The minimum wage has been cut, not increased

Vince Cable rightly noted that "cuts in real wages depress consumption" but the 12p increase in the minimum wage to £6.31 is a real-terms cut.

After recent speculation that the minimum wage could be frozen or cut in cash terms, Vince Cable used his speech at The Institute of Directors to announce that the adult rate would increase by 1.9 per cent (12p) to £6.31 an hour, the under-21s rate by 5p to £5.03 and the under-18s rate by 4p to £3.72. 

In justifying the increase, against those on the right who argue that the minimum wage prices workers out of employment, Cable cited the Keynesian insight that "cuts in real wages depress consumption and demand and thereby cause unemployment." Cable is right; low earners are forced to spend, rather than save, what little they receive (their "marginal propensity to consume" is greater) and stimulate growth as a result.

It's worth noting, then, that the minimum wage has just been cut in real-terms. CPI inflation was 2.8 per cent in February and RPI inflation was 3.2 per cent. The former is forecast by the Office for Budget Responsibility to average 2.8 per cent this year. Indeed, as the Resolution Foundation's James Plunkett recently noted, in real-terms, the minimum wage has already fallen back to its 2004 level. 

Today's decision will by described by most of the media as an "increase" but by the best measure economists have - the cost of living - it's a cut. 

In this area, as elsewhere, the coalition would do well to follow the example of Barack Obama, who has pledged to increase the minimum wage to $9 an hour, from $7.25, and to peg annual increases to inflation thereafter. 

Business Secretary Vince Cable announced today that the adult minimum wage would rise by 12p to £6.31 an hour. Photograph: Getty Images.

George Eaton is political editor of the New Statesman.

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Quiz: Can you identify fake news?

The furore around "fake" news shows no sign of abating. Can you spot what's real and what's not?

Hillary Clinton has spoken out today to warn about the fake news epidemic sweeping the world. Clinton went as far as to say that "lives are at risk" from fake news, the day after Pope Francis compared reading fake news to eating poop. (Side note: with real news like that, who needs the fake stuff?)

The sweeping distrust in fake news has caused some confusion, however, as many are unsure about how to actually tell the reals and the fakes apart. Short from seeing whether the logo will scratch off and asking the man from the market where he got it from, how can you really identify fake news? Take our test to see whether you have all the answers.

 

 

In all seriousness, many claim that identifying fake news is a simple matter of checking the source and disbelieving anything "too good to be true". Unfortunately, however, fake news outlets post real stories too, and real news outlets often slip up and publish the fakes. Use fact-checking websites like Snopes to really get to the bottom of a story, and always do a quick Google before you share anything. 

Amelia Tait is a technology and digital culture writer at the New Statesman.