That’s great news isn’t it?
Well ‘erm, actually not. You see, if you take the time to do the maths, in real terms the actual value of this seemingly grand financial gesture amounts to…well, very little.
Let’s take a look at the numbers.
As of tomorrow (1st Oct 2014) national minimum wage rises to £6.50 per hour. According to available inflation data, the UK’s inflation over recent years has been averaging out at about 2.5% per year – meaning crucially that the £6.50 minimum wage per hour in your pocket today will be worth around 2.5% less this time next year.
In order for people to simply maintain their current standard of living (not get richer or poorer) their wages must increase annually at the same rate as inflation does.
Using 2.5% as our benchmark for inflation rates, we have worked out (hypothetically speaking) what the UK minimum wage needs to be in order to keep pace with inflation over the next 5 – 6 years.
So, if our calculations are accurate, in order for minimum wage workers to have the same standard of living in 2020 as they have today, the minimum wage would need to be £7.53.
This is just 47p below the what a future labour government would increase it to, meaning that minimum wage workers will be richer in 2020 to the measly tune of 47p per hour…
Further to this, if you bear in mind that 47 pence will be worth around 15% less 2020 (due to inflation) you are left with around 39 pence- which when taken over the course of 5 years amounts to a 7.8p increase per hour, per year… pardon us if we don’t start popping the champagne corks just yet.
Don’t misunderstand us, we think its good that a potential future government is taking steps to ensure that the lowest paid workers in our society don’t get any poorer, but when such a move is packaged and sold to us as a significant improvement in the level of minimum wage, we take issue.
The Labour leader Ed Miliband told a Sunday paper last week “Too often people think that politics doesn’t care about them”… to be honest Ed, we’re not entirely sure you’ve managed to fix that one….