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£15 UK Minimum Wage May Not Be The Best Way To Tackle Poverty

Minimum wage

£15 UK minimum wage may not be the best way to tackle poverty

Labour members on Tuesday backed a £15-an-hour minimum wage at their annual party conference in Brighton. Although the vote was not binding and the policy is unlikely to be adopted by Keir Starmer, it has kicked off a debate over whether the legal pay floor should rise or whether an increase would drive up unemployment as the economy emerges from the coronavirus pandemic.

Who suggested the figure is not clear but it does echo the “fight for $15” campaign of US activists, a sum that McDonald’s workers in Britain have said should be paid in sterling. Their campaign, backed by the Bakers, Food and Allied Workers Union, was touted on a banner that Starmer was pictured standing near two years ago. The motion passed at conference on Tuesday was tabled by the GMB union. Starmer has pledged a £10 minimum wage, the same as in the 2019 Labour manifesto and still lobbied for by the TUC.

Almost 2 million workers earn close to the wage floor, which is set at £8.91 an hour for over-23s and is called the national living wage by the government. Figures from the Low Pay Commission, which advises the government on setting the rate, suggest 6.6 million workers – about a fifth of the total workforce – earn less than £10.90 an hour.

Steady gains have been made in the minimum wage over the two decades since its launch under Tony Blair in April 1999 at an initial rate of £3.60 for over-22s. Since then it has risen faster than average earnings and inflation without damaging jobs, taking the UK’s minimum wage from the middle of the pack among wealthy nations to one of the highest in the western world.

Although opposed by the Conservatives at first, successive Tory-led governments have raised it, hitting a target for the headline rate to stand at 60% of median earnings by 2020. The Tories have promised to “end low pay” by lifting the minimum wage to two-thirds of median earnings – about £10.50 an hour – by 2024. No EU or G7 country has a minimum wage approaching two-thirds of median earnings.

However, the benchmark against which the minimum is pegged has barely shifted. This is because the UK has had the worst decade for average wage growth since the 19th century, with a worker earning about the same per week in July this year as in February 2008 after taking account of inflation.

According to the latest official figures, median hourly pay in the UK was £13.65 last year, meaning an immediate rise to £15 would affect a wide range of jobs, including some occupations typically considered outside low pay brackets, such as media advisers and estate agents.

Although there is little evidence that the minimum wage has reduced UK employment levels over the past two decades, economists say a sudden jump would probably drive up job losses. Giles Wilkes, a senior fellow at the Institute for Government, said a rate of £15 could add £73bn to employers’ wage bills. “The jobs would disappear,” he said.

Tom Ironside, the director of business and regulation at the British Retail Consortium, the trade body for some of the UK’s biggest employers, said: “Retailers support the objective of higher wages in the industry and have been working hard in recent years to secure the productivity improvements needed to ensure such increases are sustainable. However, increasing the national living wage to the level that has been proposed in some quarters would be unsustainable, adding very significantly to the cumulative pressures that are already facing the retail industry.”

Kate Nicholls, the chief executive of UKHospitality, which represents thousands of restaurants, bars and hotels, said: “A sudden, significant leap to £15 at a severely challenging time for venues would risk both job losses and price hikes, both of which would damage the sector just as it is trying to recover from the costs of closures and trading restrictions during Covid.”

A £15 rate is likely to become more realistic over time, particularly if earnings rise sharply, as expected by some economists amid mounting inflationary pressures and labour shortages in Britain’s post-lockdown economy.

There are concerns that minimum wage rises have led employers to look for savings elsewhere by whittling away at terms and conditions. The widespread adoption of zero-hours contracts is seen as one way in which employers have sought to make savings by imposing more flexibility on workers.

The coffee shop chain Pret a Manger recently raised starting hourly pay to £9.40 but that came after it had stopped paying workers for breaks – so that someone on an eight-hour shift had already seen their pay fall by 6%.

When Morrisons said it would guarantee pay of at least £10 for workers in January, it admitted it offset a quarter of the cost by scrapping a discretionary annual bonus scheme. Tesco made the same move in 2019, while Sainsbury’s cut paid breaks, annual bonuses and premium pay for Sundays.

On the current minimum wage, an adult working a 37.5-hour week would earn about £17,400 a year. Government figures suggest that a £15 rate would place a full-time worker in the current top 40% of incomes in Britain before tax.

“For me, that shows we might be reaching the limit of how much we can improve living standards by improving the minimum wage,” said Dave Innes, the head of economics at the Joseph Rowntree Foundation. “When we talk to workers living in poverty, they might not necessarily complain about hourly wages but what hours they have to meet their living costs, and if they can fit them around their family commitments.”

Experts believe a more powerful way to tackle poverty would be to bear down on zero-hours contracts and ensuring employees have more predictable work patterns.

Minimum-wage workers are more likely not to get the hours they require, with 15% of the lowest-paid tenth of UK workers wanting more hours, compared with only 3% among the highest-paid tenth.

Nye Cominetti, a senior economist at the Resolution Foundation, said: “It’s the predictability of hours that matters as well. Obviously, a change in hours, a few in either direction, could have a big impact on your pay each week. There’s more that can be done for low-paid workers than just the minimum wage.”

