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Government extends minimum wage to 16 and 17 year olds

In March 2004, the UK government announced that the adult hourly rate of the national minimum wage will be increased in October 2004 to GBP 4.85, with a rate for 18-21 year olds of GBP 4.10 per hour. The government also announced its decision to introduce for the first time a minimum wage for 16 and 17 year olds, of GBP 3.00 per hour from October 2004.

On 15 March 2004, the Department of Trade and Industry (DTI) announced that the adult rate of the national minimum wage (NMW) will be increased from GBP 4.50 to GBP 4.85 per hour, and that the 'development rate' for 18-21 year olds will rise from GBP 3.80 to GBP 4.10. A minimum wage of GBP 3.00 per hour will also be introduced for the first time for young workers aged 16 and 17. The changes, which will take effect from 1 October 2004, are based on recommendations made by the independent Low Pay Commission (LPC) which includes both employer and trade union representatives.

The increase in the adult basic rate is likely to affect around 1.6 million workers across the UK, the majority of whom will be women and part-timers. Around 7% of 16 and 17 year olds are also expected to benefit, some of whom are currently earning as little as GBP 1.25 per hour. However, the new youth rate will not apply to young workers on apprenticeships, on the grounds that this could discourage employers from providing training places. At present, only those apprentices who have reached the age of 19 and have completed the first year of their apprenticeship are entitled to receive the minimum wage. The government accepts, however, that a good case exists for improving the financial support available to apprentices and is expected to make an announcement shortly.

Background

The statutory National Minimum Wage was introduced in the UK by the Labour government in April 1999 (UK9904196F). The decision formed part of the government’s strategy to promote fairness in the workplace and to make work pay by establishing minimum wage rates for all workers. At the time of its introduction, 16 and 17 year olds were not included, as the government argued this might deter young people from 'staying on' in education and clash with the government’s strategy of developing a highly skilled workforce.

The NMW increases for October 2004 are based on recommendations made originally in the LPC’s fourth report, published in March 2003 (UK0304101N). In this report, the LPC argued that the proposed October 2004 rates should be reviewed nearer the time to take account of prevailing economic circumstances, but indicated that there were good grounds for believing that the minimum wage could be increased without producing damaging economic effects. These proposals drew differing reactions from employers and trade unions at the time, with the Confederation of British Industry (CBI) warning that any figure above GBP 4.50 could 'price people out of work and create pressure for increases in higher wage levels', and the Trades Union Congress (TUC) expressing disappointment that the Commission had not been bolder and accepted union calls for a minimum wage of GBP 5.00 by 2004.

In its fourth report, the LPC also recommended that the government should invite it to consider in detail whether the time was right to introduce a minimum wage for 16-17 year olds. The government agreed and asked the Commission to report on this, together with the proposed rate increases, by February 2004. In December 2003, the DTI published its evidence to the LPC. This pointed out that the government had introduced a range of policies designed to encourage young people to continue in education and that there was now less risk that a minimum wage would increase the chances of teenagers leaving school early. The DTI told the Commission: 'It would be wrong to allow 16 and 17 year olds, the youngest workers, to be exploited through low wages.'

LPC confirms rate rises are sustainable and recommends new youth rate

The subsequent LPC report, Protecting young workers: the national minimum wage, published in March 2004, argues that the macro-economic outlook remains favourable and that the recommended October 2004 rate increases could be implemented with a negligible impact upon employment levels. However, it concedes that the 'two successive significant increases in the National Minimum Wage pose different challenges for business from those of previous years' and that their impact will need to be closely monitored over the coming year. While 'ideally all 16-17 year olds should be receiving education or good quality training', the report accepted that there was evidence of full-time jobs 'offering extremely low rates of pay and which provided minimal training and few development prospects'. The report argues that the new minimum wage for 16-17 year olds will 'put a stop to clear exploitation' but is low enough so as not to entice young people out of education, harm the supply of training places or price this age group out of the labour market.

