'Emergency brake' on minimum wage rises may be needed

As the national living wage rate increases by more than 6%, the economic uncertainty posed by the coronavirus means the government could be forced to abandon its pledge to ensure the lowest-paid workers earn 60% of UK median earnings by 2024.

This is according to the Low Pay Commission, the body that advises the government on minimum wage uprating.

The national living wage - the statutory minimum for workers aged 25 and over - increased on April 1 to £8.72 from £8.21, a 6.2% rise. The national minimum wage rate increases from £7.70 to £8.20 for 21 to 24-year olds; and from £6.15 to £6.45 for 18- to 20-year olds.

April 2019 rate (£) April 2020 rate (£) Annual increase (%)
National Living Wage 8.21 8.72 6.2
21-24 Year Old Rate 7.70 8.20 6.5
18-20 Year Old Rate 6.15 6.45 4.9
16-17 Year Old Rate 4.35 4.55 4.6
Apprentice Rate 3.90 4.15 6.4
Accommodation Offset 7.55 8.20 8.6

Increases at this level mean that rate is on track to meet the target of 60% of median earnings in the next four years - a target originally set by the government in 2015, but was reiterated by Boris Johnson in his Conservative party election campaign last year. However, the government has always noted that hitting this target will be subject to sustained economic growth.

However, the Low Pay Commission has warned that the government may need to put an "emergency brake" on wage increases as it handles the economic fallout from the Covid-19 pandemic.

"Under our new remit, the government asks us to monitor the labour market and the impacts of the national living wage closely, advise on any emerging risks and - if the economic evidence warrants it - recommend that the government reviews its target or timeframe," said Bryan Sanderson, LPC chair.

"This is what the government refers to as the 'emergency brake'. The ongoing Covid-19 pandemic clearly represents a very challenging set of circumstances for workers and employers alike, and will require us to review whether the emergency brake is required when we next provide our advice to the government [in the autumn]. This advice will be crucially dependent as always on the economic data we receive.

"Many of the nation's key workers - in, for example, the care sector, agriculture, transport and retail - are low-paid, are continuing to work in very difficult conditions and will benefit from today's increase. At the same time, the government has introduced a comprehensive package of support for employers to lessen the impacts of these extraordinary circumstances."

In a report published on April 1, the LPC said its recommendations for the pulling the "emergency brake" could take two forms:

  • It could choose to reduce the increase in a given year, but still commit to reaching the two-thirds target in 2024. This means that increases in the NLW in subsequent years would be higher.
  • It could recommend that the government delay the target year, so we aim for a NLW at two-thirds of median wages in 2025 or later. This would mean that increases in each year could be smaller than if it decided not to delay.

The LPC is reviewing the apprentice rate. Currently, the statutory minimum for those undertaking an apprenticeship is £4.15. The outcome of its review is due in the autumn.

The report says: "We are consulting on increasing the minimum wage rate for apprentices to the same level as the rate for 16-17 year-olds - but are seeking evidence on the impact of this in particular on 16-18 year old apprentices - who may be a particularly vulnerable group.

"Underpayment of the minimum wage appears quite common for apprentices. The underpayment of the minimum wage appears to be linked to the underpayment, or non-payment, of training hours. This also means that employers may be 'using' the Apprentice Rate even if they do not think they are. For example, if an employer was paying an apprentice an hourly rate above the minimum wage for their age but was not paying for training, the apprentice's hourly pay wage maybe below the age rate."

The government still plans to reduce the age threshold for the NLW from 25 to 23 in 2021, and then to 21 by 2024.

TUC general secretary Frances O'Grady said the UK was indebted to its "minimum wage heroes".

"Many - including care workers and supermarket staff - are currently on the frontline of the battle against coronavirus. They deserve every penny of this increase, and more," she said.

"The best way to show our respect is to get the minimum wage up to a real living wage as soon as possible. Millions of low-paid workers are struggling to make ends meet. That's not right during a pandemic - or at any time."