Minimum Wage reform: A call for balanced and transparent benchmarks

Back to Chamber News

18 July 2025

Background

The Isle of Man Chamber of Commerce supports transparent, sustainable, and evidence-based wage-setting mechanisms. As Tynwald prepares to debate new minimum and living wage methodologies - including proposals to anchor the minimum wage at 66% of median earnings - we are calling for urgent clarification and recalibration of how these figures are calculated.

New data released by the Cabinet Office in response to a written Tynwald question (Hansard W-202501-1645, 26 June 2025) confirms a persistent and widening gap between public and private sector pay. This has major implications for how poverty is defined, how statutory wage levels are set, and how fair and realistic these mechanisms are for private employers.

In 2024:

Public sector median weekly pay: £902
Private sector median weekly pay: £706
Difference: £196 per week (28% higher)

When employer pension contributions are included, this pay gap becomes even more significant:

Public sector employer pension value: £225.50/week
Private sector employer pension value: £35.30/week
Total weekly reward gap: £386.20 - a 55% differential

This level of disparity requires urgent attention. At present, the combined median figure - blending public and private sector pay - is used as the basis for:

Calculating the minimum wage (as a % of median income),
Defining relative poverty, and
Informing other wage-related policy measures.

Why the median matters

The median represents the middle point in a wage distribution where half of workers earn more, and half earn less. It is generally a more stable measure than the mean, as it is less influenced by very high or very low earnings. However, the reliability of the median depends on how representative the dataset is.

Recent political commentary has acknowledged that public sector median earnings are significantly higher than private sector earnings, largely due to structural job differences. The public sector includes a greater concentration of high-paid professionals, while the private sector comprises a broader range of roles, including many in low-paid occupations. While this distinction is not inherently problematic, it does mean that combining public and private sector medians into a single figure can obscure important economic realities and lead to unfair outcomes in wage policy.

Key concerns

Artificial inflation of benchmarks

Using a combined public/private sector median earnings figure inflates the true median experienced by the majority of workers - those in the private sector. This misrepresents income realities and raises wage expectations beyond what many employers can sustain.

Distorted poverty and wage thresholds

Policies based on the overall median drive artificially high poverty thresholds and inflated statutory wage levels, particularly when public sector earnings, and pensions, skew the figures upwards.

Widening public–private sector pay gap

The median pay gap has increased in recent years and is now nearly £200/week. When pension benefits are factored in, total public sector reward packages exceed private sector equivalents by more than 50%.

Private sector subsidy effect

The private sector, which pays the majority of taxes and bears market risk, is being squeezed, effectively subsidising elevated public pay through taxation without comparable benefits or protections.

Risks to business viability

Basing minimum wage increases on inflated benchmarks threatens business sustainability, especially in wage-sensitive sectors such as hospitality, care, and retail. It may lead to job losses, reduced recruitment, or business contraction.

Recommendations

Chamber calls for the following actions to ensure fair, accurate, and economically viable policy decisions:

Adopt private sector median earnings as the primary benchmark for minimum wage and poverty measures, reflecting the income profile of most workers
Develop a separate earnings index for wage-setting purposes, based on private sector data, to ensure future wage rises are proportionate and sustainable.
Commission an independent review of pay structures across sectors( including pensions, job roles, and cost-of-living impacts) to inform future wage policy.
Consult meaningfully with private sector employers on any wage or welfare policies that could disproportionately affect them.

Conclusion

The Chamber has consistently supported a fair and evidence-based approach to wage-setting. However, it is clear that current methodologies are producing distorted outcomes. Policies that benchmark statutory wages against an inflated combined median are penalising the very workers and businesses they are intended to protect.

If left uncorrected, this will:

Undermine the credibility of wage policy,
Damage private sector competitiveness,
Exacerbate intersectoral inequality, and
Ultimately harm the Island’s economic resilience.

We urge Tynwald and Government to act decisively to correct these imbalances. Fairness between sectors must be restored, not only in how we pay people, but in how we measure and value their contribution.