National Minimum Wage to be increased by 2.5%

In April 2011, the UK government accepted a recommendation from the Low Pay Commission (LPC) to increase the National Minimum Wage (NMW) by 2.5% from October 2011, though by only 1.1%–1.2% for workers under the age of 21. It is estimated the new adult rate will affect 840,000 workers. The government has asked the LPC to consider making two-year recommendations on NMW increases in future, instead of their current annual one, in order to increase certainty for businesses.

The National Minimum Wage

The statutory National Minimum Wage (NMW) was introduced in 1999 (UK9904196F). There are currently four separate NMW rates:

  • the full adult rate, which applies from the age of 21;
  • a ‘development’ rate for workers aged 18-20;
  • a rate for workers aged 16 and 17;
  • a rate for apprentices aged under 19 and those aged 19 and over in the first 12 months of their apprenticeship.

The government is advised on the NMW by the independent Low Pay Commission (LPC), which produces an annual report setting out recommendations for increases, based on research and consultations. The government has so far increased the NMW every year since its introduction.

LPC recommendations

The LPC published its 2011 report (4.14Mb PDF) in April. It recommended a 2.5% increase in the full adult NMW rate from £5.93 (€6.65 at 6 June 2011) to £6.08 (€6.82) per hour, arguing that such a rise would take account of the UK’s continued economic uncertainty, while protecting the lowest-paid workers from falling further behind the average wage.

However, given a continuing decline in the labour market position of young people and evidence that, in difficult economic circumstances, the level of the NMW may have had an impact on their employment, the LPC recommended an increase of only 1.2% in the development rate (from £4.92 (€5.51) to £4.98 (€5.58) per hour) and 1.1% in the rate for those aged 16–17 (from £3.64 (€4.08) to £3.68 (€4.08)). The LPC also recommended a 4.8% increase in the apprentice rate (from £2.50 (€2.80) to £2.60 (€2.91) per hour).

The LPC estimated that the recommended new adult NMW rate would affect about 840,000 jobs held by workers aged 21 and over (3.5% of the total) – 322,000 jobs (2.6%) held by men and 519,000 (4.3%) held by women. The recommended development rate would affect 39,000 jobs held by those aged 18–20 (3.3% of the total) and the recommended rate for those aged 16–17 would affect 14,000 jobs held by this group (5%).

According to the Office for National Statistics (ONS), inflation was running at 4% in March 2011, as measured by the Consumer Prices Index, and 5.3%, as measured by the Retail Prices Index. Average weekly earnings rose by 2% in the three months to February 2011, compared with a year earlier.

Government response

The government immediately accepted the LPC’s recommendations and said that they would be implemented from 1 October 2011. Vince Cable, the Secretary of State for Business, Innovation and Skills, commented:

More than 890,000 of Britain’s lowest-paid workers will gain from these changes. They are appropriate – reflecting the current economic uncertainty, while at the same time protecting the UK’s lowest-paid workers.

The government also announced that it will invite the LPC in its next report to examine the best way to give business ‘greater clarity’ on future NMW levels, including asking it to consider making two-year recommendations for increases, rather than annual recommendations. This could provide greater certainty for businesses, reduce risks and help them plan employment and investment decisions, the government argues.

Social partner reactions

Neil Bentley, Deputy Director-General of the employers’ organisation, the Confederation of British Industry (CBI), said the NMW increase was ‘moderate’ and ‘strikes the right balance during a period of economic uncertainty’. A larger rise would have ‘hit businesses hard and could have put many lower-paid jobs on the line’. He added:

The decision to adopt a more cautious approach to the youth rates reflects the record levels of young people who are unemployed. We must not put barriers in the way of school leavers getting into work.

Brendan Barber, the General Secretary of the Trades Union Congress (TUC) called the rise relatively modest, but said it was a welcome pay boost for low-paid workers. He commented:

It is only fair that employers play their part in combating low pay, and the LPC has taken great care to ensure that the new rates are set at a level that will not damage job creation in these uncertain economic times.

The TUC also called on the government to address the issue of youth unemployment, which led to the LPC recommending a smaller NMW increase for younger workers.

Mark Carley, IRRU/SPIRE Associates

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