Truss-backed economists say minimum wage is ‘destroying jobs’ and call for cut

 (PA Wire)
(PA Wire)

A group of economists backed by former prime minister Liz Truss says the minimum wage should be frozen and then cut to make the labour market more competitive.

The Growth Commission has argued that plans to increase the minimum wage further would be a “significant drag on the economy” as it laid out plans to boost growth ahead of the autumn statement next week.

Commission co-chairman Douglas McWilliams told an event in Westminster that the current minimum wage level was “destroying jobs”.

Ms Truss formed the taskforce to put forward proposals to end the UK’s sluggish growth after she was forced out of Government after a chaotic 49 days in Downing Street last year following her mini-budget that caused the economy to tumble.

The minimum wage at its current level is actually destroying jobs because employers can’t afford to take people on

Douglas McWilliams, Growth Commission co-chairman

The former PM’s commission set out plans on Tuesday that it argues could boost GDP (gross domestic product) by nearly a quarter and household incomes by £26,000 by 2044.

Ms Truss was in the audience to hear the presentation. Former business secretary Sir Jacob Rees-Mogg and former Brexit negotiator Lord Frost, both allies of Boris Johnson, also attended.

One of the ways for achieving growth would be to “adjust the minimum wage level”, the economists said in their 101-page report, The Growth Budget 2023.

They propose freezing the national minimum wage at its current level before going on to reduce the minimum amount a worker can be paid.

As of April, those aged 23 and over earn a minimum of £10.42 per hour.

Those aged 21-22 must be paid a minimum of £10.18, while 18 to 20-year-olds receive £7.49 and under 18s and apprentices are eligible for a £5.28 hourly rate.

Commission co-chairman Shanker Singham said the group was “concerned about how high” the UK’s minimum wage is compared with other countries in the Organisation for Economic Co-operation and Development (OECD), which includes members such as the US, France and Japan.

Mr Singham said: “There is nothing wrong with the minimum wage. What matters in terms of competition is where it is set.

“What we are intending to do in the UK is move it to 66% of median wage, which is far higher than any other OECD country by next year and will be a significant drag on the economy.

“So we are suggesting freezing it and targeting it down to 61%.

“Even that small reduction or that small change in minimum wage has a very big impact on GDP per capita, according to our calculations.”

Mr McWilliams, responding to questions after the presentation, said: “The minimum wage at its current level is actually destroying jobs because employers can’t afford to take people on.

“And we calculate that about 900,000 jobs are currently being made uncompetitive by the existence of the minimum wage.

“The minimum wage has gone up the highest share of the median wage in any of the major advanced economies.

“It is uncompetitive and that is why people do not get these jobs.”

Mr Singham suggested those on the minimum wage would benefit in the long term from their so-called growth budget proposals over the next 20 years.

“What we’re saying is that if you do these things, then there will be a GDP per capita increase for the country and obviously when that happens those at the bottom end of the social-economic ladder are the ones that benefit the most,” he said.

“It is the rich that can tolerate the GDP per capita going down or being stagnant.”

They also proposed introducing lower notice periods and severance pay for redundancy dismissals, as part of efforts to create “flexibility” in the job market.

Other labour reforms include tax breaks for pensioners returning to work and companies taking them on.

The commission also proposed tax changes, including reversing the rise in corporation tax from 25% to 19% and then cutting the long-term rate down to 15%.

They suggested unfreezing tax allowances applied to income tax.

It also proposed phasing out before 2030 the “economically damaging” 60-70% rate of tax on those earning more than £100,000 a year.

The report authors said there was “little data available on the cost of this” but that a rough estimate suggested a 0.2% hit to GDP — about £5 billion.

Removing net zero levies and ending bans on fracking and drilling for North Sea oil and gas were also put forward in the report, as was axing the proposed Great British Railways public sector body to overhaul Britain’s infrastructure, spending on new roads, and “use it or lose it” time limits on planning permission.

Separately, the economists said they had not modelled how much it would cost to scrap inheritance tax, a measure Chancellor Jeremy Hunt is reported to be considering, but said it should be abolished if it is leading to a “diminution of revenues and distortion of investment”.

Ms Truss did not address the event but spoke to reporters afterwards to back the commission’s findings.

Darren Jones, a Labour Treasury minister, said he has written to Prime Minister Rishi Sunak about Ms Truss’s “latest demands for unfunded tax cuts, via the report from the Growth Commission”.

The shadow chief secretary, in a letter shared on X, formerly Twitter, said the document laid out tax cuts worth £81.7 billion, with Labour estimating that reducing corporation tax from 25% to 15% would cost £34 billion alone.

“I urge you to put country and family finances first and reject the reckless casino economics that so many in your party advocate,” Mr Jones said.