Think tanks issue warning on Labour minimum wage proposals

Labour minimum wage plans could have “grim consequences” for youth unemployment, think tanks have warned.

Business leaders also cautioned Labour against playing “political football” with wages as Jeremy Corbyn pledged £10 an hour for young workers at a speech in Birmingham.

Party leader Mr Corbyn has announced a new policy to abolish the “youth rate”, which currently pays 16 and 17-year-olds a minimum wage of £4.35 per hour, compared to £8.21 for those over 25.

Professor Len Shackleton, from the Institute of Economic Affairs (IEA) think tank, said Labour’s announcement made clear it was in “a bidding war” with the Tories and had closed the door on experts on the Low Pay Commission.

Accusing politicians of preferring to “pluck pay increases out of the air”, Prof Shackleton said: “This would mean doubling the pay of young people who understandably have fewer skills and less experience than older colleagues.

“Such a rate hike could raise youth unemployment to levels comparable with those in continental Europe.

“The possible dangers of a political bidding war over minimum wages have been highlighted time and time again.

“Now it looks like we have it and the consequences for employment are likely to be grim.”

Matthew Percival, head of employment at the Confederation of British Industry (CBI), also said youth rates help to cut youth unemployment.

He said: “The minimum wage is an important part of the UK labour market and must not be used as a political football.

“It owes its success to the Low Pay Commission, which is an expert, independent body that brings together business and trade unions to guide the national minimum wage.

“Youth rates play an important role in helping to reduce youth unemployment and should be retained.”

Mr Corbyn has called for a baseline £10 an hour for all workers, which he said will “be nothing less than life-changing” for young workers, who would earn £2,500 more each year.

He will say: “Equal pay for equal work is hardly a controversial idea, so why are we discriminating against young people?

“You don’t get a discount at the shops for being under 18. But if the person serving you on the other side of the counter is young, they could be on half the wage of their colleagues.

“It’s time to end this discrimination. Young people’s work should be properly valued, not exploited by employers to cut their wage bill. If they’re doing the job, pay them the wage – the real living wage.”

CBI annual conference
CBI annual conference

Institute for Fiscal Studies (IFS) director Paul Johnson also raised concerns about the potential impact of the “really dramatic” plan.

He told the BBC Radio 4 Today programme: “Clearly, the risk, given the choice between doubling the wages you’re currently paying 16 and 17-year-olds or not employing them at all… the risk is you will have fewer 16- and 17-year-olds in work.”

Mr Johnson also said Labour needed to be clear how the policy would affect apprentices and added employers would need to weigh up whether younger workers with less experience and who may need training were a good investment.

However, Labour MP Peter Dowd, shadow chief secretary to the Treasury, defended the plans, which he told the Today programme aimed to create fairness.

He said: “It’s not about saying this person has exactly the same experience, it’s about a minimum wage.

“It’s not a question of saying everybody gets £10… if people want to pay more, that’s a matter for them, but we have got to be equitable in this situation.

Today I'm proud to announce Labour will end pay discrimination against young people.

— Jeremy Corbyn (@jeremycorbyn) May 11, 2019

“At the end of the day, young people are entitled to be paid reasonable wages.”

When challenged on Mr Johnson’s concerns that the policy could encourage young people to leave education early or lead to fewer jobs for young people, Mr Dowd said he “didn’t accept” that argument.

“We’ve heard this clarion call time after time, how minimum wage will affect the economy, how jobs will go,” he said, listing the history of workers’ rights being challenged by employers, including pay rises for mine workers in 1904 and farm workers in 1924, which did not result in economic trouble.

Mr Dowd highlighted how the system of tax credits to top up low wages had “ballooned” from £1 million to £30 million, and said this was a sign wages had to rise.

He added: “We’ve got to have a system that reflects the needs of small businesses, but also has to reflect the needs of the people they employ, whether they are 16 or 60.”