Introduction

Terms of Reference

1.1 In this report, like its predecessors, we review the impact of the National Minimum Wage, consider the economic outlook for the UK and weigh the available body of evidence before making a number of recommendations to the Government for the future.

1.2 Our terms of reference asked us 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; the effect on pay structures; and taking into account any forthcoming changes to the statutory annual leave entitlement;
• Review the levels of each of the different minimum wage rates and make recommendations for October 2008; and
• Contribute to Government consultations and reviews on major policy issues impacting the National Minimum Wage.

Responding to the recommendation in our 2007 Report that the Low Pay Commission be invited to review the apprentice exemptions, the Government told us that it thought it would be inappropriate for the Commission to review the apprentice and pre-apprentice exemptions as, at the time, it was consulting on plans to raise the participation age in education, which included plans to expand apprenticeships.

1.3 We were asked to report to the Prime Minister and the Secretary of State for Trade and Industry by the end of February 2008. In June 2007, as part of a series of changes to the machinery of Government, the newly created Department for Business, Enterprise and Regulatory Reform (BERR) assumed the responsibilities for the National Minimum Wage previously managed by the Department of Trade and Industry (DTI). Accordingly, we are now reporting to the Secretary of State for BERR.

Research

1.4 In order to inform our thinking for this report we commissioned two new research projects focusing on some of the key parts of our remit. One project investigated the impact of the October 2006 upratings, the other looked at the impact of the minimum wage on prices. In addition, we conducted two in-house projects. The first examined the changes in pay composition of the low paid since 1997; the second sought to understand some of the hidden complexities behind official data recording the number of workers paid below the adult rate of the minimum wage. Details of these research projects and a summary of the findings are set out in Appendix 2. We will shortly publish the research reports on our website (www.lowpay.gov.uk) and make them available in certain libraries.

1.5 We organised a research workshop in October 2007 which enabled the researchers working on these projects to share their emerging findings with each other and the Commission. Guest speakers were invited to give presentations and the Commission Secretariat presented some of its work on changes in pay composition.

Statistics

1.6 From the outset, our recommendations have been evidence-based. Accordingly, we place great store on our analyses of official data. It is with great regret, therefore, that we note that changes introduced during the course of the past year by the Office for National Statistics (ONS) have impaired our ability to conduct some of the analyses that we previously relied upon to monitor the impact of the minimum wage. We discuss these concerns in more detail in Chapter 2.

Visits

1.7 Meeting those directly affected by the minimum wage is a crucial part of the Commission’s preparations for making recommendations to the Government. In 2007 our programme of visits focused on the low-paying sectors and we talked with representatives from organisations both large and small. We held meetings with some firms and a range of associations that represent firms in the sectors most affected by the minimum wage. We also met union officials and other individuals who represent those working in low-paying jobs. We travelled to a number of different urban and rural areas of England and to Belfast in Northern Ireland; Aviemore in Scotland; and Cardiff in Wales.

Consultation

1.8 In addition to our visits, we have consulted widely during the preparation of this report, especially throughout the low-paying sectors. We undertook a written consultation exercise between July and October. We used our extensive mailing list and website to reach interested parties and encouraged individuals, firms and organisations to submit their evidence to us. We received over 60 written submissions from employer organisations, trade associations, unions, voluntary organisations, pressure groups, individuals, academics and the Government.

1.9 We also held two day-long sessions to gather oral evidence from key interested groups. This gave an opportunity for a number of important stakeholders to expand on points they had made in written evidence. At the oral evidence sessions we discussed the evidence presented by the CBI, the TUC, and delegations representing key low-paying sectors including hospitality, retail, social care, cleaning and support sectors as well as a group of young people.

1.10 Additionally, the Secretariat met with many other interested organisations throughout the year.

Timing

1.11 We met over two days in mid-January 2008 to review all of the relevant evidence and to agree the recommendations contained in this report.

Conclusion

1.12 In conclusion, we would like to record our gratitude to the wide range of organisations and individuals who made time to write or speak to us in order to pass on their views, comments and advice. Their efforts have made an important contribution to our work and have informed our recommendations. The evidence they have produced has helped to make this report better informed and more relevant. The lists of organisations we visited and of those that provided written submissions and gave oral evidence are set out in Appendix 1.