UK: Apprentices get 20% rise in minimum wage

Recommendations for an increase in the national minimum wage rates for adults and young people aged 16–17 and 18–20 were accepted in March 2015 by the UK’s outgoing coalition government. However, ministers overruled the Low Pay Commission’s recommended rate for apprentices, insisting on a bigger, 20% increase.

The UK government overruled the Low Pay Commission's recommendation for a nominal increase in the national minimum wage for apprentices, arguing that a larger increase would make apprenticeships as financially attractive to young people as other employment choices. However, the employers' organisation, the Confederation of British Industry (CBI), has criticised this decision, warning against the ‘politicisation’ of the NMW-setting process, although it welcomed the increases in the adult and youth rates. Meanwhile, the Trades Union Congress (TUC) welcomed the boost in the apprentice rate, while declaring that the other increases were insufficient.

Low Pay Commission recommendations

The Low Pay Commission (LPC), published its recommendations on 23 February 2015, in the context of broad political and social partner support for a sustainable increase in the national minimum wage (NMW). The increases are applicable from October 2015.

The LPC is an independent body made up of employer and trade union representatives and independent experts. Each year, it makes recommendations on the level of the NMW, based on economic analysis, research and submissions from stakeholders.

In 2014, the LPC recommended the first increase in the NMW in real terms since the recession. This year, in light of the continued economic recovery, it recommended further increases in the various rates.

The LPC recommended that from 1 October 2015, the adult NMW rate (for workers aged 21 and over) should rise by 3% to GBP 6.70 (€9.38 as at 28 May 2015). According to the LPC, this represents the largest real-terms increase in the NMW since 2007, and will restore three-quarters of the fall in the real value of the NMW relative to its peak in 2007. In reaching its decision, the LPC took account of ‘strong employment growth in low-paying sectors and firms of all sizes’.

The LPC also recommended an increase of:

  • 3.3% to GBP 5.30 (€7.42) in the youth development rate, which applies to workers aged 18–20;
  • 2.2% to GBP 3.87 (€5.42) in the rate for workers aged 16–17;
  • 2.6% to GBP 2.80 (€3.92) in the apprentice rate, which applies to all apprentices in the first year of an apprenticeship, and to apprentices aged 16–18 at any stage of an apprenticeship.

Apprentice rate

The government had asked the LPC, in January, to ‘consider whether any changes can be made to the apprentice rate to make the structure simpler and improve compliance’. It noted the findings of an apprenticeship pay survey which suggested that compliance with the NMW for apprentices is lower (1.82 MB PDF) than for other employees. The government also sought the LPC’s views on the option of combining the apprentice NMW and the rate for 16–17 year olds, and applying this to all apprentices in the first year of their apprenticeship and to all workers aged 16–17.

However, the LPC took the view that there would be significant risks in merging the two rates, particularly in the cost to employers of an ‘unprecedentedly large’ increase in the NMW for up to 200,000 apprentices, and that it was likely to have little effect on compliance rates.

Government response

On 17 March, the government announced that it accepted all the LPC’s recommendations with the exception of the recommended increase in the NMW rate for apprentices, which it considered to be too low. Instead, the new apprenticeship rate will be set at GBP 3.30 (€4.62) and represents a rise of GBP 0.57 (€0.80) or 20%. According to the government, this is the ‘largest ever increase in the [NMW] for apprentices’. The stated rationale for implementing a rate higher than the LPC’s recommendation was that ‘the government intends that apprenticeships will deliver a wage that is comparable to other choices for work’. The government said it would launch a consultation with businesses on the future of the NMW rate for apprentices.

Reacting to the government’s decision, the LPC said: ‘While we welcome the government’s response on the headline rates, we are disappointed that it has not accepted our recommendation on the level of the apprentice rate. We based our judgement on a careful assessment of the evidence, seeking to benefit apprentices while also protecting the supply of places.’

Employer and union reaction

CBI Director-General John Cridland welcomed the decisions on the adult and youth rates but registered concerns over the government’s decision on the apprentice rate. In his statement, he said:

It’s positive that the government has accepted the independent LPC’s recommendations on the adult and youth rates. The Commission struck a careful balance, helping many low-paid workers without damaging their job prospects. Therefore it's disappointing that the government has rejected the LPC’s recommendation on the apprentice rate. The NMW has been one of the most successful policies of recent years thanks to the independence of the Commission – its politicisation is worrying.

The TUC, however, said that the increases in the NMW were insufficiently ambitious but welcomed the boost to the apprentice rate. TUC General Secretary Frances O’Grady commented:

For the low-paid to get a fair share of the recovery, this was a year in which we could have had a much bolder increase in the minimum wage. With one in five workers getting less than a living wage, this is nowhere near enough to end in-work poverty . . . Apprentices will welcome the increase to their minimum wage, which will reduce the shortfall in their minimum pay relative to 16 and 17 year-old employees. But there really shouldn’t be a gap at all. The TUC will continue to call on the LPC to recommend a future increase that will match the apprentice rate to that for 16 and 17-year-olds.

 

Source documents: 
PDF icon lpc_recommendation.pdf
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