Reaction from employers and unions

Responding to the increase in the adult basic rate to GBP 4.85 per hour, John Cridland, the deputy director-general of the CBI and a member of the LPC, commented: 'The CBI understands why this has been done, but the jury is still out on whether it will do more harm than good. This is the second successive increase of more than 7%. It means that for the first time, the wage is worth more in real terms than it was when introduced in 1999. Consequently, it will bite with more businesses than ever before. So the government has taken a risk with the impact on business and we will be monitoring the outcome extremely carefully.' He also sounded a warning by stating that 'with a general election on the horizon, some people are already talking of a GBP 5.00-plus minimum wage. Employer support cannot be taken for granted whatever the figure’s totemic significance in the Labour movement.' Having previously opposed a minimum wage for 16-17 year olds on the grounds that this could reduce opportunities for young people to enter the labour market (UK0211104F), the CBI accepted the introduction of the new youth rate and praised the LPC for setting this at a 'cautious' level.

Other employer representatives were more openly critical. David Frost, director-general of the British Chambers of Commerce, argued that regular increases in the NMW above the rate of inflation were becoming 'unmanageable'. Commenting on the new youth rate, Mr. Frost said: 'The UK already has one of the worst staying-on rates for education and training in the 16 to 17 age group. The minimum wage for 16 to 17 year olds is an incentive for young people to enter full employment, instead of gaining the higher-level skills business so badly needs.'

Announcing the changes, the trade and industry secretary, Patricia Hewitt, dismissed criticisms that the government was sending out confusing signals to young people. Ms Hewitt insisted that the young people’s rate had been recommended by the LPC to strike a balance between encouraging young people to stay in education and training and tackling those employers offering extremely low levels of pay and minimal training to young workers. 'Our first priority is to encourage young people to remain in full-time education or training ... But where young people choose work without training we have a clear duty to protect them from exploitative rates of pay,' she said.

Union leaders welcomed the changes. The TUC general secretary, Brendan Barber, said: 'The National Minimum Wage success story has defied the doom-mongers who said it would cost millions of jobs. Since it was launched five years ago the number of people benefiting from the minimum wage has at least doubled and employment has reached record levels.' Mr. Barber also praised the government’s decision to set a minimum hourly rate for young people on the grounds that it would 'cut out the worst examples of wage exploitation' and he looked forward to 'more significant increases' to the introductory rate in future years. Kevin Curran, general secretary of the GMB general union, also welcomed the move but insisted the youth rate was too low. He warned that the new three-tier formula was confusing and could lead to abuse and problems with enforcement. Although the NMW was 'one of the government’s greatest achievements', the current system discriminated against those aged under 21. 'Creating three tiers based purely on age legitimises age discrimination by allowing companies to pay employees that do the same job different wages based purely on age,' he said.

Commentary

The decision to extend the NMW to young workers represents a clear change of policy on the part of the Labour government which had previously resisted this on the grounds that it could discourage teenagers from continuing in education after 16. By raising the basic adult rate to GDP 4.85, the government has also fuelled speculation that it could increase the rate to GDP 5.00 prior to the general election, expected in 2005, a move that could help improve Labour Party-union relations following the strains caused by recent public sector reforms. While critics are likely to present the current rate rises and the new youth rate as something of a sop to the trade unions, others will argue that the government has acted prudently by following the recommendations of the LPC and that the latest announcement is perfectly consistent with its broader mission to promote fairness at work. However, with the CBI already voicing concerns that the current rate increases might not be sustainable, and warning that business support for future increases cannot be taken for granted, it remains to be seen how the government will proceed in the run up to the general election. (Jonathan Payne, SKOPE)

Page last updated: 22 March, 2004
About this document
  • ID: UK0403107F
  • Author: Jonathan Payne
  • Country: United Kingdom
  • Language: EN
  • Publication date: 22-03-2004