Minimum wage has been killed by soaring inflation: Pay packets no longer match cost of living, worrying new report finds



Minimum wage is not providing the amount needed for a basic standard of living

Minimum wage is no longer useful because soaring inflation means its real value has fallen, a report has warned.

The measure has dropped in value in the past five years after being pegged to wages, which have not kept pace with inflation.



Professor Sir George Bain, the first chairman of the Low Pay Commission which recommends the minimum wage level each year, told The Independent a 'fresh approach' is needed because it is not addressing today’s problems.

A study, by the Resolution Foundation discovered that the minimum wage is not providing the amount needed for a basic standard of living.



James Plunkett, the author of the paper called 'Fifteen years later: A discussion paper on the future of the UK National Minimum Wage and Low Pay Commission', said that the pay needed to be addressed.



The paper said: 'Although extreme, exploitatively low pay has been nearly abolished, one in five workers still earn below £7.49 an hour (two thirds of median pay), just £13,600 a year for working full-time and too little to afford a basic standard of living.'

The paper advised that the government should seek to address low wages, rather than trying to compensate by funnelling more money into benefits.

The paper said: 'At a minimum, it is clear that broad-based income growth in an era of extreme fiscal constraint will require a more assertive effort to tackle low pay at its source, rather than compensating for a lack of wage growth through rising welfare spending.'

It said that detailed analysis and planning for the minimum wage measure was necessary if it was to continue to be useful and help the population.

The paper, also penned by Alex Hurrell, said: 'It is now clearer than ever that low pay will not solve itself through a light touch approach of pursuing growth and investing in skills.

Families are being forced to dip into their savings just to make ends meet as disposable incomes plummet in the biggest quarterly drop since 1987

'On the basis of reasonable, conservative projections, the UK is currently heading for a minimum wage in the region of £7.20 an hour in 2017/18—the equivalent of £6.12 in 2012-13 prices, and lower than its level in 2004/05.

'Moreover, the UK minimum wage has had a relatively narrow effect, doing little to help workers who are paid slightly above the minimum.'

The authors said that the challenge for politicians would be how to raise the legal wage floor without harming the UK economy or unemployment.

The paper urged policy makers to consider what should be done about the minimum wage.



It wrote: 'As the UK enters a long period of extreme fiscal constraint, income growth will necessarily rely more on rising wages, including for low paid workers, than on further growth in state support.



'Far from being an issue that can wait until a recovery, the need for new ideas to tackle low pay has become even more pressing.'

Sir George plans to work with the UK's leading labour market economists and policy experts to test out and recommend practical proposals.

The punishing reality means that families are being forced to dip into their savings just to make ends meet as disposable incomes plummet in the biggest quarterly drop since 1987.

The bleak figures from the Office for National Statistics publish in June suggest the punishing squeeze on household budgets intensified at the start of the year, taking the gloss off the news that Britain never suffered a double dip recession.

Disposable incomes slumped 1.7 per cent in the first three months of the year as wages fell and prices soared.

The drop meant households saved just 4.2 per cent of their incomes in the first quarter, down from 5.9 per cent in the final three months of 2012.

This is the lowest level of savings since early 2009 when the economy dived deeper into recession in the wake of the collapse of Lehman Brothers.

Jeremy Cook, chief economist at the foreign exchange company World First, said: ‘This data release highlights the problems that Britons are currently facing in a nut shell.

‘Levels of disposable income have fallen to the lowest since 1987 as inflation bites at wage packets, whilst savings ratio falls have shown that people are using life savings to keep their heads above water.

‘Whether the UK entered a double dip or it didn’t matters little to the man on the street who is seeing large falls in real-term wage growth as a result of the lack of business output.’

The findings were echoed by a new study released today that suggested families are struggling with an ‘unprecedented’ squeeze on their living standards amid high costs and flatlining wages.