Minimum wage increase is masking an income decrease

The minimum hourly wage for adults will rise to £6.31 from Tuesday onwards. The increase represents a 12p rise from the current wage and has been instigated due to the suggestions of the independent Low Pay Commission.

Unions however are lobbying for a greater increase citing that the cost of living is severely higher now than it has been before.

When questioned about her views on the matter, the TUC general secretary Frances O’Grady stated that ‘a far bigger increase’ is needed.

“The UK’s lowest-paid workers are now facing an historic living standards crisis,” she added.

As well as increasing the minimum wage for adults, the government has also improved it for younger groups of people.

18-20 year olds can now earn a minimum of £5.03 an hour, while 16-17 year olds can now earn at least £3.72 an hour for their efforts. This however only represents a 5p and 4p increase respectively and furthers the legitimacy of claims that more has to be done to ensure people can afford the cost of living.

Business Secretary Vince Cable has signalled his desire to try and instigate a further increase in the minimum wage and has promised to talk to the Low Pay Commission about implementing improvements soon.

When asked about how he intended to do he said he would ask them to “look at what economic conditions would be needed to allow the national minimum wage to rise in the future by more than current conditions allow”.

Increased Cost of Living

The Resolution Foundation, a think tank that devotes it is time to analysing standards of living have identified that the value of the minimum wage was actually falling, despite the proposed increase, due to the rate of inflation in the country at the moment.

Although inflation has fallen to 2.7% in the year to August, this is still sufficient to see product prices increase faster than the minimum wage.

The problem then arises that if prices of goods are increasing at a quicker rate than the average wage, then people’s capacity to afford the cost of living will constantly be decreasing. Prices have risen by 1% in the year to August and continue to increase faster than the rise in wages.

This actuality has sparked huge concerns about the cost of living, and has raised doubts about people’s ability to cope with price increases in the future. The reality seems to be that the current situation will lead to a number of people falling into debt in the near future.

What is even more alarming is that the price increase is fundamentally meaningless, because it is failing to raise enough to address the increasing amount it costs to live. What has been presented as an improvement for the layman is merely a mask for a decrease in the value of their wage.

Living Wage VS Minimum Wage

There have been numerous calls recently for a new ‘living wage’ to be created for people that’s value is consistent with the cost of living. Many have argued that the current system does not reflect the actual cost of living and that the minimum wage system is thoroughly flawed.

One advocate of such a stance is The Living Wage Foundation who have stated that they feel that employees should be paid at least £7.45 an hour across the UK, an £8.55 in the more expensive London.

Rhys Moore, director of the Living Wage Foundation, said: “We believe that a voluntary living wage, working alongside a strong national minimum wage, is the most effective way of getting to grips with the low-wage economy.”

Posted by: Jessica Odell Categories: Finance, Uncategorized 1 Comment

One Response to Minimum wage increase is masking an income decrease

  1. avatar Alan says:

    Tough as it maybe any significant rise in the minimum wage at this time will only raise employers costs and therefore, directly or indirectly, the cost of living leaving us all back where we were before!