Nadhim Zahawi is a member of the Foreign Affairs Select Committee and MP for Stratford On Avon.
One of the cornerstones of this Government’s efforts to transform our country into a higher wage, lower tax and lower welfare society – the National Living Wage (NLW) – came into effect on the 1st April. The NLW is initially set at £7.20 an hour for workers over the age of 25. This is a 50p rise on the current National Minimum Wage (NMW) rate, and a £910 increase in the annual wage for a full time worker on the current NMW.
The Low Pay Commission has had its remit changed – to recommend a new pathway to a target of the NLW reaching 60% of median earnings by 2020, which is expected to lead to an increase in the hourly minimum you can pay a worker over 25 to £9.00. The OBR forecasts that a full-time National Minimum Wage worker will earn over £4,800 more by 2020 from the National Living Wage.
As the former Work and Pensions Secretary, Iain Duncan Smith, shouted during the announcement of this new rate at the 2015 Summer Budget, this is absolutely ‘fantastic!’ It’s the sort of policy that underlines the One Nation values at the heart of our Government. The National Living Wage will provide a vital boost to those who work so hard on the lowest wages in our country. It’s a helping hand to those who are struggling to make ends meet; but who are doing the right thing, playing their part, and bringing home a pay cheque at the end of the month.
This Government has made it easier for workers, especially low income workers, to earn more and then to subsequently keep more of what they earn. The tax free personal allowance will have almost doubled between 2010 and 2020. With the introduction of the National Living Wage, the minimum hourly rate for over 25s will have increased by 50 per cent over the same time period.
But the introduction of the NLW has another, unintended effect. As of the 1st April 2016, the UK now has the fourth highest minimum wage in Europe. At the equivalent of just over €9 an hour, we are now only behind Luxembourg, France, and Ireland.
€9 an hour is not just higher than many other countries in the European Union, it is very considerably higher. The minimum wage in Spain is just over €5 an hour, in Slovenia it is around €4.50, and in Greece and Portugal it is less than €3.50. Croatia, Estonia, Poland, Slovakia, Czech Republic, Lithuania and Hungary all have minimum wages below €3, while Romania and Bulgaria have minimum wages below €1.50.
We will not just have one of the highest minimum wages in Europe, but we will have a minimum wage that is two, three, or even six times higher than can be achieved in many EU citizens’ home countries. This is an important variable to consider if you are committed to reducing immigration into the UK to the tens of thousands, as is still Conservative Party policy. These figures are a stark warning. We are a long way from meeting this pledge, and current policy takes us further away from it rather than closer.
One of the outcomes of the Prime Minister’s renegotiations was that, in order to reduce the pull factor for migration from within the European Union, there would be a new ‘emergency brake’ on migrant benefits. This may well succeed in reducing the particular pull provided by top ups of wages by benefits – but it is about to be overtaken by a significantly larger pull factor in the form of the National Living Wage.
It is right that Britain receives a pay rise. Britain deserves it, and hard workers on low wages should receive a greater share of the rewards created for their efforts. But Britain’s workers should beware. If we remain in the European Union, we will be unable to stop huge numbers of migrants moving here to take advantage of these higher wages.
If existing benefit payments such as a £20 a week payment for child benefit are enough of a pull factor that we require an emergency brake to meet our immigration targets, then what impact will the new National Living Wage have?
The businesses that would likely benefit from this influx of low skilled workers are the same business that are demanding we stay within the European Union. But hard working people will see no benefit from this needed pay rise if they’re pushed out of a job by immigrants from Europe, where unemployment still remains terrifyingly high.
While Britain remains a remarkable jobs factory, in stark contrast to the rest of Europe, pays higher wages and provides no controls on migration from European Union members, we cannot hope to meet our immigration target.
Theresa May said we would aim to hit this target by the end of 2020, but to have a hope of doing so we must leave the European Union.
If we vote to leave we can introduce controls on the number of low skilled workers coming into the UK, provide low paid British workers with a much needed boost in income without fear of inviting yet more competition for jobs, and finally meet our immigration pledge made in 2010. It’s the only way it can be done, and that is what we must do.