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George Osborne backs above-inflation rise in national minimum wage George Osborne backs above-inflation rise in national minimum wage
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George Osborne has launched an audacious attempt to outflank Ed Miliband on the cost of living by calling for an above-inflation rise in the national minimum wage to restore it to its value before the financial crash in 2008.George Osborne has launched an audacious attempt to outflank Ed Miliband on the cost of living by calling for an above-inflation rise in the national minimum wage to restore it to its value before the financial crash in 2008.
On the eve of a major speech on the economy by Miliband the chancellor threw his weight behind a proposal to increase the minimum wage to £7 an hour by 2015. It currently stands at £6.31. On the eve of a major speech on the economy by Miliband, in which the Labour leader will set in train "a reckoning with Britain's broken banking system", the chancellor threw his weight behind a proposal to increase the minimum wage to £7 an hour by 2015. It currently stands at £6.31.
The increase would take place over two stages, in October 2014 and October 2015, to allow Osborne to fight the next general election on the basis that the coalition would have increased the minimum wage well above the rate of inflation and restored the value it lost in the recession.The increase would take place over two stages, in October 2014 and October 2015, to allow Osborne to fight the next general election on the basis that the coalition would have increased the minimum wage well above the rate of inflation and restored the value it lost in the recession.
The TUC welcomed the move, but the CBI claimed that an "unaffordable" rise would cost jobs and said that wage increases must be linked to improved productivity.The TUC welcomed the move, but the CBI claimed that an "unaffordable" rise would cost jobs and said that wage increases must be linked to improved productivity.
Mark Littlewood, the director general of the Institute of Economic Affairs, said: "Increasing the minimum wage is a triumph of political aspiration over economic reality."Mark Littlewood, the director general of the Institute of Economic Affairs, said: "Increasing the minimum wage is a triumph of political aspiration over economic reality."
Vince Cable, the business secretary, welcomed the chancellor's decision to endorse his call in his speech to the Liberal Democrat conference last year for the minimum wage to regain its value.Vince Cable, the business secretary, welcomed the chancellor's decision to endorse his call in his speech to the Liberal Democrat conference last year for the minimum wage to regain its value.
But Lib Dem sources said the business secretary had been specifically forbidden to use the words "restore" and "real value" in his speech last September. "I'm delighted to have the chancellor's endorsement of the position I set out back in September," Cable told Sky News.But Lib Dem sources said the business secretary had been specifically forbidden to use the words "restore" and "real value" in his speech last September. "I'm delighted to have the chancellor's endorsement of the position I set out back in September," Cable told Sky News.
Osborne said the return of growth in the economy meant it was now safe to increase the minimum wage. He told the BBC on Thursday: "Because we are fixing the economy – because we are working through our plan – I believe Britain can afford an above-inflation increase in the minimum wage so we restore its real value for people and we make sure we have a recovery for all and that work always pays."Osborne said the return of growth in the economy meant it was now safe to increase the minimum wage. He told the BBC on Thursday: "Because we are fixing the economy – because we are working through our plan – I believe Britain can afford an above-inflation increase in the minimum wage so we restore its real value for people and we make sure we have a recovery for all and that work always pays."
David Cameron said: "Because of the difficult decisions we've taken to fix the economy, we believe we can now afford to increase the minimum wage – putting more money in people's pockets and helping them provide for their families."
The move, which follows a lengthy debate in Tory circles led by the chancellor's allies Matt Hancock and Jo Johnson over the need for a major increase in the minimum wage, came in the government's submission to the Low Pay Commission.The move, which follows a lengthy debate in Tory circles led by the chancellor's allies Matt Hancock and Jo Johnson over the need for a major increase in the minimum wage, came in the government's submission to the Low Pay Commission.
The Treasury made an assessment – though not technically a recommendation – of the impact of increasing the minimum wage to £7 over two years by October 2015. The commission is due to make a recommendation next month.The Treasury made an assessment – though not technically a recommendation – of the impact of increasing the minimum wage to £7 over two years by October 2015. The commission is due to make a recommendation next month.
The Treasury modelling indicated that the increase would lead to a decrease in corporate tax receipts, thereby indicating a fall in company profits.The Treasury modelling indicated that the increase would lead to a decrease in corporate tax receipts, thereby indicating a fall in company profits.
But it said there would be no overall impact on the public finances because this would be offset by higher income tax receipts and lower income-related benefits.But it said there would be no overall impact on the public finances because this would be offset by higher income tax receipts and lower income-related benefits.
The chancellor said he believed businesses would be able to absorb the increase. "Of course we have got to make the exact calculation about what the rate should be. That's for the Low Pay Commission, created by a Labour government, supported by this government, to make the independent decision on the number itself.The chancellor said he believed businesses would be able to absorb the increase. "Of course we have got to make the exact calculation about what the rate should be. That's for the Low Pay Commission, created by a Labour government, supported by this government, to make the independent decision on the number itself.
"But when I look at the British economy I see the British economy expanding, I see jobs being created, I see the prospect of future jobs being created as well."But when I look at the British economy I see the British economy expanding, I see jobs being created, I see the prospect of future jobs being created as well.
"I think Britain can afford a higher minimum wage. We have worked hard to get to this point and we can start to enjoy the fruits of all that hard work.""I think Britain can afford a higher minimum wage. We have worked hard to get to this point and we can start to enjoy the fruits of all that hard work."
