Prospects for low wage employees under a new Conservative government

By Trinley Walker, Policy Advisor

With the dust from the 2019 General Election having now settled, this blog takes stock of the result’s implications for low paid workers, as well as assessing how the National Minimum Wage featured as a political issue within the election contest.

The National Minimum Wage was established in 1998 and is the minimum hourly pay rate that workers aged 16-24 are entitled to. The minimum wage for workers 25 and over is called the National Living Wage (NLW). The NWL currently stands at £8.21. The NLW was introduced in 2015, as announced by then Chancellor George Osbourne. Since then, increases in the NLW have resulted in an additional £3 billion pay for low earners.

So, what did the Conservative Party promise for low wage earners that they now need to be held accountable for? And who would stand to benefit most? The Conservatives set out plans to increase the minimum wage to two-thirds of the hourly median by 2024, projected by the Resolution Foundation to be £10.60. This higher income floor will also be made available to more people, with the age threshold at which the highest NLW must be paid to reduce from 25 to 21 under Conservative plans.

If enacted, this pledge will increase net earnings by £1,900 over the five years. The National Living Wage Foundation has calculated that to meet the cost of living, a Real Living Wage should be paid at £9.30 and £10.75 in London. While the newly elected Government’s pledge compares favourably to this, inflationary increases over the next five years will undoubtedly raise living costs over the period.

Still, such an increase would clearly be a significant income boost to large swathes of the population. This move would substantially expand the coverage of the minimum wage, with a fifth of all private sector employees, and a third of part-time employees, covered by the Conservative’s proposed minimum wage increase.

The overall uplift in pay for low earners will affect certain sectors more significantly. For example, the number of workers in the hospitality sector on the minimum wage would increase substantially – from 350,000 today to approximately 820,000 by 2024.

It is important to remember that most of the benefit from the Conservative Party’s proposed NLW increase will accrue to middle-income households. This is because only 22% of minimum wage workers live in the poorest fifth of working households, partly because low paid workers often live with higher earners. For those in low income households receiving welfare benefits, part of their gain will be lost through the Universal Credit taper rate.

That being said, other policies the Conservative Party set out in their manifesto could provide more of a buffer for those on low pay. Their manifesto also promised a raise to the point at which employees and self-employed workers pay National Insurance Contributions, from the current level of £8,788 to £9,500 in 2020-21. This would result in 16 million households gaining on average £120 per year.

The Conservative Party’s credibility will suffer should they fail to deliver on their NWL pledge, not least on account of the ambition the other main political parties demonstrated on this issue.

The Labour Party committed to an immediate hike of the minimum wage to £10 per hour in their election manifesto, for all workers over 16. The Liberal Democrats committed to undertake an independent review to establish how to set a genuine Living Wage and to enact a 20 per cent higher minimum wage for people on zero-hour contracts, at times of normal demand, to compensate workers for the uncertainty of fluctuating hours of work.

The ambition of both the main political parties on NLW demonstrates a degree of convergence on low pay policy that has developed in recent years, and elevated in salience since 2010 when minimum wage featured sparingly in both parties’ manifestoes.

It remains to be seen whether the Conservative Party will uphold their manifesto pledge, but what seems certain is that the NWL is set to remain an important component of the political battleground in elections to come.