New report calls for return to Minimum Wage set by independent Low Pay Commission

  • National Living Wage (NLW) a political football that must be scrapped
  • Long term studies show higher minimum wage risks increased unemployment and slower job creation
  • Artificially high labour prices accelerate job automation and raise consumer prices
  • Living Wage makes pay the plaything of politicians without regard for consequences
  • National Living Wage must be scrapped and power over the National Minimum Wage placed back in the hands of the Low Pay Commission

The National Living Wage is a political football and must be scrapped because it risks creating unemployment, according to a new report released by the Adam Smith Institute this morning.

The report, released ahead of the Chancellor's Spring budget, demonstrates how increases in the minimum wage can accelerate the automation of the workforce, increase unemployment and criminal behaviour, cut the bottom few rungs off of the employment ladder, increase consumer prices and hamper low skilled workers throughout their lives. 

Increases to the National Minimum Wage were decided by the politically independent Low Pay Commission until 2016, when the National Living Wage was introduced and politicians effectively appropriated control over it. The minimum wage for people over 25 years of age is no longer based on complex economic considerations, but hiked up for quick political wins which incur costs on the very workers the NLW claims to benefit. 

Businesses must find additional funds to pay for an increase in the minimum wage or see a fall in profits. They can either hire fewer but more skilled workers, invest in automating their business or outsourcing it abroad, or raise consumer prices to make up the higher cost of labour.

The report reveals how products produced by minimum wage workers, and most likely to be subject to a price increase, are disproportionately purchased by the least well off in society. If the NLW does not result in job losses, then it instead imposes a sales tax on consumers, especially poor ones, raising their cost of living yet higher.

Only around 5% of the UK workforce is currently paid the minimum wage, but this proportion is set to grow as the NLW rises rapidly from £7.60 in 2017 to £9.02 by 2020. The number of workers who’ll have their wages and employability dictated by political whims and maneuvering is only set to increase. 

The report calls for the Chancellor to abandon the National Living Wage and give the Low Pay Commission, with a mandate to boost worker’s wages without risking unemployment, full powers back over the minimum wage. The government could further raise the incomes of the badly-off by increasing tax credits and introducing a Negative Income Tax without risking unintended consequences the NLW incurs.
Sam Bowman, Executive Director of the Adam Smith Institute and co-author of the paper, said:
“We need to do everything we can to raise the incomes of Britain’s worst off workers, but there is a huge danger that the National Living Wage will actually end up hurting them by reducing employment. There is an important difference between the National Minimum Wage and the Living Wage, in that the former is set by a panel of experts with a mandate to minimise the risk of job losses, but the Living Wage is set by politicians whose main interest is looking good on the Ten O’Clock News. That’s a recipe for disaster, and we believe that direct cash transfers like tax credits or a Negative Income Tax would be much less risky ways of helping people at the bottom than the National Living Wage.”
Notes to editors:

For further comments or to arrange an interview, contact Flora Laven-Morris, Head of Communications, at | 07584 778207.

The report ‘Against the National Living Wage’ will be live on the Adam Smith Institute website from 00:01 Friday 24th February 2017 and is available here in advance.

The Adam Smith Institute is a free market, neoliberal think tank based in London. It advocates classically liberal public policies to create a richer, freer world.


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A step in the right direction, but the housing White Paper is still a missed opportunity says Ben Southwood

In response to the government's housing White Paper released today Ben Southwood, Head of Research at the Adam Smith Institute, said:

UK housing has needed a shake-up for decades, and although today’s White Paper is a welcome step in the right direction, it might well be remembered as a missed opportunity.
Sajid Javid seems to understand Britain’s housing problems in a way that previous communities secretaries have not. However, many of the bold ideas that had been floated in the past few months have been dropped, presumably because not all his colleagues recognise the scale of the problem.
The government now finally acknowledges that housing demand is local—building housing in Doncaster or Rochdale will not relieve pressure in Cambridge or Bristol. It also understands that density does not have to mean Brutalist tower blocks, and it sees building in popular styles—such as mansion blocks and terraced houses—as one way to overcome local opposition to development.
But ultimately this is not the white paper we were hoping for. Knowing the problems is not the same as solving them, and changing council targets may end up having no appreciable impact on the market as a whole.
Seeing the green belt as a last resort for development is another mistake: much of it is ugly scrap land or intensive farmland with little amenity and high environmental costs. It is also an error to force developers to rapidly build on any sites they have permission for—the only reason they don’t do this already is our strict planning laws, and raising the costs of building further may actually prevent needed developments."
Like many others, we’re disappointed: there’s very little today that tackles the green belt, height restrictions, or perverse incentives that make people oppose development. But it would be a mistake to let that blind us to the steps forward in this, small as they may be.

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Ministers let the green belt slide in housing white paper

As Sajid Javid “reaffirm[s] this government's commitment to the green belt” in the housing white paper, City AM covered Executive Director Sam Bowman's disappointment about the lack of change:

"Only a tiny amount of the UK's green belt would need to be freed up - less than two per cent to give us room for more than a million new homes. Britain has some of the smallest and most expensive homes in Europe, and a family-friendly Conservative government must create space for new homes to be built by the private sector."

The Independent also covered Head of Research Ben Southwood's comment:

"Like many others, we’re disappointed: there’s very little today that tackles the green belt, height restrictions, or perverse incentives that make people oppose development. But it would be a mistake to let that blind us to the steps forward in this, small as they may be."

Comment also appeared in The Sun, Financial Times, and The Sunday Times in print.

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“Renationalising Southern will not solve its problems: it’s already state-run for all intents and purposes. In fact, if it was still a franchise—as it was up till 2015—the company would likely have bought off the union, whether or not their concerns about drivers are operating doors are valid.
“The whole Southern palava is a bizarre case of everyone pulling the wool over everyone else’s eyes. The system is simply not run in a remotely private fashion, like Virgin on the East and West Coast Mainlines, or First with Great Western. It’s run like Arriva “runs” London buses—that means the government calls the shots and Govia Thameslink Railways simply does everything they ask, including on pricing, staffing, and revenues.
“Once again, renationalisation is a complete red herring - it's essentially already happened."

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Sam Dumitriu, Head of Projects, in praise of The London Transport Committee's suggestions to scrap the congestion charge and implement road pricing said:

The London Transport Committee are right to say that the congestion charge is 'no longer fit for purpose.
Congestion is costing the capital billions and proper road pricing could change that.
The current congestion charge is too low to meaningfully reduce congestion. Instead, it merely acts as a regressive tax on motorists. And it's too inflexible to nudge motorists into avoiding travel at peak times.
Road pricing means upping the charge during rush-hour and lowering it during the rest of the day. That would ensure delivery vans aren't contributing to sluggish traffic at peak times.
And it works. In London traffic flows on average at a painfully slow 7.2mph. In Singapore (the first country to implement road pricing) it flows at nearly 20mph and that's in rush hour.
London should follow Singapore's lead and bring in proper road-pricing.

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