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UK’s Truss defends economic plan that sent pound tumbling

UK’s Truss defends economic plan that sent pound tumbling

British Prime Minister Liz Truss on Thursday defended her economic plan and shrugged off the negative reaction from financial markets, saying she’s willing to make “difficult decisions” to get the economy growing.

In her first public comments since the government’s announcement of billions in uncosted tax cuts roiled markets and drove the pound to record lows, Truss said Britain was facing “very, very difficult economic times.” But she said the problems were global and spurred by Russia’s invasion of Ukraine.

She spoke after the Bank of England took emergency action Wednesday to stabilize U.K. financial markets and head off a crisis in the broader economy after the government spooked investors with a program of unfunded tax cuts, sending the pound tumbling and the cost of government debt soaring.

Truss told BBC local radio that “we had to take urgent action to get our economy growing, get Britain moving and also deal with inflation.”

“Of course lots of measures we have announced won’t happen overnight. We won’t see growth come through overnight,” she said. “What is important is that we are putting this country on a better trajectory for the long term.”

In a series of interviews, Truss said her government’s decision to cap energy bills for households and businesses would help tame inflation and help millions of people facing a cost of living crisis.

But it was not that decision that alarmed the markets. It was the government’s announcement on Friday of an economic stimulus program that included 45 billion pounds ($48 billion) of tax cuts and no spending reductions — without an independent economic assessment of the cost and impact.

The Bank of England warned that crumbling confidence in the economy posed a “material risk to U.K. financial stability,” and said it would buy long-term government bonds over the next two weeks to combat a recent slide in British financial assets.

The bank’s former governor, Mark Carney said that the government and the central bank appeared to be pulling in different directions.

“Unfortunately having a partial budget, in these circumstances — tough global economy, tough financial market position, working at cross-purposes with the Bank — has led to quite dramatic moves in financial markets,” he told the BBC.

The pound traded at around $1.08 on Thursday, above its record low of $1.0373 on Monday. It has lost some 4% of its value since Friday.

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Stimulus Packages Provided During Pandemic Triggered Inflation- CBN

The Central Bank of Nigeria (CBN) has attributed the rising inflationary rates to the stimulus packages provided to citizens during and after the pandemic.

It added that although this increased spending, it also created global supply challenges.

CBN’s director, Monetary Policy Department, Hassan Mahmoud, said this on Wednesday at a post-MPC briefing tagged: “Unveiling Facts behind the Figures’’.

The Monetary Policy Committee had on Tuesday, unanimously voted to increase interest rate to 15.5 per cent.

“A lot of households and small businesses were injected with stimuluses; the U.S did two trillion dollars, Nigeria did about five trillion Naira, these increased the ability of people to spend.

“But the supply side could not meet up with the demand because that volume of injection was far more than the regular intake for those economies, this made prices go up,’’ he said.

Mahmoud also blamed the Russian-Ukraine war, as well as the resurgence of COVID-19 in China for the rise in global inflationary trend.

“That region accounts for more than 50 per cent of global commodity supply and 38 per cent of global oil and gas supply. The war resulted in some shortages which made prices go up.

“Then the COVID-19 lockdown in China. The country is the largest importer of commodities across the globe,’’ he added.

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China’s yuan slides to 14-year low against US dollar

China’s yuan slides to 14-year low against US dollar

China’s yuan fell to a 14-year low against the dollar Wednesday despite US central bank efforts to stem the slide after U.S. interest rate hikes prompted traders to convert money into dollars in search of higher returns.

A weaker yuan helps Chinese exporters by making their goods cheaper abroad, but it encourages capital to flow out of the economy. That raises costs for Chinese borrowers and sets back the ruling Communist Party’s efforts to boost weak economic growth.

The yuan fell to 7.2301 to the dollar, its lowest level since January 2008. One yuan was worth about 13.8 cents, down 15% from its March high.

The yuan has exceeded expectations it might fall to 7 to the dollar after the Federal Reserve started aggressive rate hikes to cool inflation that is at a four-decade high. The Fed has raised rates five times this year and says more increases are likely.

By contrast, the People’s Bank of China has cut interest rates to boost growth that fell to 2.2% over a year earlier in the first six months of 2022 — less than half the official 5.5% target.

The yuan is allowed to fluctuate up or down 2% from its starting price each day in tightly controlled trading. That prevents big daily swings, but down days can add up to a big change over time.

To shore up the exchange rate, Beijing cut the amount of foreign currency deposits Chinese banks are required to hold as reserves to 6% from 8% as of Sept. 15. That increases the amount of dollars and other foreign currency available to buy yuan, which should push up the exchange rate.

Still, that reserve cut is unlikely to stop a slide that is driven by “a strong U.S. dollar and the expectation of more Federal Reserve hikes,” said Iris Pang of ING in a report.

“Less aggressive rate hike talk” might help the yuan rally, but it might weaken further “if the Fed maintains its very hawkish tone” into next year, Pang wrote.

Chinese officials have previously promised to avoid “competitive devaluation” to gain an advantage in trade.

The yuan sank in 2019 during trade tension with then-President Donald Trump. That prompted suggestions Beijing was trying to reduce the impact of U.S. tariff hikes, but there was no official confirmation. The currency later strengthened.

Other governments also are struggling to manage capital flows under pressure from Fed rate hikes. On Friday, Vietnam’s central bank raised a key interest rate in what economists said appeared to be an effort to stop an outflow of money in search of higher returns.

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