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National Minimum Wage

Volume 699: debated on Wednesday 5 March 2008

My right honourable friend the Secretary of State for Business Enterprise and Regulatory Reform (John Hutton) has made the following Written Ministerial Statement.

In June 2007 the Government asked the Low Pay Commission to produce its next report on the national minimum wage by the end of February 2008. The Government are today publishing the commission’s 2008 report. I would like to thank all the commissioners for their hard work. I would also like to take this opportunity to publish the terms of reference which Government are setting the commission for the coming year.

The Low Pay Commission’s 2008 report

The main recommendations put forward by the commission concern the rates of the minimum wage. The commission has recommended the adult hourly rate of the minimum wage should be increased from £5.52 to £5.73 in October 2008. The commission has recommended increasing the development rate, which covers workers aged 18-21, from the present £4.60 to £4.77 in October 2008, and the 16-17 year-old rate from £3.40 to £3.53, again from October 2008. The commission has also recommended the accommodation offset should rise from £4.30 per day to £4.46 from October 2008.

In addition, the Government accept the commission’s recommendation that we should review the existing guidance on sleepovers and update guidance on work experience placements in the detailed guide to the minimum wage; and the commission’s recommendation that the Government evaluate whether the fair piece rates arrangement is meeting its objective.

The Government note the commission’s recommendation that the Government should take steps to reverse the cuts to the sample of the Annual Survey of Hours and Earnings and prevent further erosion of the quality of the key data provided by the Office for National Statistics.

The Government reject the recommendation that we should move 21 year-old workers on to the adult rate.

Government’s response to individual recommendations in the Low Pay Commission’s 2008 Report:

National Minimum Wage Rates

We recommend that the adult rate of the minimum wage should be increased from £5.52 to £5.73 in October 2008.

We recommend that the youth development rate should increase from £4.45 to £4.77 and the 16-17 year-old rate should increase from £3.30 to £3.53 in October 2008.

Accept.

21 Year-olds

We recommend again that 21 year-olds should be entitled to the adult rate of the national minimum wage. Should the Government maintain their opposition to this proposal, we would welcome an indication of the exact nature of their opposition and a specification of what would need to change for the Government to adopt a positive approach to this recommendation.

Reject. The Government believe that the “bite” of the minimum wage—the minimum wage as a per cent of median wages—is a better guide than the employment level in determining the likelihood of any adverse impact from this policy change. While only around 10 per cent of 21 year-olds are paid below the adult national minimum wage, the “bite” is very high for 21 year-olds and would increase to almost 89 per cent if 21 year-olds were moved to the adult rate (compared to 77 per cent and 79 per cent for 20 and 22 year-olds respectively). This raises the concerns that the higher bite would increase the risk of:

employers substituting 21 year-olds for more experienced or cheaper younger workers and reducing employment rates;

scarring effects from being out of the labour market when young, given the impact will be greatest on the most vulnerable 21 year-olds—these effects can have lifelong consequences in terms of higher probability of worklessness and lower earnings power; and

reducing investment in education and training by making work more attractive to those 20 per cent of 21 year-olds with level 2 qualifications or below who are currently engaged in some sort of education or training.

The Data

We recommend that the Government take steps to reverse the cuts to the sample of the Annual Survey of Hours and Earnings and prevent further erosion of the quality of the key data provided by the Office for National Statistics.

Note—We recognise the value of good quality data. The ONS will be replaced by the independent UK Statistics Authority (UKSA) from 1 April 2008. We will meet with UKSA and other interested parties to discuss this matter.

Accommodation Offset

We recommend that the value of the accommodation offset should rise from £4.30 per day to £4.46 per day from October 2008.

Accept.

Guidance

We recommend that the Government review the existing official guidance on sleepovers as soon as practicable and update the material concerning work experience placements in the official guide to the minimum wage

Accept.

Fair Piece Rates

We recommend that the Government take stock and evaluate whether the fair piece rates arrangement is meeting its objectives.

Accept.

The Low Pay Commission Terms of Reference for 2008-09

The Low Pay Commission is asked to:

monitor, evaluate and review the national minimum wage and its impact, with particular reference to the effect on pay, employment and competitiveness in the low-paying sectors and small firms; the effect on different groups of workers, including different age groups, ethnic minorities, women and people with disabilities and migrant workers and the effect on pay structures;

review the levels of each of the different minimum wage rates and make recommendations for October 2009. The commission is also asked to make provisional rate recommendations as appropriate for October 2010;

review the current apprentice exemptions and advise whether they are still appropriate. The commission is asked to bear in mind the Government’s ambition to increase the number of apprentices to 500,000 and the need to ensure that sufficient employed places are available when the education participation age is raised in 2013; and

report to the Prime Minister and Secretary of State for Business Enterprise and Regulatory Reform by the end of February 2009.

Copies of this Statement, the report from the Low Pay Commission and the Government’s individual response to the commission’s recommendations have been placed in the House Libraries.