Where next for the national minimum wage?

We summarise the views of employers and trade unions as they gear up for the release of the latest report from the Low Pay Commission - expected shortly.

By the end of February, the Low Pay Commission (LPC) is due to present its latest report to government on the national minimum wage (NMW). Assuming the government has no major problems with the report, their recommendations should be published shortly afterwards. The remit for the report, set by the Department of Trade and Industry (DTI), asked in particular for an assessment of the impact of the NMW on pay, employment and competitiveness in low-paying sectors and small firms, as well as different groups of workers and pay structures. It also asked the commission to take into account the impact of the announced changes to statutory annual leave entitlement.

Trade union views on NMW rate

While the remit for the LPC's 2007 report does not include a specific request to re-examine the NMW rate - which increased to £5.35 per hour for workers aged 22 or over from October 2006 - the majority of the submissions to the LPC have concentrated on that issue. The TUC recommended that the NMW should be set at "the highest rate that can be sustained without causing detrimental economic or social effects". With the economy set to perform well in 2007, it argued that the NMW should continue to rise at a rate exceeding the predicted growth in average earnings. It is lobbying for a minimum wage of more than £6 per hour by October 2008.

Unison shares the TUC's belief that the NMW should increase to at least £6 by October 2008, but goes further in specifying that it should be £6.75 per hour by that date. Unison also wants to see the adult rate of the NMW payable from the age of 16, while the TUC argues that all workers aged 18 or above should receive it. At present, the rate for young workers aged 16 to 17 is £3.30 per hour, while the youth rate for workers aged 18 to 21 is £4.45 per hour.

Employers urge restraint

In their submissions to the LPC, organisations representing employers have urged restraint. The British Retail Consortium (BRC) has stressed the need for a fundamental review of the NMW given the increase in wage bills following recent increases. In a letter to LPC chairman Paul Myners, BRC director general Kevin Hawkins argued that the 2005 NMW increase had cost retailers £1 billion and warned that the increase in October 2006 was likely to cost the same.

The BRC has urged the LPC to "go back to basics" and define the ultimate goal for the NMW. It points out that retailers' concerns over increases to the NMW come on the back of rises in energy costs as well as increases in rent, rates and business charges.

Employers' lobby group the CBI told the LPC that, given that the NMW has increased by 27% since 2002, a more modest rise is required in 2007. The CBI believes that "another big rise would damage many businesses and boost the black economy". Moreover, it argues that the costs to employers of the forthcoming increase to statutory annual leave from 20 to 28 days means that minimum wage costs must be kept as low as possible. "Ministers must be mindful of hitting employers with a double whammy of extra costs," argues the CBI's deputy director general, John Cridland.

The EEF, representing engineering employers, wants to see greater certainty over the long-term rate of the NMW and believes this can be achieved by implementing a formula to determine future increases, based on movements in basic pay across the economy. It says employers will be able to plan and budget more effectively for cost increases if the direct and indirect impacts of NMW increases are predictable.

Enforcement

The trade unions identify enforcement of the NMW as a key challenge, particularly in relation to migrant workers. The government itself singled out enforcement as a major issue in its evidence to the LPC, highlighting that £3.3 million in unpaid wages was identified in 2005/06. In his 2006 pre-Budget report, Chancellor Gordon Brown announced that the NMW enforcement budget would be increased by 50% from April 2007 to tackle non-compliance. This was followed in January 2007 by an announcement from the DTI that employers who refuse to pay the minimum wage would face fines at a level for £224.70 for every worker they underpay¹.

1. National minimum wage enforcement: penalty notice policy, January 2007, at www.dti.gov.uk.

This article was written by Julian Richards, researcher/writer, Employment Review, julian.richards@irseclipse.co.uk.