National Minimum Wage

August 14, 2019 2:38 pm Published by

The National Minimum Wage was revolutionary when it started out in 1999.  It was a flagship policy of the Labour Party in its successful 1997 election campaign.  No national minimum wage (NMW) had existed before this, though there were some wage controls on specific industries.  The post-Thatcher reduction in Trade Union membership had weakened employee’s bargaining power and the NMW aim was to give minimum rights to vulnerable employees.

The NMW regime is now 20 years old.   When it came into force in April 1999 the minimum was £3 per hour for 18 – 21 year olds, and £3.60 per hour for 22+ year olds.  It has kept rising ever since, based each year on recommendations from the Low Pay Commission.

The overall aim of the NMW project was to remove pay poverty by moving minimum wages gradually upwards, but without adverse effect on the general economy and rates of employment.  The objective is that adult workers will be on 60% of median national earnings and it is on track for success by 2020.

The Low Pay Commission’s yearly recommendation steers towards the NMW objective and, based on Bank of England and Treasury forecasts, takes into account such factors as national wage growth, inflation and levels of unemployment.  Very relevant at present is the low unemployment rate, only 4% and the lowest since 1970.  There are now several different minimum pay rates, to cater for the balanced objectives according to age and the encouragement of training.

The pay level for 16-17 year olds is particularly sensitive, because the main objective is to get them into work.  They are the most vulnerable age group in the labour market due to their relative lack of experience.  That is why the level for them is low, at £4.35 per hour  – viable provided they are still living at home!

The Apprenticeship Rate was an addition in 2010, which started at £2.50 and is now £3.90.

The level for those aged 25+ is now called the National Living Wage, since George Osborne adopted it in 2016, giving the increase and stealing Labour’s clothes, after the Labour election promise to raise the NMW to the higher Living Wage rate of pay.

How have employers managed repeated enforced wage rises?  Research suggests that employers have coped better with national minimum wage increases than originally anticipated.  With each rise in the NMW/NLW, more employers are affected as it rises to catch up with their wage levels, now affecting one employee in nine.  This of course leads to greater costs, which have to be absorbed through lower profits, raised prices or savings made elsewhere.

The latest resolve by the Low Pay Commission is to continue on the move up to the 60% mark by next year, 2020, a benchmark of achievement of the original 1999 NMW objectives regarding relative minimum wages for low paid workers, though this will need to be sustained.  It is interesting that this final year coincides with the topical concern for fair wages for all in the supply chain for food, fashion and everything else we consume.  Perhaps the badge of fair wages in the UK will help support the classy, ethical British brand as we look to new post-Brexit markets.

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This post was written by Frances Barker