Minimum wage at 20: The case for making us better off

Campaigners are pushing for a £10 an hour pay minimum, but could that simply lead to job losses

Minimum wage laws first took effect in 1999 (Getty)

If there were ever a time in the year when our collective consciousness grasps plaintively for that little bit more income, it’s now.

At least two weeks from the last pay day and a full four from the next, we’re hard pressed to shift the notion that the month of the blues wouldn’t be all that bad if we just had more cash.

Which is why 4 January was particularly grating. Dubbed Fat Cat Thursday, it was the day of the year that the average FTSE 100 CEO was already paid the same as the average UK worker earns in the full 12 months.

It’s a date pushed by left-leaning think tank the High Pay Centre in a bid to rekindle the anti-banking sentiment that swept the nation in the wake of the financial crisis.

However you twist them, the numbers are still remarkable.

Data from the Chartered Institute of Personnel and Development (CIPD) pegged the typical income for a FTSE 100 boss at £4.5m a year in 2017. Among the top paid 25 individuals within that exalted group, its closer to £9.5m a year. That excludes pensions and share packages.

Meanwhile, facing a real-life wage squeeze as inflation continues to outstrip earnings growth, the average UK employee earns around £28,000.

The other psychological grenade to throw into the social-divide debate is the 20th anniversary of the legislation to introduce the minimum wage.

When the laws took effect in 1999, CEOs in the biggest British-listed companies were taking home around £1.23m before tax. Last year’s figures point to an increase of more than 350 per cent in the last 20 years.

Meanwhile, analysis by trade union the GMB suggests that had the minimum wage increased at the same pace from £3.60 in 1999, it would be worth just under £13 an hour, or £26,000 a year, before tax for a 40-hour working week today. It’s currently worth £7.50 an hour for those aged 25 and over. That’s £11,800 short, the union argues.

“It’s striking that the national minimum wage came in just as executive pay really started to spiral up and out of control,” says Stefan Stern, director of the High Pay Centre.

“There are two ways to close this unacceptable and unjustifiable gap: one is to have more restraint at the top, and the other is to have the long-overdue pay rise that lower-paid workers deserve.

“We need rapid progress at both ends of the income scale.

“A decent wage for all would bring significant returns back into our economy as money circulates through the economy,” adds Tim Roache, general secretary for the GMB, which supports calls for a £10 an hour minimum wage.

“Those struggling to get by on the minimum wage don’t squirrel their pounds away in Panama – they spend them in local shops and on the high street which benefits the real economy.”

The minimum wage is in fact due to rise this April, continuing the increase from £6.70 in 2015 to £7.83. It should give full-time workers an annual gross pay-boost of £600 this year, with plans to reach 60 per cent of median wages in 2020. That would probably make it around £8.60.

As the rate increases against static earnings figures more generally, so does the number of people caught in its financial safety net. The Institute for Fiscal Studies (IFS) estimates 12 per cent of employees aged 25 and over will be on the minimum wage by the end of the decade, up from 4 per cent in 2015.

Crucially, even this resolutely apolitical organisation has repeatedly said that there’s a case for a higher minimum wage as a tool for government to help those on low wages.

But extreme caution is vital in preventing employers from being pushed into throwing up their hands at the sight of the latest wage bill and automating increasingly expensive roles.

Agnes Norris Keiller, a research economist at IFS and an author of new research which looks at the implications for rising minimum wages, said: “The fact that there seemed to be a negligible employment impact of a minimum at £6.70 per hour – the 2015 rate – does not mean that the same will be true of the rate of over £8.50 per hour that is set to apply in 2020.

“Beyond some point, a higher minimum must start affecting employment, and we do not know where that point is.

“The fact that the higher minimum will increasingly affect jobs that appear to be more automatable is an additional reason why extremely careful monitoring is required.

“Meanwhile even higher rates, as proposed for example by the Labour party, would bring even more employees in more automatable jobs into the minimum wage net.”