tackle inequality

A pledge to raise the minimum wage sharply may be included in Labour's general election manifesto as part of a drive to tackle inequality.

Ministers have been stung by a series of reports in recent weeks showing that, while Labour has reduced poverty since taking power in 1997, the gap between rich and poor has widened because the incomes of the top 10 per cent of earners have soared.

One senior Labour figure said: "One of the ways to close the gap is to lift up the people at the bottom. And one of the ways a government can do that is to ensure or guarantee future rises in the minimum wage."

Such a pledge could help to enhance Labour's appeal among its traditional supporters and improve the prospects of the bottom DE social group voting in the expected May election.

Although the opinion polls suggest that some of them are returning to the Labour fold, party officials fear that many may abstain from voting or desert Labour as they feel disillusioned with its record after 13 years in power.

The Labour manifesto is also likely to include measures to boost social mobility. "It's not just about more money for those at the bottom but giving those with aspirations hope that they can move up the ladder," one minister said.

A minimum wage of £3.60 an hour was introduced in 1999 and has risen to £5.80 an hour. Although it has increased by more than average earnings, ministers admit the starting rate was low and this has limited its impact on the "inequality gap."

However, business groups are likely to oppose any future automatic rise in the minimum wage, saying that it should be considered annually by the Low Pay Commission to take account of the state of the economy.

Richard Lambert, director general of the Confederation of British Industry (CBI), warned yesterday that a hike in the minimum wage could harm the job prospects of young workers. He said: "Although the overall impact of the minimum wage has been positive, trade-offs clearly do exist in terms of employment prospects. That has clear implications for how the minimum rate for young people should be set in the future," he said.

Trade unions hit back at the CBI boss. Brendan Barber, the TUC general secretary, said: "The CBI is wrong to blame the minimum wage for fuelling youth unemployment during the recession. In fact, young workers' employment has held up better in the low-paying sectors than it has in much of the broader economy.

"Today's youngsters are the most highly qualified, IT-literate and geographically mobile generation the UK has ever seen but the harsh economic climate is preventing most employers from taking on new workers of any age. And for those employers who are able to recruit, it's not wage levels that are making them choose between younger and older workers. A lack of work experience is often a crucial factor."

The TUC has proposed a 3.5 per cent rise in the minimum wage to £6 an hour from October, saying this is "both sensible and affordable". It says an increase is needed to ensure the earnings of low-paid workers do not fall behind the rest of the country. Average earnings are expected to increase during the period that will be covered by the next recommendation of the Low Pay Commission, so too small a rise would leave working families in poverty, it said.

A government-ordered report published yesterday called for a new minimum income to narrow the differences in life chances between rich and poor and stated that the minimum wage was not enough to live on healthily. Some ministers want the Labour manifesto to include plans to rein in top earners, saying the party has been slow to react to public anger about them – notably over the huge bonuses paid to bankers.

Around 130 MPs, mostly Labour, have signed a Commons motion calling for the creation of a High Pay Commission to complement the Low Pay Commission by investigating pay at the top of the earnings scale.