Labour has criticized a proposal from the Conservative Party to freeze the minimum wage for five years, a move that could potentially cost low-paid workers nearly £9,000. This suggestion emerged from a report by the Prosperity Institute think tank, which was endorsed by Andrew Sharpe, the shadow business minister.
Proposal Details
Sharpe emphasized the urgency of addressing the low employment rate among young people, stating:
“"With almost 1 million young people not in education, employment or training, this report is timely and its recommendations very sound. The government should adopt them in full."
The report advocates for:
- Freezing the national living wage at £12.71 for five years.
- Abolishing the Low Pay Commission (LPC), which currently recommends annual wage increases.
- Returning employer national insurance contributions to pre-April 2025 levels.
- Reinstating the two-year qualifying period for unfair dismissal, which was removed under Labour’s Employment Rights Act.
Potential Impact
According to the report, a five-year freeze could lead to an increase of approximately 270,000 young people entering the workforce. The authors suggest that for every 1 percentage point increase in the minimum wage, there is a 0.37 percentage point decrease in the youth employment rate. However, they also acknowledge that this approach would not be without cost to workers, predicting a 9% to 12% erosion of purchasing power over five years due to projected inflation of 2% to 2.5%, resulting in a cumulative loss of about £8,900.
