Whats in your wallet?

It will disappoint low paid workers and anti-poverty campaigners, but is a sensible decision following several years of substantial real and relative hikes in the minimum rate.

The common good requires an NMW that ensures low paid workers share in growing prosperity without, at the same time, threatening the jobs that provide them with a livelihood. The Low Pay Commission has served to strike a fair balance on the ‘low pay or no pay’ spectrum, since 1999 and the today’s recommendation is no different.

Growth in the NMW has easily outstripped both price and average wage inflation throughout this decade. A cautious increase this year at (if not slightly below) growth in average pay, and in line with what price inflation will probably be come the autumn, seems sensible.

With the NMW now starting to bite, especially for younger workers, a period of caution is fully justified if jobs are not to be put at risk. The Government is therefore also right to be doubly cautious in not extending the full adult NMW rate to 21 year olds. This will disappoint many, particular 18-21 year olds and 16-17 year olds who will see their hourly pay rise by just 15p and 10p, respectively. But if the NMW is to succeed as a long-term policy instrument it must be set at a rate that, while improving pay at the bottom of the labour market, does not have adverse consequences for jobs, inflation and the wider economy.

John Philpott, Chief Economist, Chartered Institute of Personnel and Development