£8,900 purchasing-power loss looms as Tories call for 5-year freeze on minimum wage to tackle youth unemployment

Five-year freeze proposal

A Conservative MP called on the government to accept a report’s recommendations, including keeping the minimum wage unchanged for five years. The MP said almost 1 million young people were not in education, employment or training, and described the report as timely.

The report also proposes restoring employer national insurance contributions to their levels before April 2025. It recommends bringing back a two-year qualifying period for unfair dismissal, which Labour abolished through its Employment Rights Act.

Estimated cost to workers

The report’s authors acknowledge that their proposals would affect workers’ earnings. They estimate that projected inflation of 2% to 2.5% would cut minimum-wage workers’ purchasing power by 9% to 12% over five years.

The cumulative loss would be about £8,900, according to the report. Labour criticised the proposal, arguing it would leave the lowest-paid worse off and showed a lack of understanding of the pressures they face.

Debate over youth rates

Labour has said it plans to bring the different minimum-wage rates into line, giving 18- to 20-year-olds the full rate. Rising youth unemployment has prompted debate within government about the pace of that change.

The Low Pay Commission says it has no robust evidence that higher youth wage rates have contributed to worsening outcomes for young people. It said those outcomes have deteriorated over the past two years.

Recommendations due in October

The commission is due to advise the government in October on rates for the financial year beginning 1 April 2027. Ministers are not required to follow its recommendations. The commission’s position differs from the report’s proposed response to youth unemployment: it says evidence does not establish that higher youth rates are responsible for the decline in young people’s labour-market outcomes.