As Jeremy Corbyn pledges £10 an hour, has the National Living Wage opened a Pandora’s box of government wage setting?

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The Labour leader wants to raise the minimum wage to £10 an hour (Source: Getty)

Ben Southwood, head of research at the Adam Smith Institute, says Yes.

When the government announced the National Living Wage (NLW), one risk was that a faster schedule of hikes in the wage floor would lower employment. The Office for Budget Responsibility said it expected employment to be 60,000 lower than it otherwise would have been in 2020, when the full effects of the NLW would be felt.

But we warned that there was a bigger risk: politicising low pay. Between 1999, when the minimum wage first came in, and 2015, when George Osborne introduced the NLW, political norms stopped the issue from becoming a political football. Minimum wages were set by a committee of experts and stakeholders, the Low Pay Commission (LPC).

The LPC was very careful. Sometimes the rate went up just 7p, when it feared the risks of cutting jobs outweighed the benefits of more money for those still in them.

All that has changed. Our predictions have come true: Jeremy Corbyn has outbid the Tories, pledging to raise the rate to £10 by 2020. George Osborne’s eye-catching policy means low pay rules will be political, not pragmatic.

Jon McLeod, chairman of UK corporate, financial and public affairs at Weber Shandwick, says No.

The Conservatives’ National Living Wage does not herald a new era of central government wage fixing. It does provide a realistic baseline to ensure that key workers are able to make a decent living and form a part of the community. If anything, it helps create certainty for those sectors which rely on a large workforce.

Beyond this, however, the UK labour market has a near infinite range of wage rates and working agreements. The minimum wage itself affects only a minority of workers, and it doesn’t address working conditions.

The UK, however, cannot build its prosperity on higher minimum wages. We are a premium economy and need to build our skills base. Brexit will make competition for labour more intense, so we need to invest in our people, especially in the services sector. Policy-makers should focus on this issue in the years to come, and I am confident that they won’t try to resuscitate 1970s wage-fixing in the process.

City A.M.'s opinion pages are a place for thought-provoking views and debate. These views are not necessarily shared by City A.M.

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