Vince Cable announces a freeze of the minimum wage for 16 to 20-year-olds, and a rise in the adult rate from October. Channel 4 News hears the move could “exacerbate generational inequalities”.

The business secretary said the minimum wage rates were in line with recommendations of the Low Pay Commission (LPC).

The hourly rate for apprentices will rise by 5p to £2.65. For 18 to 20 year-olds, the minimum wage will remain at £4.98, and at £3.68 for 16 to 17-year-olds.

“I believe that the recommendations of the Low Pay Commission strike the right balance between pay and jobs, and have therefore accepted all the rate recommendations,” said Mr Cable.

“In these tough times freezing the youth rates has been a very hard decision – but raising the youth rates would have been of little value to young people if it meant it was harder for them to get a job in the long run.”

In these tough times freezing the youth rates has been a very hard decision – but raising the youth rates would have been of little value to young people if it meant it was harder for them to get a job in the long run. Vince Cable

The Consumer Price Index (CPI) which measures inflation currently stands at 3.6 per cent, down from a record high of 5.2 per cent in October last year.

The 11p rise for the over 21s is a 1.8 per cent increase – around half of the CPI inflation. The average full-time worker on 40 hours a week at minimum wage will see a £228.80 annual rise to £12,875.

Paul Kenny, general secretary of the GMB union, pointed out that the proposed increase in the national minimum wage is below the rate of inflation.

“It is a missed opportunity to put purchasing power into the hands of those who will boost consumption. Freezing pay for young workers, many of whom work in the profitable retail sector, is a further kick in the teeth from the Government that increased tuition fees to £9,000.”

Freeze needs to be ‘temporary’

Faiza Shaheen, senior researcher on economic inequality at the New Economics Foundation (Nef) told Channel 4 News that while there are some potential employment benefits to freezing the minimum wage for 16 to 20-year-olds, there is a danger that young people will be stuck on a low income and the move will exacerbate generational inequalities.

“The government needs to make sure that this is a temporary measure. What could easily happen is that young people are put in low paid jobs, and then employers keep them on a very low wage, even as the cost of living is rising and the economy is recovering” she said.

“If low paid jobs are stepping stones it is easier to justify the freeze. But if it puts them on a pathway to a low income, even as inflation is rising, it will only add to the factors making life for low-wage earners very uncomfortable.

“The government hasn’t done the research that I can see, to back this up and look at the medium to long term effects on career progression.”

11p rise will put millions ‘on the breadline’

Unison union general secretary Dave Prentis said the 11p rise for the national minimum wage was “bitterly disappointing”, adding that it will force millions of families into “life on the breadline”.

“While the chancellor looks set to cut income tax for the very richest, those at the bottom of the pay pile do not have enough to live on.

An extra 11p an hour is simply not enough. Millions of workers need a living wage of £8 an hour to cope with rising prices and keep them out of poverty. Dave Prentis, Unsion

“An extra 11p an hour is simply not enough. Millions of workers need a living wage of £8 an hour to cope with rising prices and keep them out of poverty.”

Wage rise ‘adds to business cost’

However John Longworth, director-general of the British Chambers of Commerce (BCC), said the 1.8 per cent rise in the national minimum wage was “far above” its recommendation.

“While the pressures of inflation are hurting many people, especially the lowest paid, this decision adds significantly to the cost of doing business, and feeds wage inflation at higher levels,” he said. “In his Budget on Wednesday, the Chancellor should offset the hike in the national minimum wage by scrapping the huge business rate rise which will affect many businesses from April. This rate rise will stop many from employing more people, whether on minimum wage or above.”

Mr Longworth added that freezing minimum wage will ensure employers are not put off from employing young people, and will improve the investment in their training.

LPC Chair David Norgrove said the commission welcomed the government’s acceptance of its recommendations: “The commission was again unanimous, despite all the economic uncertainties and the different pressures on low-paid workers and businesses. We believe we have struck the right balance between the needs of these workers and the challenges faced by employers.”

The minimum wage was introduced by Labour in 1999 at £3.60 an hour for adults, and is revised each year.