Government gives the nod to minimum wage increase

The UK government announced in April 2013 that it had approved below-inflation increases in statutory national minimum wage rates, effective from October 2013. The Confederation of British Industry and the Trades Union Congress gave the move a measured welcome. The employers’ organisation said that the impact of the adult rate needed careful monitoring, given low pay increases across the economy, while unions would have liked minimum wage rates to have risen further.

Background

On 15 April 2013, the Department of Business, Innovation and Skills announced that ministers had approved below-inflation increases in the national minimum wage (NMW) of 1.9% for adults aged 21 and above, and 1.0% for younger workers and apprentices. The increases will take effect in October 2013 and will bring the adult rate to GBP 6.31 (€7.41 as at 24 April 2013).

New minimum wage rates

The details of the new rates are set out below.

Table 1: National minimum wage rates from October 2013
 

Current Rate

Rate from October 2013

Increase

Adults aged 21 and above

GBP 6.19 (€7.27)

GBP 6.31 (€7.41)

1.9%

18–20-year-olds

GBP 4.98 (€5.85)

GBP 5.03 (€5.91)

1.0%

16-year-olds above school leaving age and 17-year-olds

GBP 3.68 (€4.32)

GBP 3.72 (€4.37)

1.0%

Apprentices under 19 and older apprentices in the first year of apprenticeship

GBP 2.65 (€3.11)

  1. 2.68 (€3.15)

1.0%

The new rates are based on recommendations made by the independent Low Pay Commission (LPC), which includes representatives of business groups, trade unions and academics (UK1204039I). The LPC’s 2013 report (5Mb PDF) notes that its recommended increases are below price inflation rates as measured by the retail and consumer price indices and average earnings growth. However, the LPC believes:

our recommendations for October 2013 balance the needs of low-paid workers against the challenges facing businesses, particularly small businesses.

The LPC had recommended that the apprentice rate should be frozen, on the grounds that a significant number of employers were not paying apprentices the relevant rate and that there was no point in raising the minimum rate for apprentices if it is not, in practice, observed. This recommendation was overturned by ministers, who decided to raise the apprentice rate in line with the youth rates with a view to keeping apprenticeships attractive to young people.

Compliance and enforcement

Ministers stated they will act upon the LPC’s recommendation that the government should improve awareness of, and compliance with, the apprentice rate via a publicity campaign and targeted enforcement initiative, as part of what business secretary Vince Cable described as a ‘series of tough new measures to ensure we tackle non-compliance issues across the board’.

However, the government said only that it had ‘noted’ the LPC’s recommendation that contracts issued by public bodies which commission the provision of social care should contain a clause requiring at least the national minimum wage to be paid, just as they may require compliance with other aspects of the law, such as health and safety legislation.

Social partners’ reaction

The main social partner organisations gave the government’s announcement a measured welcome.

Commenting on the new rates, Katja Hall, Chief Policy Director at the Confederation of British Industry (CBI) said,

Pay restraint has been crucial in creating jobs in this tough economic climate. The LPC has struck a careful balance in setting the rates given sluggish growth, particularly in recommending a cautious approach to youth pay.

She added that:

The LPC will need to monitor the impact of raising the adult rate very carefully. Given average earnings this year are already lower than expected, we must make sure that the minimum wage doesn’t limit jobs in key sectors by outstripping pay across the rest of the workforce.

The General Secretary of the Trades Union Congress (TUC), Frances O’Grady, commented:

Boosting the incomes of the low paid goes straight into the economy and wage-led growth must be part of the recovery so we would have liked to see minimum wage rates go up further, even if the government has rightly rejected calls for a freeze. But we are pleased that ministers have increased the apprenticeship rate. This sends a positive signal about the importance of apprentices.

Both organisations specifically welcomed the government’s commitment to tighten up enforcement of the national minimum wage, particularly for apprentices.

However, the British Chambers of Commerce (BCC) was more critical of the increase in the adult rate. While recognising that the rises for younger workers and apprentices were ‘restrained’, the BCC was

disappointed that the government has chosen to raise the adult rate by 1.9% … The scale of this rise adds significantly to business costs, most of all by contributing to broader pay inflation. It will also make some employers less inclined to hire additional staff.

Mark Hall, IRRU, Warwick Business School

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