The U.K. chancellor of the exchequer has announced a 2.2% increase to the national living wage, making it one of the highest in the world.
It came as part of a spending review that outlined the historic damage inflicted on the U.K. economy by the coronavirus pandemic.
Rishi Sunak, the minister in charge of the Treasury, said that the government was increasing the minimum pay for the majority of workers to £8.91 ($11.89) per hour from £8.72, and lowering the age bracket to 23 years old.
The U.K. will have one of the most generous minimum pay bars in the world, above all but eight states and the capital city in the U.S., and below only a few countries in Europe — the region with the highest minimum wages.
In a speech to lawmakers on Wednesday, Sunak said the U.K. economy was set to contract by 11.3% this year, “the largest fall in output for more than 300 years,” according to Office for Budget Responsibility forecasts.
The economy is expected to grow 5.5% next year and 6.6% in 2022. “Even with growth returning, our economic output is not expected to return to precrisis levels until the fourth quarter of 2022, the chancellor added.
Government borrowing has soared this year due to the economic impact of the COVID-19 pandemic and government measures taken in response. Sunak revealed U.K. borrowing in 2020 was forecast to total £394 billion, equivalent to 19% of gross domestic product — the highest recorded level in peacetime.
Despite the “long-term scarring” to the economy, Sunak announced plans to increase the national living wage, which is the minimum wage for U.K. workers above a certain age, previously set at 25 years old. He also committed to raising the minimum wage rates for workers 22 years old and younger.
“Taken together, these minimum wage increases will likely benefit around two million people,” Sunak said in his address to the House of Commons. “A full-time worker on the national living wage will see their annual earnings increase by £345 next year.”
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The federal minimum wage in the U.S. is $7.25, with 29 states and the District of Columbia legally requiring workers be paid more. The highest minimum wage in the U.S. is in Washington, D.C., at $15, followed by $13.50 in the state of Washington, and $13 in California for employees of businesses with 26 or more workers.
Six states — California, Connecticut, Massachusetts, New Jersey, Illinois, and Maryland — have committed to annual increases that will bring their minimum wage to $15 as early as 2022 and as late as 2025. After this year, the minimum wage in New York will be adjusted annually for inflation until it reaches $15, from the current $11.80 outside of New York City and its immediate surrounds.
The U.K.’s new wage is slightly lower than the €10.15 ($12.08) per hour minimum in France, and higher than Germany’s €9.35 ($11.13) rate.
Compared with Commonwealth counterparts, the U.K.’s new wage will be higher than most of Canada, where the rate ranges between provinces from $11.45 CAD to $16.00 CAD ($8.81 to $12.31). However, it will be lower than $19.84 AUD ($14.20) in Australia and $18.90 NZD ($13.22) in New Zealand.
A number of Scandinavian countries, including Denmark and Sweden, don’t have a legal minimum wage, instead relying on longstanding collective bargaining agreements within industries between unions and employers’ associations. Wages in Scandinavia are among the highest in the world, with the average minimum wage earned by workers in Denmark sitting at around 110 Danish krone ($17.69).
The chancellor’s spending review detailed a raft of heavily trailed developments including:
•A cut to the country’s overseas aid budget. This controversial decision will see the amount handed to support some developing countries reduced from 0.7% of gross national income to 0.5%. This will make a saving of around £4 billion annually. Sunak said: “Governments must make tough choices. I want to reassure the House that we will continue to protect the world’s poorest: Spending the equivalent of 0.5% of our national income on overseas aid in 2021, allocating £10 billion at this spending review, and our intention is to return to 0.7%. when the fiscal situation allows. Based on the latest OECD [Organization for Economic Cooperation and Development] data, the U.K. would remain the second-highest aid donor in the G-7. Higher than France, Italy, Japan, Canada and the United States.”
•A new national infrastructure bank. This will be based in the north of England and work with the private sector to finance major new investment projects across the U.K., starting this spring. It will replace the work of the European Investment Bank, which the U.K. will withdraw from as part of leaving the European Union. The bank is part of a new national infrastructure strategy.
•A public sector pay freeze. The government will freeze public sector pay for the majority of workers next year, as expected. However, doctors, nurses and other National Health Service workers will get a pay rise, along with 2.1 million public sector workers earning below £24,000 per a year. Sunak said he was unable “to justify a significant, across-the-board pay increase for all public sector workers,” as the virus had deepened the disparity between public and private wages. Private sector wages fell nearly 1% in the six months to September, while public sector wages rose close to 4%, he added.
•New £4 billion ‘leveling up’ pot for projects selected by local areas. Regions will be able to apply to win funding to improve facilities for local areas. This could include building museums, galleries, better transport routes, and retail spaces. It is aimed to help support disadvantaged areas and fund the infrastructure of “everyday life”. Sunak said: “I’m announcing a new leveling up fund worth £4 billion. Any local area will be able to bid directly to fund local projects. The fund will be managed jointly between the Treasury, the Department of Transport, and the Ministry for Housing. Communities and Local Government.”