Gavin Kelly, the chief executive of the Resolution Foundation, which highlights the fall in wages for low-income workers, welcomed the increase, but cautioned that the two-stage rise might be slower than expected.Gavin Kelly, the chief executive of the Resolution Foundation, which highlights the fall in wages for low-income workers, welcomed the increase, but cautioned that the two-stage rise might be slower than expected.
"If all it means is an above-inflation rise in the minimum wage then it could be no more than £6.45 [up from £6.31] in October this year," Kelly said."If all it means is an above-inflation rise in the minimum wage then it could be no more than £6.45 [up from £6.31] in October this year," Kelly said.
"But if the chancellor has really set a target for the Low Pay Commission of restoring the full value of the minimum wage from before the crisis then it really is £7 by October 2015. That would be a very significant increase. We are not clear where in the spectrum it would fall.""But if the chancellor has really set a target for the Low Pay Commission of restoring the full value of the minimum wage from before the crisis then it really is £7 by October 2015. That would be a very significant increase. We are not clear where in the spectrum it would fall."
Osborne hopes his move will wrongfoot Miliband, who on Friday was to announce plans to ensure that at least two new banks can flourish in Britain with a minimum 12% market share by the end of the next parliament.Osborne hopes his move will wrongfoot Miliband, who on Friday was to announce plans to ensure that at least two new banks can flourish in Britain with a minimum 12% market share by the end of the next parliament.
The chancellor will also lay to rest ghosts from the Tory past after the party opposed the introduction of the minimum wage by the last Labour government in 1999. The chancellor will also lay to rest ghosts from the past after the Tories opposed the introduction of the minimum wage by the last Labour government in 1999.
In a major speech designed to show how a break-up of the domination of the 'big five' banks will help Britain pay its way in the world, Miliband will claim: "We need a reckoning with our banking system, not for retribution, but for reform."In a major speech designed to show how a break-up of the domination of the 'big five' banks will help Britain pay its way in the world, Miliband will claim: "We need a reckoning with our banking system, not for retribution, but for reform."
The Labour leader will also propose the creation of a central register of business creditworthiness to ensure new banks have access to the same information as the big banks.The Labour leader will also propose the creation of a central register of business creditworthiness to ensure new banks have access to the same information as the big banks.
As the Guardian disclosed on Thursday, Labour will refer the issue of greater banking competition to the Competition and Markets Authority (CMA), with action within one year if Labour is elected in 2015.As the Guardian disclosed on Thursday, Labour will refer the issue of greater banking competition to the Competition and Markets Authority (CMA), with action within one year if Labour is elected in 2015.
Frances O'Grady, the TUC general secretary, said: "We welcome George Osborne's acceptance of the TUC's case for an above-inflation rise in the minimum wage. But while this would help many, the chancellor should be more ambitious about achieving decent pay rises across the whole of the UK workforce.Frances O'Grady, the TUC general secretary, said: "We welcome George Osborne's acceptance of the TUC's case for an above-inflation rise in the minimum wage. But while this would help many, the chancellor should be more ambitious about achieving decent pay rises across the whole of the UK workforce.
"The government should work with unions and employers to increase the spread of the living wage, lift the cap on public sector pay and recognise that the wages of millions of workers across the economy have been falling in real terms and now need a decent increase.""The government should work with unions and employers to increase the spread of the living wage, lift the cap on public sector pay and recognise that the wages of millions of workers across the economy have been falling in real terms and now need a decent increase."
John Cridland, the CBI director general, said: "Recommending the rate of the national minimum wage must be a matter for the Low Pay Commission, as the chancellor recognises.John Cridland, the CBI director general, said: "Recommending the rate of the national minimum wage must be a matter for the Low Pay Commission, as the chancellor recognises.
"An unaffordable rise would end up costing jobs and hit smaller businesses in particular. Any increase in wages must reflect improved productivity.""An unaffordable rise would end up costing jobs and hit smaller businesses in particular. Any increase in wages must reflect improved productivity."
But Chris Leslie, the shadow chief secretary to the Treasury, said: "George Osborne is flailing around under pressure but he has made no concrete announcement about the level of the minimum wage.But Chris Leslie, the shadow chief secretary to the Treasury, said: "George Osborne is flailing around under pressure but he has made no concrete announcement about the level of the minimum wage.
"Ed Miliband and Ed Balls said last year that we need above inflation rises in the minimum wage in order to catch up the lost value over the last few years."Ed Miliband and Ed Balls said last year that we need above inflation rises in the minimum wage in order to catch up the lost value over the last few years.
"And both the Tories and Lib Dems voted against Labour's motion yesterday which called for action to make this happen."And both the Tories and Lib Dems voted against Labour's motion yesterday which called for action to make this happen.
"The Tories cannot hide from the fact that working people are on average £1,600 a year worse off since they came to office."The Tories cannot hide from the fact that working people are on average £1,600 a year worse off since they came to office.
"We need action now to earn our way to higher living standards and tackle the cost of living crisis."We need action now to earn our way to higher living standards and tackle the cost of living crisis.
"That's why, as well as a higher minimum wage, Labour will make long-term reforms to our economy, freeze energy prices, expand free childcare, incentivise the living wage and build the homes Britain needs.""That's why, as well as a higher minimum wage, Labour will make long-term reforms to our economy, freeze energy prices, expand free childcare, incentivise the living wage and build the homes Britain needs."
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