York economist welcomes Budget low pay move

Posted on 8 July 2015

A University of York economist who helped to write a report which called on the Government to undertake major reform of the minimum wage has welcomed the news that the Chancellor George Osborne is acting on many of its findings.

Professor Karen Mumford

Professor Karen Mumford, of the Department of Economics and Related Studies at York was a member of a panel of academics and policy experts, chaired by Sir George Bain, that produced the report More Than a Minimum which the Chancellor referred to in his Budget speech.

The Resolution Foundation review recommended a fundamental overhaul of the minimum wage, arguing that the cautious approach of the late 1990s was right for its time, but that it is now too narrow, short-sighted and passive to dent today’s wider problem of low pay. It said the minimum wage and Low Pay Commission should be strengthened in three main ways:

By broadening the Low Pay Commission into a powerful new watchdog on low pay
By making the minimum wage itself more far-sighted
By giving the LPC tools to push employers to go beyond the minimum wage

In his Budget, Mr Osborne said: “I am today introducing a new National Living Wage. We’ve set it to reach £9 an hour by 2020. The new National Living Wage will be compulsory. Working people aged 25 and over will receive it. It will start next April, at the rate of £7.20

“The Low Pay Commission will recommend future rises that achieve the Government’s objective of reaching 60% of median earnings by 2020. That is the minimum level of pay recommended in the report to the Resolution Foundation by Sir George Bain – [former] Chair of the Low Pay Commission.”

Professor Mumford, who is also Chair of the Royal Economic Society Women's Committee, said: “It is great news that our work with the Resolution Foundation has been recognised in such a tangible way. The New Living Wage is in fact a substantial increase in the National Minimum Wage for adults aged 25 and over. It will increase pay for millions of people trapped in persistently low paying jobs; the majority of whom are women. It represents a fundamental shift in the approach to low pay policy in the UK.

“Nevertheless, it will not solve the UK’s low pay problems on its own. It is also crucial to address the productivity of workers in the low paying sectors of the economy and the ability of firms to meet the increased labour costs. Our report deals with low pay, not with household income; increasing the National Minimum Wage may not improve the standard of living for the families of low paid workers without reforms to the tax and benefit system.”

The report had suggested that preparatory steps to implement its recommendations could be taken this year and that the Government elected in 2015 should publish its strategy to reduce low pay and its ambitions for the minimum wage early in the first parliament.

Around 1.2 million workers in the UK earn the minimum wage (or no more than five pence above it). A further 1.4 million earn with 50 pence of the hourly minimum. And five million workers meet the official OECD definition of low-pay.

Further information:

Members of the expert panel were: Professor Sir George Bain– founding Chair of the Low Pay Commission and former President and Vice-Chancellor of Queen’s University Belfast; Professor Paul Gregg – Professor of Economic and Social Policy and Director of the Centre for Analysis and Social Policy, University of Bath; Professor Alan Manning – Professor of Economics and former Head of the Economics Department, London School of Economics; Dr Abigail McKnight – Toyota Senior Research Fellow at the Centre for Analysis of Social Exclusion (CASE) at the London School of Economics; Professor Karen Mumford –Professor of Economics at the University of York and Chair of the Royal Economic Society Women's Committee; Dr John Philpott, Director, The Jobs Economist consultancy ; James Plunkett – Director of Policy and Development, Resolution Foundation; Nicola Smith – Head of Economic and Social Affairs Department, Trades Union Congress; Tony Wilson – Director of Policy, Centre for Economic and Social Inclusion.
The review was launched in July 2013 and has published two previous reports – 15 Years Later (an initial discussion paper from July 2013) and Minimum Wage Act II (an interim report released in February)
The work received the generous support of the Barrow Cadbury Trust, an independent, charitable foundation committed to bringing about socially just change. The Trust provides grants to grassroots community groups and campaigns working in deprived communities in the UK, with a focus on Birmingham and the Black Country. The Trust also works with researchers, think tanks and government, often in partnership with other grant-makers, seeking to overcome the structural barriers to a more just and equal society.