Government announces small rise in national minimum wage

In March 2007, the government confirmed that it had accepted the recommendation from the Low Pay Commission that the national minimum wage should be increased from October 2007. The move will benefit over one million workers. However, amid fears of higher wages resulting in job losses, the announced increases are somewhat lower than for previous years. This has led to a mixed reception from the social partners.

On 7 March 2007, the government announced that, from 1 October 2007, the main adult rate of the national minimum wage is to rise by GBP 0.17 (€0.25 as at 22 March 2007), or 3.2%, from GBP 5.35 (€7.89) to GBP 5.52 (€8.14) per hour. The hourly development rate for employees aged 18–21 years will increase from GBP 4.45 (€6.56) to GBP 4.60 (€6.79), or by 3.4%. At the same time, the rate for 16–17 year olds will rise from GBP 3.30 (€4.87) to GBP 3.40 (€5.02) per hour, or by 3%. These changes represent the smallest pay increases since October 2002. The Department of Trade and Industry (DTI) estimates that the increments will affect 1,040,000 workers.

Announcing the increase, the Secretary of State for Trade and Industry, Alistair Darling, stated: ‘More than a million workers, two thirds of them low-paid women, will benefit from this announcement. It means that the minimum wage has gone up by almost 30% more than inflation since 1999, with the number of jobs in the economy increasing by almost two million in the same period. It is right for workers and employers.’

Key considerations

Small increases were not unexpected. At the time the Low Pay Commission (LPC) announced its recommendations for 2006 (UK0604029I), the outgoing Chair, Lord Adair Turner, stated that the LPC had concluded that ‘the phase in which the Commission was committed to increases in the minimum wage above average earnings was now complete. Looking forward, the Commission will start with no presumption that further increases above average earnings are required’.

The new Chair of the LPC, Paul Myners, acknowledged that the rise of 3.2% represented a cautious approach and that this was due to the available data indicating ‘a rather more mixed picture than in previous years’. However, he also pointed out that: ‘Taken together with last October’s uprating, this amounts to an increase of 9.3% over two years.’ In line with Lord Turner’s statement of last year, Mr Myners suggested that future wage increases, depending on the conditions of the economy and the labour market, would be broadly in line with average earnings.

Reaction from social partners

Employer organisations were quick to praise the small increases. The Deputy Director General of the Confederation of British Industry (CBI), John Cridland – also a member of the LPC – noted: ‘With interest rates rising and inflation rising, this is not the year for unaffordable wage increases.’ He continued: ‘The minimum wage has brought real benefits to many lower paid workers, but it is right that this year’s increase took account of business reality.’

The British Chambers of Commerce (BCC) also welcomed the government’s announcement. Director General David Frost commented: ‘We are pleased that this signals the end of recent above-average wage rises in the minimum wage.’ However, BCC also suggested that the effects of previous wage increases have yet to be felt in full. According to BCC figures, the wholesale and retail trade, and hotels and restaurants sectors had already lost 85,000 jobs in the seven quarters to the third quarter of 2006. BCC economic adviser David Kern suggested that future increases, even in line with average earnings increases, could bring increasing pressure on jobs, particularly within small companies operating in the services sector.

The response from the Trades Union Congress (TUC) to the increases was somewhat muted. TUC General Secretary Brendan Barber praised the benefits brought about by the minimum wage, but also argued that larger increases were possible: ‘The LPC could have been bolder and kept the minimum wage rising faster than pay overall. There is still scope to continue raising the wages of the lowest paid compared to the rest of us without ill effects.’

Need for improved enforcement

The LPC argued that, despite new enforcement measures introduced in January 2007, there was still ‘no effective deterrent to non-compliance and no real disincentive for firms contemplating evading the minimum wage requirements’. The LPC recommended the following measures:

  • penalties for employers who have underpaid the minimum wage;
  • a more suitable method of reimbursing underpaid workers;
  • ‘naming and shaming’ non-complying employers;
  • targeting low-paying sectors with high proportions of migrant workers for the enforcement programme, such as the hotels and restaurants or cleaning sectors.

Duncan Adam, IRRU, University of Warwick

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