George Osborne’s living wage should have been introduced more slowly, Labour says

George Osborne’s significant increase in the minimum wage should have done more slowly, Labour’s shadow business secretary has said.

At a Labour conference event attended by small business leaders Angela Eagle criticised the Chancellor for introducing in the National Living Wage in a way that made life difficult for business.

She said the Government had been forced to quickly make the hike, to £7.20 in April 2016, because it needed to compensate for sharp cuts to tax credits.

“If they weren’t so interested in reducing the level of tax credits at that speed there might have been a possibility to have adjustments, if you wanted to make them, more slowly so it could be properly signaled and properly done,” she told the Federation of Small Businesses meeting.

“What the Government have done because of their obsession with cuts is introduce something very quickly without warning that I’m sure many of your will have had difficulty adjusting to.

“I think that removing tax credits that way so quickly is a huge shock to the system and if he wanted to do something like that the most sensible thing to have done would be to do it more slowly so that things can adjust.”

Mike Cherry, policy director of the Federation of Small Businesses, echoed the concerns.

"I think clearly this to some extent was a surprise and the biggest surprise I suspect many members felt was the speed this was going to come in,” he said.

Ms Eagle’s tone contrasted with messages coming from shadow chancellor John McDonnell, who two hours earlier had said the Government wanted to raise the legal minimum wage to a full statutory living wage.

The shadow business secretary said she thought there was a “perfectly good argument” for a full living wage but said it needed to be introduced in a way that was “appropriate."

She said increasing productivity and skills levels in the economy would be key requirements to legislating for a full living wage at the legal minimum, and said it should be set in a way that was “objective” by the Low Pay Commission.

“I think actually the system where you have the low pay commission talking about the minimum wage and then campaigns for the living wage … that’s a good thing,” she said.

“I would still prefer to see the NMW still being defined by the low pay commission in a way everyone accepted was objective.”

Research by the Institute for Fiscal Studies published this month found that the Chancellor’s hike of the living wage, announced in his budget, would come nowhere near compensating for cuts to tax credits, also announced in the same document.

In a rare qualitative assessment, the IFS warned that the higher wage could not replace tax credits and benefits as a way of alleviating poverty.

“There may be strong arguments for introducing the new NLW, but it should not be considered a direct substitute for benefits and tax credits aimed at lower income households,” it explained.

Mr Osborne said at the time of the wage’s announcement that it would provide people with “financial security”.