Minimum wage to increase by 3% from October

The national minimum wage will rise to £6.50 an hour for adults aged 21 and over from October.

This represents a 3% increase as recommended by the Low Pay Commission.

According to a report by the Chartered Institute of Personnel and Development (CIPD) around two-thirds (64%) of respondents thought policymakers should try to ensure that the national minimum wage keeps its ‘real value’.

Beatson-Mark-CIPD-2014

Its Tackling low pay report, which surveyed more than 1,000 employers, found that just under a fifth (19%) did not think this should be a priority for policymakers.

Among respondents based in London, 18% would reduce the number of hours available to staff, 14% would restrict wage growth in their organisations and 8% could make redundancies, if there was a substantive increase in the national minimum wage.

Nearly nine in 10 respondents (89%) thought the national minimum wage should be linked to a measure of inflation so that it does not lose its ‘real value’ again.

Mark Beatson (pictured), chief economist at the CIPD, said: “The 3% increase in the [national minimum wage] is a cautious, but welcome, first step in restoring the real value of this minimum standard for low-wage workers. 

“We expect to see further real-terms increases in the national minimum wage in the coming years to make good the value lost. However, this relies on productivity growth; real wages can’t rise sustainably without it.

“Government, employers and employee representatives need to work together to ensure that the UK’s long-standing productivity problems are addressed so this momentum can be maintained.

“Ultimately, real progress on low pay relies on encouraging employers to invest more in training and career progression opportunities so the lowest-paid workers can lift themselves out of minimum wage roles and add greater value to the organisations that employ them.”

Charles Cotton, reward adviser at the CIPD, added: “Employers have generally accepted the principle of the national minimum wage, and have found its implementation has had less of a negative impact than many feared when it was introduced. 

“However, understandable calls for the reversal of its decline in real value in recent years, combined with ongoing debate about the desirability of placing the living wage on a more statutory footing, are causing concern in some industries where tight profit margins mean substantial rises in salaries could pose a real threat. 

“This has led to calls in some quarters for a more regional or sectoral approach to the setting of the national minimum wage.

“We believe there are significant practical difficulties and potential unintended consequences associated with both of these approaches. Instead, efforts need to focus on the investment in skills and innovation required to boost productivity, or a reassessment of the business and funding models in these sectors. 

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“Taking the care sector as an example, there is little doubt that a sudden restoration of the national minimum wage to its pre-recession level would risk putting many care service providers out of business. 

“Here, there is an onus on policymakers and society to consider the value it places on elder care, and to ensure that funding is available to cover the restoration of the real value of care workers’ wages.”