George Osborne has called for a significant rise in the minimum wage to compensate low-income workers for the economic crisis, reports The Telegraph.
Pushing up wages will “make sure that we have a recovery for all and that work pays,” the Chancellor said in a move apparently aimed at Labour voters.
It comes days after Ed Miliband, the Labour leader, said he would “rescue the middle classes”.
Mr Osborne’s support for higher wages last night drew warnings from business groups that increasing employers’ costs could result in job losses and hamper the economic recovery.
The shift in Conservative thinking is intended to appeal to voters in marginal constituencies who will decide the outcome of next year’s general election.
The timing of Mr Osborne’s announcement is aimed at overshadowing a major economic speech on Friday by Mr Miliband.
Prices have been rising faster than wages, meaning that the real value of the minimum wage has been falling since 2008. Mr Osborne said that he wants the wage to return to the same real value it had before the recession.
The nascent recovery means that Britain can now “afford” to pay higher salaries, Mr Osborne said, announcing that he has asked the Low Pay Commission, which oversees the minimum wage, to consider the case for a big rise.
“Just as we were all in this together in the crisis, I want to make sure we’re all in this together in the recovery,” the Chancellor said. “Because we’re working through our plan, I believe Britain can afford above-inflation increases in the minimum wage.” Business groups warned that increasing wages could do economic harm.
The CBI, the employers’ organisation, said that an “unaffordable rise would end up costing jobs” and said the commission should make the final decision. The Institute of Directors said that higher wages were “risky” and could lead to job cuts, especially within small firms.
Labour accused Mr Osborne of “flailing around under pressure” over the cost of living. But the Trades Union Congress welcomed the move.
The Chancellor did not suggest a new level for the wage, but his officials have been studying the implications of an increase from the current level of £6.31 an hour to £7 by 2015.
Some economists have suggested that increasing the minimum wage would deliver a windfall for the Treasury, as workers would pay more income tax and claim less in benefits.
However, the Treasury calculated that a £7 wage would be revenue-neutral because a fall in company profits would offset tax gains from workers.
Mr Osborne, who has called for more cuts in benefits spending after the election, poured cold water on the idea that higher wages were a substitute for welfare reform. He said: “Let’s just look at the case for an increase in the minimum wage on its merits, whether it’s right for the British economy, not because we think it’s some quick fix for the bigger issue of how you have a welfare system that is affordable and where work pays.”
The Conservatives opposed the Blair government’s creation of the minimum wage in 1999, and some Tories remain unconvinced of the need for a rise.
However, a growing number of Conservatives believe that action on wages is needed to win support among low-income voters who will decide the election result in many marginal constituencies in the North and Midlands.
The Coalition has also faced sustained attacks from Mr Miliband over the rising cost of living and the squeeze on real wages, with Labour accusing Conservative ministers of being insensitive to the plight of workers.
The rate of inflation is expected to fall back below average wages rises this year. Mr Miliband will on Friday move to shift his argument on living standards, insisting that the “crisis” is about more than wage levels.
The Labour leader will insist that “a few months of better statistics” will not be enough to reverse the fall in the real-terms value of incomes in recent years.
He will also seek to recast his argument to suggest that the big problem is not a fall in overall wealth but an unfair distribution of wealth, low job security and the rising cost of housing.
“This Government thinks it is all going to be OK because this year the forecasts say that average wages will eventually overtake prices. Let’s hope that happens,” he will say. “But I really warn this Government: if they think a few months of better statistics will solve this crisis, they are just demonstrating again that they have absolutely no idea about the scale of the problem or the solutions required.”
The Conservative move on wages also strained Coalition relations, as the Liberal Democrats accused the Tories of an about-turn. Lib Dem sources said that the Conservatives blocked a Coalition move to push up the minimum wage last autumn.
Vince Cable, the Business Secretary, said on Thursday night: “I’m delighted to have the Chancellor’s endorsement of the position I set out back in September.”