The latest report of the Low Pay Commission was published in March 2008. The government has accepted its recommended increases in minimum wage rates in a move broadly welcomed by the trade unions and employer representatives. From 1 October 2008, the adult hourly rate for workers aged 22 years and over should increase from GBP 5.52 (€7.06) to GBP 5.73 (€7.33), which represents a 3.8% increase on the current rate of the national minimum wage.
The remit of the Low Pay Commission (LPC), which was established in 1997 (UK9711177F), is to review the impact of the national minimum wage (NMW) and to make recommendations concerning its level and application. Its ninth report on the minimum wage (1.5Mb PDF) was published in March 2008.
Background
The research reviewed by the LPC found no significant negative effects of the NMW, against the backdrop of a relatively buoyant labour market. However, the LPC felt that economic prospects for 2008–2009 looked less positive as a result of the uncertainty in global financial markets. Many companies also face rising labour costs due to increases in statutory annual leave entitlements, the second phase of which will be introduced from April 2009 (UK0707059I). Therefore, according to the Chair of LPC, Paul Myners, the commission ‘took the view that a degree of caution was advisable and this is reflected in a recommendation that is lower than the predicted increase in average earnings. We are conscious, above all, of the need to protect jobs’.
Independent forecasts for average earnings growth are around 4% for 2008, with inflation – estimated on the basis of the Retail Price Index (RPI) – expected to fall to 2.6%.
Recommended increases
From 1 October 2008, the LPC recommends that the adult hourly rate for workers aged 22 years and over should increase from GBP 5.52 (€7.06 as at 18 March 2008) to GBP 5.73 (€7.33) – this represents a 3.8% increase on the current rate of the NMS. Similar increases should apply to the development rate for young workers aged 18–21 years and the rate for those aged 16–17 years: the former should increase from GBP 4.60 (€5.88) to GBP 4.77 (€6.10) and the latter from GBP 3.40 (€4.35) to GBP 3.53 (€4.51).
The government accepted the recommendations concerning the three rates, although it rejected again the idea that the ‘adult rate’ should be applied to workers from the age of 21 years.
Wider issues
The LPC argued that some changes in official surveys, such as a reduced sample for the Annual Survey of Hours and Earnings (ASHE), had constrained its ability to analyse sectoral effects. It recommended that ‘the government takes steps to address this erosion of the quality of the key national data’.
Furthermore, the LPC commissioned a series of studies specifically to examine the impact of the relatively large increases in the NMW of 2003 (UK0304101N) in terms of staff turnover, employment levels, and hours and productivity in different regions and vulnerable sectors of the economy. These findings will influence recommendations made in 2009.
Finally, unlike in previous years, the LPC chose to make no recommendations concerning improvements in the enforcement of the NMW. This is due to the fact that proposals in this area are included in the current Employment Bill 2007 (UK0712019I). Subject to parliamentary approval, legislation will come into force in October 2008 which will:
- introduce a new method of calculating arrears for underpaid workers;
- apply a penalty payment for offending employers;
- grant new inspection powers for NMW compliance officers;
- strengthen the criminal regime for NMW offences.
Social partner responses
The consultation process ahead of the LPC report followed a familiar pattern, with most trade unions calling for a substantial increase in the NMW and most employer bodies calling for restraint. The Confederation of British Industry (CBI) said that the NMW had reached an appropriate level and warned against an above-average increase in a slowing economy. Conversely, the Trades Union Congress (TUC) maintained that the UK economy was fundamentally sound and could support a main NMW rate of GBP 6.00 (€7.65) by October 2008.
In the event, CBI and TUC, which are both represented on the LPC, welcomed the government’s decision to accept the commission’s recommended increases. CBI stated that the increase represented ‘a sensible balance at a time of economic uncertainty’. Its Deputy Director-General, John Cridland, highlighted:
Over the last few years, the LPC has taken the right stance by not increasing the minimum wage by more than the growth in average earnings, whilst also taking into account the prevailing economic climate and firms’ ability to pay. At a time of considerable uncertainty for businesses and with economic growth already slowing, we welcome today’s moderate approach.
TUC’s General Secretary Brendan Barber commented:
We welcome this increase in the minimum wage, which will benefit more than a million low-paid workers. The LPC was right to withstand pressure from business warning of economic trouble ahead. The truth is that employers will be able to absorb these sensible increases without too much difficulty. The LPC must continue to recommend the highest minimum wage increases that can be sustained as it provides very important protection for low-paid workers.
Mr Barber added that ‘we support the improvements to the enforcement regime that are currently going through parliament, and look forward to the introduction of tougher penalties for cheating employers and fair arrears for underpaid workers later in the year’.
James Arrowsmith, IRRU, University of Warwick