Rachel Reeves is facing a major backlash after she announced a ‘bonkers’ inflation-busting minimum wage hike that threatens to push even more young people out of work.
The Chancellor revealed that the national minimum wage for 18-20 year olds will rise by 8.5 per cent to £10.85 per hour from next April. For 16-17 year olds it will go up by 6 per cent to £8.
But a chorus of business leaders and economists warned that it would simply result in more young people being left on the jobs scrapheap as the cost of employing them spirals.
It will add to fears over a ‘lost generation’ – at a time when nearly a million are already languishing outside the education system or workplace and when under-25s are bearing the brunt of the rise in unemployment under Labour.
Jane Gratton, deputy director of public policy at the British Chambers of Commerce, said: ‘Every above-inflation wage increase leads to higher business costs, lower investment and fewer opportunities for individuals.
‘Making employment more expensive risks deepening the jobs crisis among young people.’
Rachel Reeves announced the increase in the minimum wage at Primark in central London
Tory business spokesman Andrew Griffith said: ‘At a time when we face the risk of ‘generation jobless’ it is reckless of the government to jack up wages for 16 to 20 year olds beyond inflation with no plan to help businesses hire.
‘In fact their tax rises and employment red tape are doing the opposite.’
And Hugh Osmond, the former Pizza Express boss, said the move was ‘absolutely bonkers’ and would mean ‘more bankrupt pubs and boarded up shops’.
Luke Johnson, former chairman of Gail’s Bakery, said it would mean ‘fewer jobs and more outsourcing and automation’.
He added: ‘Young people’s job prospects are especially bleak at the moment. These increases are likely to make it even harder for them to find work.’
Wetherspoon boss Tim Martin said the move threatened to have ‘unintended consequences’ with wage hikes for younger workers coming at the expense of more experienced staff ‘since all wage rises come from the same pot’. And it could add to the cost of a pint in the pub.
Even the Left-wing Resolution Foundation, Labour’s favourite think-tank, sounded the alarm, saying the ‘big increase in youth rate risks exacerbating job struggles for young people’.
Its principal economist Nye Cominetti said: ‘These steep increases risk causing more harm than good if they put firms off hiring.’
The Chancellor’s announcement adds to the pain being piled onto businesses at the Budget.
Supermarkets have been told that they will be given no reprieve from a sharp increase in business rates – and say that may result in higher prices on the shelves.
It adds to mounting pressure on retailers as a poll by the Confederation of British Industry (CBI) showed the mood on the high street darkening suddenly in the run-up to the Budget – at the sharpest pace since the financial crisis in 2008.
The Chancellor’s announcement means that the minimum wage for those aged 21 and over will rise by 4.1 per cent to £12.71 from 1 April, adding £900 a year to the pay packets of full-time workers earning at that level. The Treasury said 2.4 million will benefit.
Younger age bands currently have lower minimum wages though the government is aiming to bring the 18-20 group into line with older workers to create a single adult rate. The latest sharp increase will add £1,500 to annual earnings for full-time workers in this group, the Treasury said.
The Chancellor said: ‘These changes are going to benefit many young people across our country, getting their first job.’
But businesses and economists fear that there will be fewer jobs to go around for young people as a result of the increase.
It comes at a time when firms – especially those in the hospitality and retail sectors – are still reeling from Ms Reeves’s £25billion raid on employer national insurance, announced in last year’s Budget and implemented in April.
Businesses say Labour’s plan to implement a raft of new workers rights will also hit hiring.
Recent figures show 946,000 people aged 16 to 24 are now not in employment, education or training (NEET) – around one in eight of those in the age group.
Overall unemployment has climbed to a four-year high under Labour with nearly half of the jobs shed being among under-25s.
The Chancellor is set to raise taxes again in the Budget on Wednesday
Anna Leach, chief economist at the Institute of Directors, said: ‘These changes benefit only those who remain employed, but the rising cost and risk of employment are already reducing job opportunities. The sharper increase in the youth rate is especially concerning, as it is likely to accelerate the loss of jobs among young people.’
Matthew Percival, director of work and skills at the Confederation of British Industry (CBI), said young people were already among the most affected by a lack of vacancies across the economy.
‘We need to take extra care to guard against moves that might make it even more difficult to get young people into employment,’ he said.
Andrew Goodacre, boss of the British Independent Retailers Association, said: ‘Higher than inflation increases are likely to lead to less hours for employees and ultimately some job losses which will not benefit the employees in the long run.’
Kate Nicholls, chair of trade body UK Hospitality, said: ‘Hospitality businesses have reached their limit of absorbing seemingly endless additional costs. They will simply all be passed through to the consumer, ultimately fuelling inflation.’
The British Beer and Pub Association (BBPA) estimates that the overall minimum wage increases will add £250million to pub wage bills.
‘Not only will this end up affecting many brewers and pubs’ ability to make ends meet, but it could also hurt jobs and reduce opportunities for those who are just getting their first, important start on the career ladder,’ said BBPA boss Emma McClarkin.
Julian Jessop, economics fellow at the Institute of Economic Affairs, a free market think-tank, said the move to bring 18-20 year-olds into line with other adults was ‘likely to backfire’.
Mr Jessop said: ‘There is ample evidence that younger workers are at higher risk of being priced out of jobs. They are also more likely to suffer long-term harm if they spend time unemployed.
‘The bigger increase in the minimum wages for young people looks set to penalise new starters in favour of older, more experienced staff who require less supervision.
‘Above all, those cheering on the increases in minimum wages fundamentally misunderstand the economic realities. The “government” does not “give people a pay rise” by increasing the National Living Wage. Instead, the money comes from employers.’
Simon French, chief economist at City broker Panmure Liberum, said the move ‘feels tone deaf to the spike in unemployment’ and with the UK already ‘out of kilter’ with minimum wages already much higher than in other developed countries.
Ben Harrison, director of the Work Foundation at Lancaster University, highlighted the risk that employers to get around the new rates ‘via a shift to more precarious forms of employment such as platform and gig economy roles’.
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