Posted: 30 September 2013

What rise in the national minimum wage?

Tomorrow, the national minimum wage rises by 12p an hour. But this is an increase in little more than name. In reality, it marks the minimum wage’s lowest point for a decade. (Details are in our briefing document.) 

The minimum wage can be an effective way to help keep families out of poverty and make work pay. But for millions of families across the country struggling to make ends meet, this move will bring little if any relief. We know from our work with parents in low-income work the challenges they face just to provide their children with basics, such as a hot, balanced meal and shoes for school.  

The minimum wage isn’t helping families keep up

Over the past three years, increases to rent, utilities and food have out-paced rises in the minimum wage. The price of food has risen twice as fast as the minimum wage. The cost of heating a home and being able to turn on the lights has risen three times as fast.

In fact, the annual drop in the minimum wage's value since its peak in 2010 means it is worth 50p an hour less today. The rate for 18-20 year olds has fallen even more - by 64p per hour.

 

 

What this means for low-income working families

Combined with cuts to such key support as benefits and tax credits, the diminishing value of the minimum wage makes it even more difficult for families on low incomes to make ends meet. In 2011 there were 150,000 more children in working families living in poverty than in 2010.

Increasingly, these families are falling into crisis. Unable to pay their bills or access commercial credit, they are forced to turn to high-interest lenders. One survey found that of the million households using payday loans each month, 400,000 were using them for essentials, including food and fuel.

The government’s failure to ensure the minimum wage rises in line with the cost of living also has a major impact on the public purse. We estimate that if the minimum wage were increased with the cost of living since 2010, as much as £760 million per year could have been saved. This includes £460 million in increased tax receipts, and £300 million in reduced benefit and tax credit payments. 

Broad benefits of raising the minimum wage

The government needs to make clear to the low pay commission (which advises the government on the national minimum wage) that they aspire to see the national minimum wage rise in line with costs of living, both in order to ensure low paid families can pay for the basic costs of living, but also to give value for money to the public purse.

Such savings could then be reinvested in services that support working families. They could go towards paying for more help with childcare costs for the lowest income working families, or towards providing free school meals for the hundreds of thousands of children in poverty in working families that aren’t entitled.

This could go a long way towards lifting many children in low income working families out of poverty.

 

More information

Our briefing document contains detailed information

By Sam Royston - Policy team

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