02/04/2013 10:44 BST | Updated 02/04/2013 12:19 BST

Minimum Wage Could Be Cut Or Frozen Under New Government Plans

Government plans to freeze or cut the minimum wage have been criticised by anti-poverty campaigners, economists and ministers after Downing Street admitted it was something they "were looking into."

Whilst George Osborne continues to defend benefit cuts, saying "work must always pay", the government told the Low Pay Commission, which sets the minimum wage, that it must consider the effect on "employment and economy" before agreeing to any future rises.

Number 10 said when asked about the plans: "It's something we are looking at. We need to make sure that it's working."

Some MPs believe cutting minimum wages would create jobs, allowing small businesses to employ more workers at cheaper rates. However last week, business minister Matt Hancock said that Conservatives should "strengthen" the minimum wage to improve the economy.

Chris Leslie MP, Labour’s shadow treasury minister, slammed the plans, saying: “How can George Osborne claim he wants to make work pay when the government is considering cutting or freezing the minimum wage?

“Working people are already worse off under this government because prices are rising faster than wages. And on top of that figures from the independent IFS show that the average family will be £891 worse off this year because of tax and benefit changes since 2010.

“While millionaires get a huge tax cut from George Osborne this week, he is making millions of people on middle and low incomes pay the price for his economic failure.”


LSE Economics professor Alan Manning told the Huffington Post UK targeting the minimum wage would not solve economic problems and that the government needed to stop interfering with the low pay commission.

"I don't think at the level the minimum wage is currently set it damages the economy in any significant way. The economic problems are not caused by the minimum wage anyway.

"There's certainly not a case for raising minimum wage by a higher percentage than earnings but I think the low pay commission know that.

"At the moment the government can't seem to stop meddling with the low pay commission or the pay review bodies and trust them to do their job."

He suggested altering the format of the minimum wage instead, saying "Although there are employers which struggle to pay the minimum wage, some employers could pay more and could perhaps opt in on a voluntary basis.

"The could also set a higher minimum wage in London or have a slightly higher minimum wage for older workers."

Currently the minimum wage stands at £6.19 for those aged over 21, having risen from £6.08 last October. The rate was frozen at £4.98 for those aged 18 to 20.

Helen Barnard, policy and research manager at the Joseph Rowntree Foundation, said most economic analysis showed the minimum wage did not damage the job market.

“Looking at the overall economic effects of measures such as the minimum wage is important; however, most economic analysis shows that the minimum wage has not damaged jobs, and rises have not kept up with increases in living costs.

“Very low wages affect jobs and the economy, through higher benefit and tax credit costs and lower spending power for consumers. High levels of poverty also cost a great deal: child poverty alone costs the economy around £25 billion a year.

“The government needs to consider the cumulative effects of cuts in benefits and tax credits and poor quality work on individuals and families as well as on the economy.”