United Kingdom minimum wage set to rise for adults over 21 years old

The British Department for Business Innovation and Skills announced in a news release Monday of the minimum wage increase for those over the age of 21, apprentices and accommodation offset.  The increases take into effect as of Oct. 1, 2012 and were part of the recommendations made by the Low Pay Commission in its 2012 report.

The National Minimum Wage (NMW) will look like this:

  • Adult Rate: 11 pence increase to £6.19 an hour
  • 18-20 year olds Rate: Remain at £4.98 an hour
  • 16-17 year olds Rate: Remain at £3.68 an hour
  •  Apprentice Rate: Increase by five pence to £2.65 an hour
  •  Accommodation Offset Rate: Increase by nine pence to £4.82 per day

In the media release, it was noted that the British government believes the minimum wage will encourage many to work and that approximately one million low-paid workers will benefit from the NMW increase.

Furthermore, changes were made to VAT rules.  This means that the tax will be applied to self-storage facilities, rentals of hairdressers’ chairs, take-out food, sports drinks and approved renovations to listed buildings.

Monday’s increase is part of the government’s economic policy “Plan for Growth” that attempts to make the United Kingdom “the most competitive tax system in the G20,” the best place to start a business, investment-friendly and a highly educated workforce.

“I believe that the recommendations of the Low Pay Commission strike the right balance between pay and jobs, and have therefore accepted all the rate recommendations. The Low Pay Commission has done a good job in difficult circumstances,” said Business Secretary Vince Cable in the press release.  “In these tough times freezing the youth rates has been a very hard decision – but raising the youth rates would have been of little value to young people if it meant it was harder for them to get a job in the long run.”

The Trade Union Congress (TUC) issued a statement in which it called the minimum wage hike actually “a real terms pay cut” because the 1.8 percent increase will lead to “the lowest paid suffering.”

“While we are pleased that government has rejected the siren calls of some employers to freeze the minimum wage for adult workers and apprentices, these increases are still far below inflation and will leave the lowest paid facing a real terms cut,” said Brendan Barber, TUC General Secretary, in a press release.

“These new rates are a particular blow to younger people who will face the biggest hit on their living standards. There is no evidence that the minimum wage has had an adverse impact on young people’s employment so it is hard to see the logic behind their pay freeze.”

In the end, according to the TUC, the boost in the NMW does not do much to help families.  It is calling for a higher increase next year for minimum wage workers.  It did not state, however, how much the minimum wage should be and what percentage it should increase to in 2013.

Opponents of minimum wage have long argued that this practice not only hurts the economy, but also both unskilled and skilled workers.  Those who call for the end of minimum wage laws say it kills jobs for entry-level employees, which are usually taken by the impoverished.

Many businesses do not hire more individuals.  Some companies don’t expand.  Others don’t even open.  Why?  Proponents of allowing the business and markets to set a wage say because there are small businesses out there that can’t afford the minimum wage or won’t hire inexperienced workers, such as young people, because of the set pay amount.

Minimum wage laws usually have unintended consequences: less business, less work and even less tax revenue for the national and state governments.

“[T]he minimum wage law is most properly described as a law saying employers must discriminate against people who have low skills. That’s what the law says. The law says here’s a man who would — has a skill which would justify a wage rate of $1.50, $2.00 an hour. You can’t, you may not employ him. It’s illegal. Because if you employ him you have to pay him $2.50,” stated economist Milton Friedman in a video interview.

“Well, what’s the result? To employ him at $2.50 is to engage in charity. Now there’s nothing wrong with charity. But most employers are not in a position where they can engage in that kind of charity. Thus the consequences of minimum wage rates have been almost wholly bad, to increase unemployment and to increase poverty.”

During the 2012 Republican primary debates, Texas Congressman Ron Paul was asked if he supported getting rid of the minimum wage.  The libertarian-leaning representative replied “absolutely” because it would help the very people who need jobs and that minimum wage is a “mandate.”

“Mandates, that what the whole society is about, what we do all the time. That’s what government is about: mandate, mandate, mandate,” said the three-time presidential candidate.  “We talk so much about the Obama mandate which is so important, but what about Medicare? Isn’t that a mandate? Everything we do is mandate. So, this is why you have to look at this, the cause of liberty. We don’t need the government running our lives.”

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