UK government divided over minimum wage increase in face of youth jobs crisis | Youth unemployment
Rising youth unemployment rates have led to a high-profile divide over how quickly the government should deliver on its promise to give young people the full minimum wage.
Business Secretary Peter Kyle is understood to believe it is not the time to give 18 to 20-year-olds the full minimum wage, as Labor promised in its manifesto.
Others believe there is little evidence to suggest that recent wage increases for low-wage workers have had any impact on unemployment.
“If you look at what the Low Pay Commission said in its annual report, they found no evidence that previous increases in the minimum wage for young people had an impact on employment,” treasury secretary Torsten Bell told the BBC on Friday morning.
The divisions emerged this week following former Labor Secretary Alan Milburn’s groundbreaking government-backed report which found youth unemployment was costing Britain more than £125bn a year.
Milburn’s report found that the number of young people not working or studying exceeded one million for the first time in more than a decade, leading to calls for the pace of youth minimum wage increases to be slowed.
Milburn told the News Agencies podcast this week: “To provide them with jobs, you have to make sure that employers are willing to take the risk. If you’re in, say, hospitality or retail, margins tend to be very low. These tend to be sectors that are very badly hit by the cost of living, particularly hospitality.”
This comes amid a wider struggle over the future of the Labor Party. Andy Burnham has vowed to move left on some policies if he wins the Makerfield by-election and becomes prime minister, while others have urged the party to stay with what they see as the political centre.
Former prime minister Tony Blair warned in an essay this week that policies he introduced, such as increasing the minimum wage, were creating “headwinds for business, not headwinds”.
In its manifesto, Labor promised to equalize minimum wage rates for 18-20 year olds with workers aged 21 and over, but did not say how quickly this would be achieved. Bell said on Friday: “We are committed to our manifesto and we will deliver on it. But that manifesto did not set out the timeline.”
While he and others in the government believe they should slow the pace of growth in youth rates of the national minimum wage if there is evidence it is having an impact on employment, they do not believe the evidence is yet available.
This year the government accepted the Low Pay Commission’s (LPC) recommendation to increase the main rate of the minimum wage by 4.1 per cent, but to increase the youth rate by 8.5 per cent. They are currently available at £12.71 and £10.85 respectively.
The commission will explain to the government in October what it proposes for the financial year starting on April 1, 2027; Some in the government privately hope it will issue a recommendation significantly lower than this year’s.
Earlier this year ministers even changed their guidance for the LPC to reflect the government’s concerns about youth unemployment. While he used to tell the commission to consider youth unemployment rates, he now told it to prioritize employment rates instead.
LPC said last month He did not believe that wage increases contributed to rising youth unemployment rates. “While the Commission recognizes that labor market outcomes for young people have worsened over the past two years, we are not aware of any solid evidence that higher youth rates have contributed to these declines,” the commission said.
Ministers do not have to accept the commission’s recommendations, but chancellor Rachel Reeves has shown in the past that it is a virtue to do so. If they want to further slow pay growth for young people, they could instead change the guidance once again for subsequent years.
As ministers debate the causes of youth unemployment, MPs and unions are urging them not to renege on their promises to voters.
“There is no good evidence that the minimum wage causes an increase in youth unemployment,” said Kate Bell, deputy general secretary of the Trades Union Congress. “This is something the business community always turns to, but the evidence suggests the picture is much more complex than that.”
Former employment minister Justin Madders said: “The minimum wage is set following submissions to the LPC by stakeholders, including employers. The rates set have therefore always been at a level that does not impact on employment levels, a fact borne out by 25 years of evidence.”
Joanne Thomas, general secretary of shop workers union Usdaw, said: “We are deeply concerned by voices within the government who suggest that Labour’s manifesto commitment to end youth rates on the minimum wage should not be fully implemented.
“We are clear that the general election manifesto is valid for the life of this parliament and policy must be delivered at that time.”
