The Minimum Wage in the United Kingdom 2023

Impacts on Business

Many businesses opposed the introduction of the minimum wage, worried it would make them uncompetitive or force them to cut jobs. These fears have generally not materialised. Price rises, productivity gains and modest wage compression above the minimum appear to have helped offset the higher staff costs for most firms.

However, there are ongoing concerns in sectors that employ large numbers on the minimum wage – such as retail, hospitality and social care. These industries say large minimum wage increases make it hard to maintain existing staffing levels and service quality. Employers often have limited scope to raise prices in competitive markets.

Small businesses tend to worry more about minimum wage rises than large firms. They are less likely to have spare resources to absorb higher costs.

Overall, most research finds minimal impact on employment or firm profitability so far. But there are concerns this may change if the minimum wage keeps rising faster than average pay.

Should the Minimum Wage Be Raised Faster?

With the headline rate set to reach nearly £10 per hour in 2023, the UK minimum wage has entered uncharted territory. There is an active debate around whether and how quickly it should keep rising.

Campaign groups like the Living Wage Foundation say the minimum wage no longer provides a decent living standard. They argue the government should set a higher minimum wage of £10.90 per hour nationwide. However, employer groups caution against going too far above market rates.

There are also calls from trade unions and poverty charities for minimum wages to be raised faster for younger workers. Currently under-23s are only eligible for the lower NMW rates. Some view this as unfair age discrimination.

However, others argue young workers already face barriers entering work. Risks to youth employment should therefore be paramount when setting their wage rates.

The Regional Dimension

Another issue is whether the minimum wage should be adjusted to reflect costs of living that differ across the UK. The Centre for Cities proposes a London weighting to account for higher living costs in the capital. The minimum wage currently applies uniformly across all regions.

The counter-argument is that a single national rate provides consistency for employers. It also protects against the risk of ‘race to the bottom’ dynamics across different UK regions.

The Outlook for The Minimum Wage

The short-term path of the minimum wage seems clear – the Low Pay Commission will likely continue advising staged increases to meet the government’s targets. Beyond 2024, the future is more uncertain.

With the economy facing higher inflation and the risk of recession, there are growing questions around how long rapid minimum wage growth can be sustained without significant job losses.