Employers and unions disagree over scope for increases in national minimum wage

In November 2004, during consultations held by the Low Pay Commission, the UK’s Trades Union Congress called for the national minimum wage to be increased to GBP 6.00 per hour over the next two years, whereas the Confederation of British Industry argued that the minimum wage should be frozen at its current level until 2006.

In evidence submitted to the Low Pay Commission (LPC) during November 2004, the Trades Union Congress (TUC) said that the adult hourly rate of the national minimum wage (NMW) should rise from its current level of GBP 4.85 (UK0409108F) to GBP 5.35 in October 2005, and to GBP 6.00 the following year. TUC leaders described the proposed increase as 'fair and affordable'.

According to the TUC, previous increases in the NMW have benefited fewer than the LPC’s target of up to 2 million workers. It also argues that a NMW set at GBP 5.00 or less would mean that its value would fall against average earnings, which are expected to rise by 9% over the next two years.

The TUC also recommends that that the adult rate of the NMW should be payable from the age of 18 rather than 22. Its submission proposes an increase in 2005 that would sustain the level of the NMW for 16-17 year olds, currently GBP 3.00, in relation to the growth in average earnings, and says that for 2006 the TUC would like to see a reassessment 'to set a rate that benefits larger numbers of young workers'.

However, the Confederation of British Industry (CBI) told the LPC that it should return to its strategy of a 'pause year' in 2005, followed by a possible small rise in the NMW in 2006, depending on economic conditions. The CBI said that employers were ready to accept a NMW of 'a little over GBP 5.00 an hour'- but not until 2006. In the CBI’s view, such an approach was necessitated by 'the fragility of the economy and the limited ability of business to absorb cost increases'. It cited findings from its 2004 employment trends survey (UK0411104F) in which 25% of firms said the October 2004 increase to GBP 4.85 an hour would have an impact on them, while a fifth said that they would cut jobs to offset costs.

The CBI also believes that the LPC should continue to determine future increases in the NMW, but that there is scope for the LPC to consider 'whether, and at what stage and in what form, it would be appropriate to move towards a mechanism of indexing future increases - without removing the ability of the LPC to assess the appropriateness and viability of future increases'.

The CBI and other business organisations, including the British Chambers of Commerce, called the TUC’s proposed increases 'irresponsible'.

The Chartered Institute of Personnel and Development, representing personnel and human resources managers, commented that ongoing difficulties in recruiting and retaining staff meant that the NMW was unlikely to constitute the main upwards pressure on wages: 'Official figures show wage inflation remaining subdued despite a continuingly tight labour market. A modest increase in the minimum wage is unlikely to dramatically change this picture.'

The government has asked the LPC, which includes business and trade union representatives, to review the levels of each of the different NMW rates and to make recommendations, if appropriate, for change to the Prime Minister and the trade and industry secretary by the end of February 2005.