Institute of Economic Affairs calls for end of living wage

A policy think tank has called on Prime Minister Theresa May to scrap George Osborne's living wage, which it says will cost thousands of jobs and do little to alleviate poverty.

Ryan Bourne
Ryan Bourne

Former chancellor Osborne announced last year that the minimum wage would be raised to a National Living Wage of more than £9 an hour by 2020.

The NFU and HTA have said the living wage, currently at £7.20 an hour since 1 April, has a disproportionate impact on nurseries, farming and garden centres.

But the Institute of Economic Affairs report author Ryan Bourne, head of public policy at the IEA, said: "Price controls in wage-setting have severe negative consequences. Regulations that try to influence wages in order to meet an arbitrary target will create perverse incentives in hiring and compensation decisions.

"Sadly, rather than accepting that employers and employees come to agreements about pay according to a specific job, pay policy is being driven by popular misconceptions, such as that pay levels are determined by discrimination, or that pay should compensate workers for their living costs.’

The report said: "Concern about low pay has already led to the introduction of the National Living Wage, even though there is scant evidence it is an effective tool to alleviate poverty.

"Meanwhile, momentum is building to impose limits on executive pay and require companies to do more to close the gender pay gap, on the faulty pretexts the former is a market failure and the latter arises because of discrimination."

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