‘Despite the increase, the minimum wage will still be comparatively low, and millions will live below the minimum acceptable standard of living.’
Prem Sikka is an Emeritus Professor of Accounting at the University of Essex and the University of Sheffield, a Labour member of the House of Lords, and Contributing Editor at Left Foot Forward.
Amidst the economic gloom, there is one piece of good news. The minimum wage rate for nearly 2 million UK workers is rising from 1 April 2025. This will also have a positive effect on workers immediately above the minimum wage as they will seek to maintain wage differentials. Higher wages improve people’s material conditions and reduce spending on welfare benefits.
The new rate for full-time workers over the age of 21 will be £12.21 an hour, a 6.7% increase over the previous year’s rate. For 18–20-year-olds, the rate rises from £8.60 to £10.00 per hour. There are lower rates for the under-18s and apprentices.
The 6.7% headline rate increase appears high to some, but its real value has already been eroded by the rise in the price of energy, water, food, transport, housing, Wi-Fi, council tax and other essentials. Workers are merely catching-up. There is little real-term gain, or reset of the relationship between capital and labour. As a percentage of median earnings, the UK minimum wage is lower than in Colombia, Costa Rice, Chile, Mexico, Portugal, Turkiye, Slovenia, France and South Korea.
The new rates mean that a worker over the age of twenty-one working a 35-hour week will earn £22,222 a year. After income tax and national insurance deductions of £2,703, the take-home pay will be £19,519 a year. Median pay for FTSE 100 chief executives is £4.22m.
The Joseph Rowntree Foundation estimated that a single person needed to earn £28,000 a year to reach a minimum acceptable standard of living in 2024. A couple with 2 children needed to earn £69,400 a year between them. Higher minimum wage still won’t give millions of people a minimum standard of living, even when two members of the family work. Most will still not be able to save for a decent pension or buy a home.
Many poorly paid workers hold multiple jobs to make ends meet, far less start a family or a business. Many are on insecure zero-hour contracts. Too many rely on foodbanks and charities for survival. Around 38% of the claimants of Universal Credit are at work. Tax policy does not help the poor either. In 2024-25, the richest fifth paid 30% of gross household income in direct taxes, compared to 16% for the poorest fifth. The richest fifth paid 11% of disposable income in indirect taxes, compared to 27% by the poorest fifth. Altogether, the poorest pay a higher proportion of income in taxes.
The law denies the full minimum wage rate to workers below the age of twenty-one. The under-twenty-ones do not pay a lower rate of income tax and national insurance. They pay full price for housing, food, shoes, clothes, transport, medicines, internet or other goods and services but are condemned to receive a lower wage. Successive governments have assumed that the under-twenty-ones are funded by the bank of Mum and Dad but that is not necessarily so, especially as parents too are buffeted by never-ending austerity and real wage cuts. The government has proposed a cut in the disability benefits for people under the age of 22.
The under-twenty-ones are paid a lower wage rate but the product of their labour whether at restaurants, fast food outlets, supermarkets, offices, factories, fields or building sites does not carry a lower price. Companies do not sell the products and services produced by low-paid workers at a discount. The denial of the full minimum wage to under-twenty-ones is legalised exploitation.
Over the years, the typical government response has been that low wages create and preserve employment opportunities for young workers. Yet young people work long hours and do multiple jobs to meet living costs.
Young people on low wages are trapped into low-paid jobs. Many would like to undertake part-time education to improve qualifications and skills but can’t do this alongside multiple jobs. Many do not have the resources, and there is no government help.
Henry Ford famously increased the wages of his workers to reduce staff turnover and efficiency, and enabled workers to buy more of his automobiles. But in contemporary Britain some employers complain that higher minimum wage has a negative impact on their business, without saying much about how they would expect workers to survive and buy their goods and services. Companies like Currys have opposed the rise in minimum wage on the grounds that this increases business costs, but the same objections are not raised against executive pay, dividends and share buybacks. Research shows that rising minimum wage had an impact on firms’ hiring behaviour but there is little evidence of any negative impact on employment or hours, especially as many businesses can pass on higher costs to customers.
Some employers resent paying even the minimum wage to their workers. In the years 2019, 2023 and 2024, 428,000, 351,000 and 371,000 workers respectively were estimated to have been robbed of the minimum wage. Rather than prosecutions, governments have opted for a ‘naming and shaming’ regime on the assumption that this would enhance compliance with regulation. In 2022, 202 businesses were named for failing to pay £7m of minimum wage to 63,000 workers. In 2023, 524 businesses were named for denying £16m statutory minimum wage to 172,000 workers. Some highly well-known companies, such as Staffline Recruitment Limited, Rank Group Gaming, Mitchells & Butlers PLC, Easyjet Airline Company Limited, Greggs Plc, Moss Bros Group PLC, WH Smith Retail Holdings Limited, Lloyds Pharmacy Limited, Marks and Spencer PLC and Argos Limited have failed to pay the required minimum wage to their employees.
The offending organisations do not make material errors or forget to pay the right sums to bosses. They only forget to pay the right rate to their lowest-paid workers. Denial of wages to workers boosts profits and fuels executive bonuses.
The enforcement process needs improvement. Unions have brought successful court cases against employers though individual workers lack resources to enforce their rights. The chances of being caught for violation of the wage laws are low. The International Labour Organization Convention No. 81, which is signed by the UK, calls for countries to ensure that there are a “sufficient number” of labour market inspectors to monitor and enforce worker rights. This is interpreted as one labour market inspector per 10,000 workers in industrial market economies. With a work force of 36.9m the UK has only 1,490 labour market inspectors. With these resources, employers can expect a visit about once every five hundred years. And the government is promoting deregulation.
The potential fines for non-compliance with the minimum wage laws are up to 200% of the underpayment of the wage and a maximum fine of £20,000 per worker. Such levels of fines are rarely invoked. Directors don’t face any personal penalties for inflicting hardship on workers.
There is no minimum penalty. One-size fits all can be difficult as small and large businesses may have different capacities to absorb fines. So, one solution is that the minimum penalty should equal the remuneration of the entire board of directors. This would result in proportionately higher fines on large companies. At least 50% of the fine should be directly borne by directors. Thus, they will have economic incentives for ensuring that workers are not deprived on the statutory minimum wage.
Despite the increase, the minimum wage will still be comparatively low, and millions will live below the minimum acceptable standard of living. Equitable distribution of income is needed. Stronger trade unions are essential. Worker elected directors on the boards of large companies can help to secure equitable distribution of income. The government can improve purchasing power of low-paid workers by abolishing VAT on domestic fuel, cutting the standard rate of VAT and increasing tax-free personal allowance. As part of redistribution it can also provide free school meals and childcare to lift low-paid workers and their families out of poverty. The net benefit is that the spending of the less well-off will boost local economies and fuel economic growth.
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