National minimum wage to rise to £5.52

The Government has announced an increase in the national minimum wage (NMW) from 1 October 2007. The adult rate is to rise by 3.2%, from £5.35 to £5.52 per hour.

The Government, accepting the recommendations in the Low Pay Commission's (LPC) report, also said that the NMW development rate (for workers aged 18 to 21) will rise from £4.45 to £4.60 per hour. The rate the youth rate (for workers aged 16 and 17) will rise from £3.30 to £3.40 per hour.

The 3.2% increase to the adult NMW is pitched 0.5 percentage points above the current rate of consumer price inflation (CPI), the government's preferred measure. However, it is one percentage point below the current headline RPI rate (RPI). It is also substantially lower than the "inflation-busting" NMW increases seen each year since 2003.

At a press conference announcing the new rates, trade and industry secretary Alistair Darling said that the 3.2% increase to the adult rate was felt to be appropriate in the current environment. Last week saw the announcement of below-inflation pay increases for public sector workers covered by pay review bodies.

Also speaking at the press conference, LPC chairman Paul Myners said that while the October 2007 increase is "more cautious" than those seen in recent years, he does not necessarily rule out a return to higher increases in future. He emphasised that no decision has yet been made on subsequent increases, and that these will be based on evidence available at the time of each annual LPC report.

Alistair Darling also announced that the Government will consult on the LPC's recommendation that a penalty should be introduced to apply to any employer found to have underpaid the minimum wage.

The Government said that it had chosen to reject the LPC's proposal that the adult NMW rate be extended to 21 year-olds, as this "would risk damaging their employment prospects."