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Conservatives 'considering ways to raise minimum wage'

Allegra Stratton
Political editor, BBC Newsnight
@BBCAllegraon Twitter

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image captionIn 2012 there were 1.4 million workers earning the national minimum wage

The Conservative party is examining ways to raise the national minimum wage, BBC Newsnight has learned.

Measures being considered include offering tax breaks to companies paying a wage level higher than the current national minimum of £6.19 an hour.

And a possible demand for companies above a certain size or profit level to pay employees more than the minimum.

However, sources say this is meeting some resistance inside government amid fears it may alienate business leaders.

The proposals are part of a Conservative effort to combat low wages and underscore the party's commitment to make work pay.

Sources told BBC Newsnight that the Conservative party intends to announce further welfare reforms this Autumn, but believes that any further tightening of Britain's benefits system must also be met with greater support for those in work.

They also want to ensure that the economic recovery is enjoyed by those on low salaries as well as those at the top in an attempt to blunt Labour's charge that the Coalition is presiding over a recovery for the few.


Policy advocates are pushing for a change in the minimum wage to be included in Prime Minister David Cameron's speech to the Tory party conference at the end of September, or failing that in the Autumn Statement in November.

But a Downing Street source told Newsnight that a policy change "remains a long way off" and that "it may be more likely as a contender for the Tories' next manifesto".

Insiders say that for any measure to be adopted it must balance increasing people's earning power, with ensuring that there is no negative impact on employment.

In 2012 there were 1.4 million workers earning the national minimum wage.

One option being looked at is offering a National Insurance cut for those companies that pay their minimum wage employees more than that level.

This would mean less revenue for the Treasury, but because people's salaries would to be topped up by a lower amount of tax credits from the Treasury the policy is supposed to be close to cost neutral for the Exchequer.

The independent think tank the Institute for Fiscal Studies has calculated that for every pound spent paying the so-called Living Wage, which is currently set at £7.45 per hour for those working outside of London, £8.55 per hour for those inside London; the Treasury saves 50p through not needing to pay tax credits and benefits.

The figures would be different for an increased minimum wage, but the same calculation could apply, though experts caution that the effect a higher minimum wage would have on tax credit savings would be far more complicated in reality.

Cost of living

Another option being considered is some kind of "profit threshold" above which a company would be compelled to pay a higher minimum wage, though sources say the policy might be optional for companies below that profit level or size.

The most extreme option is simply that the Low Pay Commission, which sets the level of the national minimum wage, would recommend that the national minimum wage should be higher and that there would be no policy to offset this for businesses.

Although the Commission technically sets the rate, government sources believe a statement by the prime minister that he would like to see an increase which reflects the suppression of wages in recent years would be taken on board by them.

But this option is thought not to be palatable within government.

The minimum wage is already scheduled to increase to £6.31 an hour in October. On current projections, experts predict that the UK is heading for a minimum wage in the region of £7.20 an hour in 2017/18. This, they say, would be equivalent to £6.12 at today's prices and lower in real terms than it was in 2004-5.

Strategists across all political parties agree that the rising cost of living will be one of the defining issues in the next general election. Tory strategists are keen that alongside more policies to drive people back to work, they are also making having a job pay.

The Labour party has floated a series of policies to increase the number of companies and councils that pay the Living Wage, but has so far not committed to any specific changes.

As part of the Labour party policy review process, the shadow Treasury team are also looking at whether living wage zones could be set up, targeted at certain sectors of industry or geographical areas where a large number of employers are prepared to pay the living wage.

Conservatives believe that the living wage is too high and so blunt an instrument that it would have a bad effect on business activity and employment levels.