Election 2017: Labour wage plan 'spells five-fold increase in public servants on minimum rate'

Written by Richard Johnstone on 11 May 2017 in News

IFS analysis finds both Labour and Conservative plans would lead to increase in proportion of public sector workers paid national minimum wage

Photo: PA

The proportion of public sector workers whose pay would be subject to Low Pay Commission oversight could increase five-fold under Labour’s plans to boost the national minimum wage, according to the Institute for Fiscal Studies.

The think-tank analysed the proportion of workers who would likely be paid the minimum rates under the plans of both Labour and the Conservatives.

The analysis highlighted that proportion of employees aged 25 and over paid the National Minimum Wage has already doubled from 4% to 8% since 2015.

This is due to the introduction of the National Living Wage rate, which has increased from £6.70 to £7.50 an hour for employees aged 25 and over this period. As the minimum wage rate increases, the proportion of workers whose pay rates are included in the decisions of LPC increases, although each individual decision may lead to an increase in wages.

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In the public sector, 2% of workers aged 25 and older are currently paid the minimum NLW rate, which is set by government following advice from the Low Pay Commission.

Looking at pledges from the Conservative and Labour parties over plans for future increases, the IFS said this proportion would increase under both parties’ plans.

Under Conservative plans to increase the minimum wage level to around £9 an hour by 2020, the proportion of public sector employees whose pay is within the remit of the commission would rise to 4%, according to the IFS. Across the economy as a whole, 12% of workers aged 25 and over would be affected by the LPC decisions.

Labour’s proposal to increase the rate to £10 an hour by 2020 would mean that 11% of workers across the public sector would likely be covered by LPC rates, IFS senior research economist Jonathan Cribb told Civil Service World. Under this example, 22% of all employees aged 25 and above, and more than a quarter of private sector employees in this age group, would be covered by the minimum.

Cribb, an author of the report, said that carefully set minimum wages could be a useful policy tool for governments seeking to help those on low wages, but at some point, higher minimum wages would reduce the employment of lower skilled workers in the private sector.

“Since we do not know where that point is, sudden large increases are risky,” he said. “They endanger the jobs of those they seek to help. Labour's proposal to rapidly extend a £10 per hour minimum wage to 18-24 year olds, regardless of the state of the economy in 2020, is a particular gamble. Given how harmful periods of unemployment can be for young people, the long term costs could be considerable.”

The analysis comes as a leak of the Labour manifesto set out the party’s policy plans ahead of a formal launch next week.

The leaked document confirms the party’s plan to end the public pay cap and to roll out maximum pay ratios in the public sector and companies bidding for public contracts, as well as only awarding public sector contracts to firms that recognise trade unions.

It also includes confirmation of plans to re-nationalise the operation of the railways when franchises come up from renewal, based on the model of the Directly Operated Railways unit in the Department for Transport, which ran the East Coast line from 2009 to 2015.

A proposal to set up at least one publicly owned energy company in every region of the UK in order to compete with the so-called Big Six energy companies was also confirmed, as was creation of a National Investment Bank made up of £250bn of public and private funding.

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