Government sanctions small increase in national minimum wage

In May 2009, the government confirmed that it had accepted the recommendations of the Low Pay Commission (LPC) for national minimum wage increases. The relatively modest increases were welcomed by employer organisations while the Trades Union Congress urged the commission to be more generous next year. The LPC emphasised that the recent smaller increases should not be seen as a policy change and that larger increases will be considered in the future depending on the economic situation.

The independent Low Pay Commission (LPC) was established as a result of the National Minimum Wage Act 1998 to advise the government about the national minimum wage. The LPC published its 10th report on the national minimum wage (4.61Mb PDF) in May 2009, proposing increases in the national minimum wage to take effect from 1 October 2009. The reporting date had been delayed by two months as the LPC required more time to consider future economic prospects. Given the wider economic uncertainty, the commission did not consider making a recommendation for the minimum wage rate in 2010.

Rate increases

There are three different levels of the national minimum wage, according to the worker’s age. From 1 October 2009, the adult minimum wage rate for workers aged 22 years and over will increase from GBP 5.73 (€6.73 as at 11 June 2009) to GBP 5.80 (€6.81) – an increase of 1.2%. The development rate for workers aged 18–21 years will increase by 1.3% from GBP 4.77 (€5.59) to GBP 4.83 (€5.67) and the rate for 16–17 year old workers will increase by 1.1% from GBP 3.53 (€4.14) to GBP 3.57 (€4.19). These increases will benefit almost one million workers.

Social partner responses

On behalf of the Confederation of British Industry (CBI), Deputy Director General John Cridland stated:

This moderate increase recognises that many businesses are struggling, and helps protect jobs at a time of rising unemployment. The inflation-busting rise some unions had called for would have hit firms hard and put many lower paid workers on the dole. Over the past decade, the minimum wage has risen faster than average earnings and inflation, and a sensible, cautious approach now will help ensure this landmark piece of legislation continues to improve the lives of low paid workers for many years to come.

The Director General of the British Chambers of Commerce (BCC), David Frost, commented on the recommended increases:

We pressed for a freeze to the minimum wage because of the severity of the downturn and the daily loss of jobs. We are pleased that the increase is only a modest one, and it shows that the Low Pay Commission and the government have largely understood the seriousness of the situation. However, a freeze in the NMW [national minimum wage] would have been more help to business.

According to the General Secretary of the Trades Union Congress (TUC), Brendan Barber:

Low paid workers will be relieved to see a further increase in the minimum wage this year. The Low Pay Commission was right to withstand pressure from business to freeze the minimum wage. The recession was caused by very highly paid people damaging the nation’s financial system. It would not have been fair to force the low paid to suffer a freeze in wages, while the city bankers still get their bonuses. But the increase this year is a very slender one. The LPC must be more generous when the economy recovers next year.

Further recommendations

In addition to the remit to monitor the effect of the national minimum wage on different groups of workers, the LPC was asked to review the current exemptions for apprentices and advise whether these were still appropriate. The LPC recommended the introduction of a minimum wage rate for apprentices and suggested that the government should ask it to consider the detailed arrangements in its report in 2010.

Provisions in the Employment Act 2008 (136Kb PDF), taking effect in April 2009, introduced measures designed to improve the enforcement of the national minimum wage (UK0803019I). The LPC’s report further recommended:

  • the ‘naming and shaming’ of employers who show wilful disregard for the national minimum wage;
  • greater resources for Her Majesty’s Revenue and Customs (HMRC) to increase the criminal prosecution of errant employers;
  • consideration by the government of ways of tackling employers in the informal economy.

Commentary

In the early years of the operation of the national minimum wage, increases had tended to be higher than the increases in average earnings. This latest change to the rate is broadly in line with average earnings and represents the continuation of the trend of recent years (UK0703059I), which is in part motivated by the concern that higher increases might result in further job losses. The LPC noted that these smaller increases of recent times should not be taken as an indication of a change in policy, and that in the future larger increases will be considered, if the economic situation is favourable. The small increases may have a larger effect on the living standard of low-paid workers if, as the commission expects, prices fall throughout 2009.

Duncan Adam, Institute for Employment Research, University of Warwick

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