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National Minimum Wage

Volume 401: debated on Wednesday 19 March 2003

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In June 2002 I asked the independent Low Pay Commission to produce their fourth report on the national minimum wage by the end of February 2003. I deliberately gave the Commission a wide remit so that they could come back with recommendations on any aspect of the minimum wage, including the levels of the adult and development rates.The Government is today publishing the Commission's fourth report and I would like to take this opportunity to thank the Chair of the Commission, Adair Turner, and its other members for their work on this very important issue.The Commission have put forward sixteen recommendations in total, but I regard five of these as key recommendations. The Commission have recommended increasing the adult rate of the minimum wage from the present £4.20 to £4.50 in October 2003, and to £4.85 in October 2004. They have recommended increasing the development rate from the present £3.60 to £3.80 in October 2003 and £4.10 in October 2004. They have also recommended that they should be invited to fine-tune the recommended October 2004 upratings of the rates in early 2004, in the light of economic circumstances.The Commission have found little or no evidence so far of any significant impact on the employment prospects of the low paid, and they believe that all the signs are that the minimum wage can now be increased as a percentage of average earnings benefiting more workers without producing damaging economic effects. The Commission have therefore proposed successive increases to the adult rate of around 7–8 per cent. in both 2003 and 2004—about double the present rate of average earnings. Between 1.3 to 1.6 million low-paid workers stand to benefit from the 2003 increases, and 1.7 to 2.5 million low-paid workers stand to benefit from the 2004 increases.The Government agrees with the broad approach followed by the Commission; namely that the minimum wage should be increased in order to help the low paid, while taking care not to damage their employment prospects. We are therefore pleased to accept the recommended rate increases for 2003 and also provisionally to accept the increases for 2004 subject, as the Commission proposes, to their further advice in early 2004 in the light of economic circumstances. The Commission have recommended that they be asked to consider the case for introducing a minimum wage rate for 16–17 year old workers and to report by February 2004, so that a rate could be introduced by October 2004.The Government agrees that this is a serious issue which merits further consideration. The Government will ask the Commission to look at the possible advantages and disadvantages of a minimum wage rate for 16 to 17 year olds in the context of a wider review looking at education and training policy, and the system of financial support for young people. The Commission will be asked to work closely with relevant Departments. The Government will draw up a formal remit for the Commission's work on this issue and the review of the proposed 2004 increases shortly, including the timing of their report.The fifth key recommendation from the Commission is that we should move 21 year old workers onto the adult rate. Unfortunately we are unable to accept this recommendation. Economic evidence continues to show that employment and unemployment rates for 21 year old workers are more in line with 18 to 20 year olds rather than older workers, and in some cases worse than those for 20 year olds. We therefore believe that there would be a real risk of further damaging their employment prospects if they were moved onto the adult rate.I have placed copies of this statement, the Report from the Low Pay Commission, the Government's full response to the Commission's recommendations and our Regulatory Impact Assessment in the Libraries of the House.