Minimum wage to rise by 11pc

 
Kate McCann
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Business warns Osborne’s move could jeopardise the recovery

GEORGE Osborne has given the strongest hint yet that he wants to see the minimum wage increased to £7, despite urging caution earlier this month.

The chancellor told the BBC that he would like to see an above-inflation rise in the minimum wage, currently set at £6.31 for adults, and that it is a policy “the economy can now afford.”

Osborne also signalled that he would further increase the tax-free personal allowance, which is scheduled to rise to £10,000 in April this year.

“I want to make sure we are all in it together, as part of the recovery, which is why I want to see above-inflation increases in the minimum wage, precisely because the British economy can now afford that,” he said; adding that he wants to see living-standards “go up for the whole country as we fix the economy.”

Osborne said the minimum wage, whose value has fallen in real terms since the 2008 financial crisis, would have to increase to £7 an hour by 2015 for its value to return to where it was before the economic downturn struck.

Osborne made the announcement on the day the government submitted its final report to the Low Pay Commission (LPC), ahead of a decision on the minimum wage increase scheduled for later this year.

A Treasury model detailing the economic impact of increasing the minimum wage to £7 suggested it would be revenue neutral, he added.

The independent LPC will issue its findings next month.

Business leaders have consistently warned that an above-inflation increase in the minimum wage could put some companies at risk and increase the number of unemployed people, as bosses look to reduce staffing costs.

The Federation of Small Businesses said the economic recovery is on a “fragile footing,” adding: “We have argued that any increase in the national minimum wage this year should not exceed the rate of inflation. This will strike the right balance between boosting incomes and supporting businesses and job creation, which will be key to sustaining the recovery.”

The Institute of Economic affairs also came out strongly against any above-inflation increase, with director general Mark Littlewood calling the idea: “A triumph of political aspiration over economic reality,” adding: “This move would not only jeopardise the jobs of some of the most vulnerable workers in the country, it will make it even harder for the young and out of work to get a foot on the employment ladder.”

The policy was widely attacked by business groups.

James Sproule, the chief economist at the Institute of Directors, called it “a risky move” and added: “We would urge the LPC to pay careful attention to the timing of any announcement.”

John Longworth, director general of the British Chambers of Commerce warned that “arbitrarily raising the floor isn’t necessarily the solution and could in fact make the UK economy uncompetitive in the long term.”

The CBI’s John Cridland urged the chancellor not to go over the heads of bosses at the LPC, adding: “Any increase in wages must reflect improved productivity.” Osborne’s move was intended to wrong-foot the opposition. Labour’s chief secretary to the Treasury Chris Leslie called on Osborne to offer a definitive policy on the minimum wage. The TUC welcomed the move, and its general secretary called for Osborne to go even further by adopting the living wage.

The announcement came just as Ed Miliband announced his own economic strategy and has been widely tipped as a political move by the Conservatives to draw attention away from the Labour leader’s speech.

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