Terms of reference for review of national minimum wage announced

In June 2000, the UK government published terms of reference for the next phase of the work of the Low Pay Commission. The Commission has been asked to prepare a third report on the impact of the national minimum wage and to make recommendations on its future up-rating.

On 23 June 2000, Stephen Byers, the trade and industry secretary announced new terms of reference for the Low Pay Commission (LPC) - the independent body which advises the government on the implementation of the national minimum wage (NMW), introduced in April 1999 (UK9904196F) - in preparing its third report, due to reach ministers by July 2001. The government has already decided to increase the main adult hourly rate of the NMW by GBP 0.10 to GBP 3.70 from October 2000 (UK0003158N), but has now asked the LPC to make recommendations on its future up-rating.

In particular, the LPC has been asked to continue to monitor and evaluate the impact of the NMW, including:

  • the effect on pay, employment and competitiveness in low paying sectors and small firms;
  • the effect on particular groups of workers, such as young people, women and ethnic minorities;
  • the effect on pay structures, including the effect on differentials;
  • the interaction between the NMW and the tax and benefit systems; and
  • the interaction between the NMW and the New Deal programmes (UK0002155F).

The government has also asked the LPC to recommend whether there is a case for increasing the main adult NMW and the "development rate" for workers undergoing training, and, if so, by how much, taking into account movements in earnings and the actual and likely future impact on the economy, employment and training, particularly the youth labour market. The LPC's recommendations on the NMW rates may include re-examining the case for changing the age at which workers become entitled to the adult rate. In its second report, published in February 2000 (UK0004170F), the LPC recommended that 21-year-olds should be covered by the full adult rate, but the government did not act on this recommendation. The youth rate, currently payable to workers aged 18-21, rose from GBP 3.00 to GBP 3.20 per hour at the beginning of June 2000 (UK0003158N).

In making its recommendations, the LPC should "have regard to: the wider economic and social implications; the likely effect on employment and inflation; the impact on the costs and competitiveness of business, particularly the small firms sector, and the potential costs to industry and the Exchequer."

In a statement, Professor George Bain, who chairs the LPC, said that he welcomed the "clear remit" for the next phase of the LPC's work, and that the LPC would be consulting widely before making its recommendations to the government in 2001. As part of its work programme the Commission is seeking evidence from employers, trade unions, academics and government departments, to be submitted by 31 October 2000.

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