The Wage Cuts Britain Ruled Out Are Now Coming for Its Young

In May, employers who warned that higher minimum wages were pricing young workers out of a job got a flat answer from HM Treasury.

Cutting wages for the lowest paid during a time of global uncertainty is not the answer. — HM Treasury

Four months later, the government is preparing to do the thing its Treasury said was not the answer. Alan Milburn, its Youth Employment Czar, has signalled that his review may recommend slowing or reversing minimum wage increases for young workers ^[1]. The objection the Treasury once dismissed has come back inside the government.

There is no doubt in my view that costs have risen for employers when it comes to taking on young workers. — Alan Milburn

The problem Milburn is addressing is real. In the second quarter of this year 981,000 people aged 16 to 24 were neither working nor studying, and Milburn has warned the number could reach 1.25 million within five years ^[2]. The government is now studying the Dutch model of multiple age-specific wage rates, a retreat from Labour's 2024 promise to scrap the lower rates paid to 18-to-20-year-olds ^[3]. And the changes aimed at the young keep stacking up: ministers want to delay the health-related part of Universal Credit for claimants under 22, saving roughly £300 million a year, over the objections of more than 40 charities and against Scope's finding that 94 per cent of affected households would be in poverty without the support ^[4]. Earlier in the summer officials even floated letting young workers draw a year's worth of state pension decades early, a "buy now, pay later" scheme that reads as a government hunting for relief without raising wages or spending ^[5]. Then there is the other side of the ledger. The triple lock, which guarantees the state pension rises each year by the highest of inflation, earnings growth, or 2.5 per cent, costs £12 billion this year and is on course for £15.5 billion by 2029, on a total pension bill of £146 billion ^[6]. Andy Burnham has pledged to keep it through this parliament ^[7]. His own economic advisers disagree.

The manifesto commitment holds — Andy Burnham

The OECD made the same point with blunter language.

I appreciate there is lot of debate about this but it is important that the commitment in the manifesto stands. — Andy Burnham

Lord Willetts has done the arithmetic that turns these two ledgers into one picture: over fifteen years, pensioners have come out £900 ahead of inflation while benefits for families with children have fallen £1,400 behind it in real terms ^[6]. None of this means the squeeze itself is a British choice. The Bank of England governor, Andrew Bailey, attributes the gilt turmoil to the conflict with Iran, not to any domestic fiscal blunder.

If you look at day to day... what's moving the market - in this respect, it's all to do with the conflict… also because what gets said about the conflict. — Andrew Bailey

Yields have climbed to decade-plus highs at the same moment in France, Italy, Japan and Britain, pushed by war and a global debt load rather than any single government's budget ^[8]. The storm is shared. The distribution of its cost is not. A year ago this month, the Société Générale strategist Albert Edwards put that distribution more bluntly than any minister would. He argued that pensioners had broken the public finances in Britain and France, and that it would take more than persuasion to change the politics.

In the UK and especially France, pensioners have broken the public finances in two of the countries who can least afford it. Bonkers! — Albert Edwards

The crisis has arrived. Britain is paying its highest borrowing costs since 1998 ^[9]. And the government is acting, just not on the spending Edwards said had broken the finances. It is acting on the wages of the people he said would be made to pay.