Osborne Calls for Above-Inflation Increase in U.K. Minimum Wage

Chancellor of the Exchequer George Osborne said he wants to see Britain’s minimum wage rise by more than inflation, as the government seeks to spread the benefits of an improving economy and rebuild support before next year’s election.

“Because we’re fixing the economy, because we’re working through our plan, I believe that Britain can afford an above-inflation increase in the minimum wage,” Osborne said in a BBC television interview yesterday. Such a rise would “restore its real value for people, and we make sure we have a recovery for all and that work always pays.”

The Conservative Party that leads Britain’s coalition government is trailing the Labour opposition in opinion polls, even though the economy grew 0.8 percent in the third quarter and unemployment has fallen to the lowest in 4 1/2 years. Labour is campaigning on proposals such as capping energy costs to combat a squeeze on consumers, with prices having risen twice as fast as wages since 2010. Consumer prices grew 2 percent in December from a year earlier.

The Treasury has submitted evidence to the Low Pay Commission, which sets the minimum-wage rate, arguing that any increase would be fiscally neutral, as declines in corporation-tax receipts would be matched by lower welfare costs. Osborne’s department has included a range of scenarios, including an 11 percent increase to 7 pounds ($11.44) an hour.

“I see the British economy expanding, jobs being created; I see the prospect of future jobs being created,” Osborne said. “We’ve worked hard to get to that point and we can now enjoy the fruits of all that hard work.”

Wage Rate

The minimum wage, paid to an estimated 1.35 million workers, has fallen in real terms since the financial crisis. Since 2007, the main rate has risen 14 percent compared with a 22 percent increase in consumer prices. It rose less than 2 percent last year to 6.31 pounds.

“Although it is clear that there is an increased disparity between the highest and lowest earners, arbitrarily raising the floor isn’t necessarily the solution and could in fact make the U.K. economy uncompetitive in the long term,” British Chambers of Commerce Director-General John Longworth said in a statement.

Labour Treasury spokesman Chris Leslie said in a statement that “Osborne is flailing around under pressure” and that the Conservatives “cannot hide from the fact that working people are on average 1,600 pounds a year worse off since they came to office” in 2010.

Osborne’s announcement came ahead of a scheduled speech on economic policy by Labour leader Ed Miliband in London today.

To contact the reporters on this story: Robert Hutton in London at rhutton1@bloomberg.net; Eddie Buckle in London at ebuckle@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

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