Chancellor Sajid Javid has pledged to raise the National Living Wage to £10.50 within the next five years.
He will also lower the age threshold for those who qualify from 25 to 21.
Speaking to a packed hall at the Tory Party Conference, Mr Javid said the policy would “help the next generation of go-getters to get ahead”.
The current rate for over 25s is £8.21 – but the Living Wage Foundation says it should already be £9 across the UK and £10.55 for those in London.
Earlier this year, Labour pledged to raise the National Living Wage to £10 an hour in 2020 and to include all workers under 18 – who currently get a minimum wage of £4.35.
Labour’s shadow chancellor, John McDonnell, called Mr Javid’s announcement a “pathetic attempt at catch-up”.
Mr Javid also confirmed £25bn for road projects, £220m for bus improvements and £5bn for digital infrastructure in his speech, along with extra funding for youth services.
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The Tories have made a raft of spending announcements so far at their party conference in Manchester.
But the conference has been overshadowed by allegations that Boris Johnson squeezed the thigh of a journalist during a lunch in 1999 – which the prime minister denies.
Charlotte Edwardes made the claims in a column in the Sunday Times, and said the PM did the same to another woman in the room.
The BBC’s Laura Kuenssberg said a rumour had been circulating at the conference the other woman was journalist Mary Wakefield – the wife of the PM’s chief adviser Dominic Cummings – but she released a statement saying “nothing like this ever happened to me”.
‘Party of labour’
With the prime minister looking on from the audience, Mr Javid told his party the living wage pledge would make the UK “the first major economy in the world to end low pay altogether”.
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He said cutting the threshold to 21 would “reward the hard work of all millennials” – but it will come in two stages, with 23-year-olds qualifying for the rise in 2021 and 21-year-olds by 2024.
“It’s clear it’s the Conservatives who are the real party of labour – we are the workers’ party,” he told delegates.
Business groups sounded a note of caution about the potential effects of the policy.
The CEO of the British Retail Consortium, Helen Dickinson, said there was “nothing wrong with targeting higher wages”, but “all of this adds to the cumulative pressures you have seen take their toll on the retail sector”.
Neil Leitch, chief executive of the Early Years Alliance, a charity which represents nurseries, said: “A rise in the national living wage is fantastic for younger workers, but for the early years sector, this could be an additional cost that many providers will not be able to afford to bear.”
The TUC, meanwhile, said the chancellor’s promise “should be taken with a huge bucket of salt”.
“This pledge would be overwhelmed by a no-deal Brexit,” general secretary Frances O’Grady added. “If we leave the EU without a deal, jobs will be lost, wages will fall, and our public services will suffer.”
The National Living Wage was introduced by then Chancellor George Osborne in 2016, but the Living Wage Foundation argues the level should always have been higher in order to cover the real needs of employees and their families.
Director of the organisation Katherine Chapman said nearly 6,000 employers across the UK were already “going further than the legal minimum and paying a real Living Wage that covers the cost of living”.
The chancellor also:
- Confirmed pledges made by his predecessor for £25bn to upgrade England’s road network
- Announced funding of £220m to improve bus networks
- Promised a £5bn boost to digital infrastructure, with an ambition to connect the hardest-to-reach 20% of the country – upping the earlier target of 10%
He also confirmed £500m for youth services.
The Youth Investment Fund will be focused on building up to 60 new centres and refurbishing 360 old ones so that young people have “somewhere to go, something to do and someone to talk to”.
However, funding for youth services has fallen in real terms from more than £870m in 2011/12 to £352m in 2017/18 – meaning the pledge still does not return spending to the level of eight years ago.
“I’d guess that some businesses will worry this is the return of the magic money tree. But with them being asked to grow it…”
That was the response from one UK trade body boss to Sajid Javid’s announcement that he would give four million workers a pay rise by increasing the National Living Wage to £10.50 an hour over the next five years.
Business leaders here at the Conservative Party conference are loathe to publicly object to the elimination of low pay (defined as anything below 66% of the median national average).
However, they are worried that the government is making eye-catching and vote winning promises while handing the bill for them to business.
In truth, the government’s wage promise is not as generous as it first looks. A promise made in 2018 to set the National Living Wage at 60% of the median income would have seen wages rise to nearly nearly £9.50 by 2023 – so targeting £10.50 by 2025 is fairly close the trajectory they were already on.
The biggest disappointment was the lack of detail on how exactly the government intends to cushion business against the costs of no-deal disruption.
Having talked this up in recent days, the head of the CBI, Carolyn Fairbairn, was not alone in saying she thought there had been a page missing from the chancellor’s speech.
However, for the chancellor to put numbers around an emergency package would have been to put a hefty price tag on no-deal. Something the government is understandably reluctant to do.
Mr Javid also reiterated his government’s position of leaving the EU on 31 October, echoing the conference slogan of “Get Brexit Done”.
“We are leaving the European Union,” he said. “It’s not a matter of if, it’s a matter of days – 31 days, deal, or no deal.”
Earlier, in an interview with BBC Radio 4’s Today programme, he said the government had been working on “mitigations” which would allow it “to deal with many of the disruptions” of a no-deal.
He also promised “a significant economic policy response” in such circumstances.
The BBC’s Norman Smith said that could mean tax cuts to help ease the potential impact.
In his speech, the chancellor announced the government would commit £4.3bn to replace EU funding received by “organisations and devolved administrations” in the coming year, offering them “extra certainty”.
And he said a “Brexit Red Tape Challenge” would be launched, letting businesses tell the government what rules they want changing after Brexit through an online portal.