Minimum Wage Rates – can they continue to rise at the current rate?

Friday, 23 August, 2019

Commodity watch by senior policy officer, Chris Osborne

Last week I attended a Department for Business, Energy and Industrial Strategy (BEIS) roundtable meeting in Belfast, which was organised to consider the new target for the national living wage (NLW). The meeting was attended by Hospitality NI, Trade Union Congress (TUC), Confederation of British Industry (CBI), Federation of Small Businesses (FSB), Her Majesty's Treasury and Northern Ireland Federation of Housing Associations (NIFHA).

As with the introduction of the national minimum wage (NMW) back in 1999, initial Government evidence has suggested that the national living wage (introduced in 2016), has increased wage levels for the minimum pay bracket, with a minimal adverse impact on employment levels and this is to be welcomed. The Government has gone as far as to say that the employment rate has never been higher. However, the labour market is a different place to what it was 20 years ago when the NMW was first introduced, with increased automation and changing labour practices, i.e. the advent of zero-hour contracts. The fear, backed by a recent Office for Budgetary Responsibility (OBR) report, is that the NLW may rise to such a level that some employers may have to start cutting jobs in certain sectors. 

Despite its initial impact on the low pay rate, the NLW does not address job quality. Instead, what we are seeing is that this minimum wage policy establishes a further minimum pay floor and this is unfortunately translated by some employers in other sectors as a pay ceiling. This is illustrated by the fact that real wages are no higher in the UK than what they were before the 2008 financial crisis, with large numbers of workers clustered around the minimum pay-level thresholds.

Economic theory cites the reason for a minimal wage to the need to correct market inefficiencies and to substitute for the lack of worker bargaining power in the labour market. However, farming is the last remaining industry in the UK where we have the legislative mechanism in place for “collective bargaining” and that is the Agriculture Wage Board (AWB). Whereby two sets of representatives meet to bargain/negotiate on what the wage rate should be for the year ahead. Which begs the question already raised in our commodity watch published in May 2019, concerning the impact of the NLW upon the AWB here in Northern Ireland.

The NLW was introduced to reduce poverty and strive towards a higher wage economy, essentially to provide basic needs for the lowest needs in the UK. The problem would appear to be that the Government at the time, introduced this additional minimum wage without the foresight to amend tax credits for example, which would have boosted the wellbeing of the poorest in society. The accusation has been levelled at Government that they have attempted to address poor living standards without required extra public money.

Which brings us back to here and now. With the prospect of a no-deal Brexit continuing to hang over our industry and the wider economy, the Ulster Farmers’ Union would have concerns about the rate of increase in minimum wage rates, especially when we are working within the legislating AWB. Further increases in minimum wage rates must be backed by economic justification as to what is affordable and applicable at the time. Without any definite economic case and in keeping with the air of socio-uncertainty surrounding Brexit, the Government should perhaps consider (at least in real terms), freezing minimum wage rate increases.