Increase in national minimum wage takes effect

On 1 October 2005, the national minimum wage rose to over GBP 5 per hour, increasing the pay of more than 1 million low-paid workers.

On 1 October 2005, adult rate of the national minimum wage (NMW) increased from GBP 4.85 to GBP 5.05 per hour. At the same time, the 'development' rate, paid to 18-21 year-olds, went up from GBP 4.10 per hour to GBP 4.25. These increases follow recommendations made by the independent Low Pay Commission (LPC) (UK0505104F). The rate for 16-17 year old workers, introduced in October 2004 (UK0409108F), remains at GBP 3.00 an hour, but will be reviewed by the LPC in its next report to the government in February 2006.

The government has also provisionally accepted the LPC’s recommendations that the rates should be further increased to GBP 5.35 (adult) and GBP 4.45 (development) in October 2006, subject to further review by the Commission in it next report.

The government estimates that some 1,310,000 low paid workers will be covered by the October 2005 and October 2006 increases.

Commenting on the increases, the secretary of state for trade and industry, Alan Johnson, said: 'Since the [NMW] came into force in 1999, over a million low paid workers have benefited each year. This means we have protected some of our most vulnerable members of society from exploitative employers. [The latest] increase will make a real difference to the lives of the lowest paid members of our workforce.'

The latest increases in the NMW met with contrasting reactions from employer and trade union bodies. The Confederation of British Industry (CBI) said that the impact of the 'milestone' increase would need to be carefully assessed by government and the LPC. Sir Digby Jones, CBI director-general said: 'The minimum wage has been successful because it has been set at a rate the nation can afford. After the two 7% rises of 2003 and 2004, firms will be relieved that this year’s 4.1% rise is more in line with earning predictions. Next year’s rise of 5.9% to GBP 5.35 will have a serious impact on those sectors traditionally affected by the minimum wage - but the minimum wage is also starting to bite in the retail and the manufacturing sectors.'

Welcoming the increase, Brendan Barber, general secretary of the Trades Union Congress (TUC) said: 'As ever, with each minimum wage increase comes the predictable wave of protest from business saying that it cannot afford another rise. Every year miserly bosses say any wage boost will be at the expense of jobs, but every year their predictions of doom and gloom fail to materialise . . . I urge [the LPC] not to listen too closely to the bleatings of UK business leaders. A further increase next year and payment of the adult rate to 18 year-olds is easily affordable, and would have no adverse effect upon either the economy or on jobs.'

In terms of enforcement, the government has announced that it is to target those sectors, including hotels, retail, care homes, security and hairdressing, where employer failure to pay the NMW is most evident. The Department of Trade and Industry plans to target these sectors in turn, on a year-by-year basis, starting this autumn with the hairdressing sector. NMW complaint figures show hairdressing generates proportionally more complaints of underpayment than any other low paying sector - 192 complaints in 2004-5. Guidance will be issued to highlight the minimum wage issue in the hairdressing sector, and Her Majesty’s Revenue and Customs officials will be visiting employers suspected of failing to comply with it.

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