Will the 5.7% minimum wage hike be enough for the lowest earners?

Boris Johnson is reportedly weeks away from announcing a 5.7% hike in the minimum wage. It’s currently set at £8.91 an hour for over 23-year-olds, and Johnson’s proposal would mean an increase to £9.42 an hour – the third biggest annual rise since the 2008 financial crash. But with cuts […]

Boris Johnson is reportedly weeks away from announcing a 5.7% hike in the minimum wage. It’s currently set at £8.91 an hour for over 23-year-olds, and Johnson’s proposal would mean an increase to £9.42 an hour – the third biggest annual rise since the 2008 financial crash.

But with cuts to Universal Credit and increased National Insurance contributions on the horizon, will this rise actually make a difference? Or in the worst-case scenario, could it actually mean that companies start making job cuts?

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What’s happening to the minimum wage?

It is thought that Boris Johnson is set to announce that the minimum wage in the UK will rise to £9.42 an hour. This is based on recommendations made by the Low Pay Commission (LPC), and the rise would come into effect in April 2022.

Currently, almost two million workers earn close to the wage floor. In fact, figures from the LPC suggest that 6.6 million workers earn less than £10.90 an hour.

Will it make a difference?

It’s common knowledge that our wallets are being squeezed. Inflation is on the rise, Universal Credit has been cut and increased National Insurance contributions are on the way.

So will an increase in the minimum wage actually help the lowest earners in society?

The problem is that the ‘National Living Wage’ is not set with reference to the actual cost of living. It is based on a target to reach 66% of median earnings by 2024, while the ‘Real Living Wage’ is independently calculated on what people need to get by.

Having said that, if the prime minister does opt for a bump of 5.7%, then it will bring the minimum wage in line with the Real Living Wage (£9.50 outside London, £10.85 in London).

But the minimum wage doesn’t address regional differences. Low-income earners in the capital don’t get anything more, despite having a higher cost of living. 

There is also the fact that, while companies may implement the new minimum wage, they could change their terms and conditions in order to make savings elsewhere. For example, they could stop paying workers for breaks or scrap discretionary annual bonuses.

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Are there drawbacks?

Some have argued that increasing the minimum wage will put added strain on small businesses. These are the same companies that are already having to plan for increased National Insurance payments.

There is concern that businesses could have to cut back on job roles in order to offer the minimum wage, leading to an increase in unemployment. 

Take home

For low-income earners, a boost to the minimum wage is good news. Based on current figures, it would bring their wages in line with the cost of living. However, with inflation on the up, this may soon change. And any benefit felt from the increase could be wiped out as things get more expensive.

You can use the gov.uk calculator to work out whether or not you are actually receiving minimum wage. If you are unsure as to whether you are entitled to it, then you can learn more at Citizens Advice.

The post Will the 5.7% minimum wage hike be enough for the lowest earners? appeared first on The Motley Fool UK.

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