National Minimum Wage to hit £6.50 an hour from October

Government announces 19p rise on £6.31 minimum hourly rate businesses must pay employees aged 21 and over

Small businesses face a 19p increase in the National Minimum Wage headline rate from October, the government has announced.

The new £6.50 hourly rate for employees aged 21 and over amounts to a pay rise of £355 for more than a million people, the business secretary Vince Cable announced.

“The recommendations I have accepted mean that low paid workers will enjoy the biggest cash increase in their take home pay since 2008,” said Cable.

It is the first real terms increase since 2008, which the government argued is manageable for businesses and will not create unemployment.

Recommended by the Low Pay Commission (LPC), the real terms rise of 3% is lower than £7 mooted by chancellor George Osborne and the £6.94 target outlined following a nine-month inquiry by professor Sir George Bain, who was chairman of the LPC when the Minimum Wage was introduced 15 years ago.

The rate is also significantly lower than the recommended Living Wage of £8.80 for London and £7.65 for outside the capital.

Additionally, the government has fully accepted the independent body’s recommendation for bigger rises in the rate in future years.

New National Minimum Wage rates to kick in from October 1 2014 are as follows:

  • £6.50 per hour for employees aged 21 and over (3% increase of 19p from £6.31)
  • £5.13 per hour for 18 to 20 year-olds (2% increase of 10p from £5.03)
  • £3.79 per hour for 16 to 17 year-olds (2% increase of 7p from £3.72)
  • £2.73 per hour for apprentices (2% increase of 5p from £2.68

Cable hailed the work of the LPC and called on businesses to share the “benefits of recovery”. “The LPC’s new forward guidance gives us a much better understanding of how an economic recovery can be translated into faster and significant increases in the National Minimum Wage for low paid workers, without costing jobs.

“The experts will continue to advise government on future wage rises to help the low paid, and in the meantime I urge businesses to consider how all their staff – not just those on the minimum wage – can enjoy the benefits of recovery.”

However, chief executive of the Forum of Private Business Phil Orford MBE, argued the rise was too soon and that businesses need more time to absorb the increase in their overheads.

“We are looking at a recovery but businesses need time to invest in skills and training and take proper advantage of the better trading conditions,” said Orford.

“With many facing new pension costs over the next two years, now is not the time to also be raising the National Minimum Wage significantly above inflation, especially when many businesses paying more than that rate cannot afford significant pay rises to their staff due to profitability concerns and cash constraints.”

While some small businesses will argue the new minimum standard will lead to reduced hours, redundancies, pay and recruitment freezes, chief economist at the Chartered Institute of Personnel and Development (CIPD) Mark Beatson was more positive. He called the increase a “cautious but welcome first step in restoring the real value of this minimum standard for low wage workers”.

He said he expects further and bigger rises to help restore the value lost in recent years and claimed it is a failure of the UK that needs to be addressed. “Government, employers and employee representatives need to work together to ensure that the UK’s long-standing productivity problems are addressed so that this momentum can be maintained,” said Beatson.

“Ultimately, real progress on low pay relies on encouraging employers to invest more in training and career progression opportunities so the lowest paid workers can lift themselves out of minimum wage roles and add greater value to the firms that employ them.

“The UK performs poorly compared to other developed nations on both the sheer number of low paid roles and the opportunities for those in them to grow and develop in their roles.”

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