A think tank is urging the government to scrap the National Living Wage (NLW) just months after its introduction.

The Institute of Economic Affairs (IEA) says there is little evidence to suggest the NLW is an effective tool to tackle poverty and it should be abandoned.

 It says the government should instead introduce a simplified National Minimum Wage.

Price controls in wage-setting have severe negative consequences

Ryan Bourne, head of public policy, Institute of Economic Affairs
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The NLW was introduced on 1 April and is guarantees all workers aged 25 and over a wage of £7.20.

But the IEA says it does nothing for people who are out of work or those working part-time or in poverty. 

The Office of Budget Responsibility has previously forecast the loss of 60,000 jobs and a reduction of four million hours’ work per week as a result of employers paying the higher NLW.

The IEA says in order to tackle poverty, the government should review policies that raise the cost of food, energy, childcare and housing. 

It says the government should also reconsider its positions on high pay and the gender pay gap, as pressure to impose limits on executive pay and require companies to do more to close the gender pay gap are based on “faulty pretexts that the former is a market failure and the latter arises because of discrimination”.

The IEA says there is evidence that the impact of CEOs on company share prices has been growing over time, while there is no evidence to suggest any difference between male and female pay is down to employer discrimination. 

Ryan Bourne, head of public policy at the IEA, said: “Price controls in wage-setting have severe negative consequences. 

“Regulations that try to influence wages in order to meet an arbitrary target will create perverse incentives in hiring and compensation decisions. 

“Sadly, rather than accepting that employers and employees come to agreements about pay according to specific job, pay policy is being driven by popular misconceptions, such as that pay levels are determined by discrimination, or that pay should compensate workers for their living costs. 

“Where political views on pay are concerned, we have seen a regression to the meme.” 

A spokeswoman for the Living Wage Foundation, which campaigns for higher wages linked to the cost of living, said: “The Living Wage Foundation advocates for a higher rate of pay than the government’s statutory rates, which are effectively just increases to the national minimum wage.

"So far we have 2,700 employers, and that number is increasing month on month.  Our employers have voluntarily signed up to these rates because they understand the benefits to their businesses and employees of doing so.

“An independent study examining the business benefits of implementing a Living Wage policy in London found that more than 80% of employers believe that the Living Wage had enhanced the quality of the work of their staff, while absenteeism had fallen by approximately 25%.

"Paying people fairly for the work they do is not only the right thing to do but it is  sensible business strategy for increased success."