The UK’s new minimum wage ‘badly needed’ but many calling for more

Minimum wage increase

Keerthi Subramanian works as a salesperson in the southern part of London and currently receives a wage of 10.42 pounds ($13.15) every hour. Nevertheless, starting from Monday, her pay will increase by 1.02 pounds ($1.29) following the initiation of a fresh minimum wage in the United Kingdom. However, Keerthi discloses that it isn't a substantial salary boost.

Subramanian stated to Al Jazeera that his income was insufficient as it was standing at a little over 10 pounds. He also mentioned that the cost of living has increased in numerous aspects such as energy, food, and rent.

Despite the National Living Wage (NLW), which is the new legal minimum wage, receiving a substantial 9.8 percent increment from the previous levels, it falls short for Subramanian. This is the highest surge since 2001, but she is still dissatisfied. Subramanian stated, "All the expenses I incur have surged since the outbreak of COVID-19."

According to the Department for Business and Trade, approximately 2.7 million people will benefit from a raise to the NLW that is valued at £1,800 ($2,271) per year for those who work full-time.

As a part of their promise made in 2019, the Conservative Party decided to increase the National Living Wage (NLW) to two thirds of the average salary. A recent estimation by the Organisation for Economic Co-operation and Development (OECD) revealed that, as of 2022, the UK's minimum wage was approximately 58 percent of the median pay.

The political party known as the Conservatives have been leading the country since 2010. In 2015, they transformed the legal minimum wage into what is now known as the NLW. At first, this wage only pertained to citizens of the UK who were at least 25 years old. However, the age requirement for individuals earning the NLW has since decreased to 23.

From now on, people who are 21 years old will also be considered for eligibility. Furthermore, the salaries of younger employees will be raised, with an increase of £1.11 ($1.40) per hour for those aged 18 to 20 and an increase of £1.12 ($1.41) per hour for those aged 16 to 17.

Every year, the autonomous Low Pay Commission provides suggestions to politicians about the lowest possible salary. They have recently accepted the complete proposal made last year, which has caused a wage increase.

In November of last year, Jeremy Hunt, who holds the position of Treasury Secretary in the UK, made a statement indicating that the increase in wages is going to put an end to the problem of low pay in the country. According to him, the implementation of the national living wage since 2010 has been beneficial in a way that it has reduced the number of individuals who receive low pay by Almost fifty percent, and now people can expect to earn more from their labor.

Trade unions have expressed approval for the action taken. However, there are those who believe that the NLW must increase further to match the rate of inflation.

According to a statement from Afzal Rahman, a policy officer for the Trade Union Congress, the recent action was absolutely necessary.

"We need to keep in mind the overall situation. Our demand is for a minimum wage of 15 pounds ($18.93) immediately," he stated, emphasizing that the average salary has remained stagnant for the past 15 years in actuality, not meeting the cost of living.

In the previous year, the increase in real wages was significant compared to the past. After considering the effect of inflation, workers in the UK saw a rise of 1.4 percent in their yearly income. Nevertheless, this was mainly because of the decline in inflation. Consumer prices decreased from a high of 11.1 percent in October 2022 to 3.4 percent in February of this year, mainly due to the dip in energy prices. Additionally, the Bank of England's actions to control the amount of money available in the economy have reduced its growth.

Though the prices have decreased, inflation is still 1.4% higher than the 2% target of BoE. Therefore, the fresh NLW would make the policymakers watchful for indications of increased pay leading to another bout of inflation.

According to Edward Allenby, a UK analyst at Oxford Economics, officials at the central bank are worried that increasing the NLW may result in employers offering higher compensation to employees further up the pay ladder.

However, the most recent tendencies in inflation have been favorable. Although the Bank of England will be observing the impact on prices from the recently implemented minimum wage, we anticipate that inflation will remain on a downward trajectory.

According to Allenby, only 5% of employees in the UK received the National Living Wage in 2023. He predicts that even with the wage increase, the Bank of England will still lower interest rates in the summer.

Different from the NLW is the genuine living wage that has been established by a nonprofit organization called the Living Wage Foundation. This wage is adjusted according to the cost of living and is set at 12 pounds ($15.14) per hour across the country and 13.15 pounds ($16.59) per hour in London. Employers have the option to pay their employees this wage on a voluntary basis.

A whopping 14,000 organizations have vowed to pay their employees the authentic living wage. Gail Irvine, who serves as a policy manager at the Living Wage Foundation, elaborates on this promising statistic by revealing that a staggering 3.7 million individuals (which accounts for 13% of the UK’s overall workforce) currently earn less than 12 pounds on an hourly basis.

She stated that the real living wage aims to promote a more equitable society. Unfortunately, in the UK, this goal still seems to be a distant dream. This is evidenced by the country's Gini coefficient, which stands at 35, a level that was last seen in 2007. The UK's income inequality is higher than nearly every EU nation except for Latvia and Lithuania.

If the Gini score is at zero, it indicates complete fairness and equal distribution of income among all households. A higher score means that there is a greater income gap. For instance, in 1979, the Gini coefficient in the UK was 25.3 for reference.

In addition to what's been reported in the news, the Equality Trust, which is a charitable organization, has calculated that the highest earning 10 percent of individuals in the UK experienced an increase in their portion of the country's overall income by 23 percent between the years 1980 and 2020. At the same time, the collective income assigned to the bottom 50 percent of earners in the UK decreased by 7 percent.

In 2020, the highest earners in terms of income were the top executives of FTSE 100 companies, which are the biggest businesses traded on the London Stock Exchange. Their compensation was 130 times higher than what their regular employees earned on average.

Irvine stated that it is evident that the increase in national income has primarily favored individuals with high incomes, which is a significant issue. This is because while the majority of people's actual wages have remained stagnant or decreased, the prices of houses have risen.

She highlighted the fact that for many individuals, rent and mortgages have been increasing at a greater rate than their income. Consequently, they are having to allocate a bigger proportion of their income towards accommodation expenses. Although the introduction of the new National Living Wage is a positive move, it is not sufficient enough to counteract the overall increase in costs, particularly amidst the pandemic.

In the previous month, the Treasury Secretary, Mr. Hunt, suggested that the forthcoming general election in the United Kingdom would take place in October. The Conservative Party is presently behind the Labour Party, which is in opposition, by a margin of 27 percentage points.

Keerthi, a shop assistant in South London, is interested in seeing how the new minimum wage will impact her life before the upcoming elections. She believes that if the Conservative party is unable to lower expenses, particularly rent costs, they could face difficulty.

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