Impact of inflation means minimum wage is worth less than in 2004

The Momentum UK Team 01 April 2012

October will see the National Minimum Wage rise from £6.08 to £6.19 but according to a recent report this could leave some of us worse off than in 2004, due to inflation. The rise of just 11p marks one of the lowest increases since the National Minimum Wage was introduced in 1999. Resolution Foundation's report suggests that although our minimum wage is revised in terms of 'cash value' on a yearly basis, over the last couple of years its actual has been crushed by inflation.

The report explicated that when considered against inflation, the early 2000s marked the 'greatest' increases to National Minimum Wage. However since 2009, the rises have failed to correspond with levels of inflation leaving a number of employees on a wage that holds less value 'in real terms' than in 2004.

Towards the end of last year, predictions were made by the Institution for Fiscal Studies that in 2015/16 the value of the median household income would be lower than it was in 2003/4 due to increases in wages falling out of sync with increases of inflation.

Author of the report and Head of Economics at London School of Economics stated that:

"To sit back and say, well, this is as much as we can do, that's perhaps a little bit defeatist."

He made a number of suggestions to help counteract the problem:

"Given the scale of the challenge now facing living standards it might be time to think about more radical options for reform. For example, we could consider introducing a higher minimum wage for workers aged over 30 who are more likely to have families to support, or for London and the South East. We could also do more to show that big companies in some sectors could afford to pay more than the legal minimum."

He also made recommendations for the 3% of 30+ year old adult workers earning minimum wage:

"Wages make up around two thirds of household income in households where a minimum wage worker is aged 30 or above. Boosting the minimum wage by figures in the region of 5 to 10 percent could therefore have a non-trivial effect on material well being."

People living in London and the South East were amongst another category that Professor Manning believed should receive an increase to their minimum wage due to the increased cost of living standards within the region. He suggests that a campaign could encourage London companies to do this on a "voluntary" basis rather than making it a statutory requirement.

Manning proposed our structured approach to the minimum wage in the UK could be proving a hindrance. His report raised the possibility that a 'non-mandatory living wage' where employers who feel they can afford it pay out a more generous hourly wage to employees in order to ensure that they can afford 'the essentials of life'.

The Low Pay Commission stressed the importance of the having the minimum wage in the UK to protect our 'lowest-paid workers'.