The government has been warned it could be forced to abandon targets for ending low pay in Britain by raising the legal minimum wage, as the economic costs of Covid-19 mount.
The Low Pay Commission, the independent body which advises ministers on legal wage floors, said the government target to increase the national living wage to two-thirds of average earnings by 2024 could be in danger.
Boris Johnson’s government had made a flagship pledge ahead of last year’s election to “end low pay” in the UK, saying that people on the national living wage could enjoy pay rates of £10.50 an hour.
However, the chair of the Low Pay Commission, Bryan Sanderson, warned that an “emergency break” included in the target may need to be deployed if the outbreak causes sufficient damage to the economy. To activate the break, the commission would advise the government to review its target or timeframe.
“The ongoing Covid-19 pandemic clearly represents a very challenging set of circumstances for workers and employers alike, and will require us to review whether the emergency brake is required when we next provide our advice to the government,” he said.
“This advice will be crucially dependent as always on the economic data we receive.”
The intervention comes as almost 3 million workers across Britain will receive a pay rise on Wednesday as the legal minimum wage rises more than 6%, despite calls for a delay to protect jobs as the coronavirus outbreak escalates.
Amid mounting job losses and the country sinking into recession, pay for workers over the age of 25 on the national living wage will rise by 6.2%, from £8.21 to £8.72 in the biggest ever cash increase to the legal pay floor.
However, two of the UK’s leading economics thinktanks – the Institute for Fiscal Studies and the Resolution Foundation – had urged the government to stage an eleventh hour U-turn, saying that postponing the rise would stop struggling businesses from laying off workers.
Retailers are understood to have privately lobbiedfor a delay, while the British Beer and Pub Association urged the government to hold back to “prevent mass job losses and permanent pub closures.”
Amid the pressure on the government, Frances O’Grady, general secretary of trade union body the TUC, said wage rises were needed to support millions of low-paid workers struggling to make ends meet as the pandemic spreads.
“Britain is indebted to its army of minimum wage heroes. Many – including care workers and supermarket staff – are currently on the frontline of the battle against coronavirus. They deserve every penny of this increase, and more,” she said.
Despite the lobbying efforts and the threat of widespread company failures as job losses rise, the Treasury has confirmed the rise will take place. Sources said a delay would require changing legislation that has already been enacted and would be politically toxic at a time when many are facing the prospect of financial hardship. Business sources also said firms had already altered payroll systems to accommodate the change, which would be administratively costly to unpick.
The national living wage is the minimum wage that must be paid to workers in the UK, and it came into effect on 1 April 2016.
As of April 2018, the hourly rates are:
25 and over £7.83
Under 18 £4.20
Once the coronavirus crisis has been overcome, the government could come under greater pressure to soften its targets. Tej Parikh, chief economist at the Institute of Directors, which represents business leaders, said executives supported the aim to help those on low pay, but that the legal wage floor must be set in tune with economic circumstances.
“We shouldn’t write-off continuing ambitious increases if the economy quickly rebounds to something like normal, but right now that’s a big ‘if’. Should firms continue to struggle in the medium to long term, government may have to take another look at the current trajectory,” he said.
However, public support is growing for further increases in the living wage to be forced through. Nearly seven in 10 adults would back a £10.50 legal wage floor, with only one in 10 opposed, according to extensive surveys and focus group studies published on Tuesday by the Learning and Work Institute and the Carnegie UK Trust charities.
Despite unemployment reaching the lowest levels since the 1970s before the coronavirus hit, average UK pay levels only surpassed the peak recorded before the financial crisis of 2008-2009 after accounting for inflation at the end of 2019, a lost decade of earnings growth.
Alfie Stirling, head of economics at the New Economics Foundation thinktank, said the mistakes made in the recovery from the 2008 crash meant Britain entered the coronavirus crisis on a weaker footing, with many households already struggling.
“We should want this recovery to strike a better balance between valuing employment rates and employment quality. That means correcting for some of the weak job quality seen prior to the pandemic with higher minimum wages,” he said.
Economists expect the fallout from Covid-19 to trigger a drop in average pay, eroding living standards across Britain. Thomas Pugh, of the consultancy Capital Economics, said average pay packets could fall by 2% in the coming months before recovering slightly later in the year.
He said earnings growth for 2020 as a whole is expected to be less than 1%, a sharp drop from 3.5% last year, adding: “If we are wrong it will be because we have underestimated the impact rather than overestimated.”
The Labour shadow chancellor, John McDonnell, told the Guardian that the government needed to press ahead with raising the living wage to cope with the hardship. “It is appalling that anyone is advocating depriving the poorest in our society of this minor improvement in their wages,” he said. “Have these economic bullies learnt nothing?”