Stakeholders' Views

2.47 In the Autumn of 2005, we conducted a written consultation exercise asking a selection of interested parties to send us their views on the state of the economy and whether there had been sufficient change since the 2005 Report to warrant a revision to our recommended rates for 2006. We asked them to focus on sectoral data and other information that would not otherwise be available to us.

'Before the minimum wage was introduced, employers warned of dire consequences, none of which happened. Now the LPC must stand firm.... The views of employers, who are unable to put the brakes on their own boardroom pay and pensions, should carry little weight with the Commission.'

TUC evidence

2.48 Not surprisingly, the responses were mixed. Trade unions, on the whole, believed that the proposed October 2006 increases could be absorbed without harmful effects to the economy. In general, they emphasised the strength of the labour market in their arguments. The TUC argued that although the economy was growing more slowly than in recent years, there was no sign of recession. It also noted that the recent slowdown had not adversely affected profits. The Union of Shop, Distributive and Allied Workers (Usdaw) pointed out that, despite the downturn on the high street, employment in retail had actually increased since October 2004. It argued that aggressive competition in retail was responsible for some of the sector's difficulties, although it conceded that there had been a decline in the growth of consumer spending.

'The CBI is concerned that in the worst case scenario, for those companies whose profits will be particularly squeezed by the proposed NMW increase, ...companies would cut back on employment in order to save costs, and those employed at the minimum wage would probably be the first to suffer job losses.'

CBI evidence

2.49 In contrast, employers' groups emphasised the downturn in the economy and the impact this was having on particular sectors, especially those in the consumer-related service sector. In general, they did not support the proposed increase and called for it to be reduced or at least delayed. Most employer organisations stressed the adverse impact of increased costs on businesses, particularly those arising from energy use and business rates. The CBI warned that we should be very cautious in proceeding with an above-average earnings increase in the minimum wage. It concentrated its arguments on the lower forecasts for growth in 2005 and 2006; the level of profits and how these were below those normally expected at this point in the business cycle; the performance of the consumer-related service sector; and increases in non-labour input costs.

2.50 The BRC concentrated on the downturn in the retail sector and the inability of retailers to raise prices despite a backdrop of increased labour and non-labour costs. The Association of Convenience Stores also drew on these issues but emphasised the potential impact of other legislation, in particular the proposed extension to statutory annual leave entitlement and the possible introduction of compulsory employer pension contributions, and argued that these be taken into account when reviewing the rates. BUPA Care Services also picked up on this theme, emphasising the burden of increasing paid holiday entitlement, along with higher energy costs and the inability to pass on many of its costs to its customers. Manufacturers, on the other hand, tended to stress the impact of the minimum wage on differentials and incentive pay systems.

A manager of a small general store commented, "In general, I'm not hostile to the minimum wage but I have struggled to cope with the most recent annual upratings. The business faced labour shortages a few years ago for the first time, which led to pressure on wages. Although I think that wages would have risen anyway, the minimum wage has begun to have a huge impact on pay differentials and staffing levels. I am particularly concerned about how far it will rise in the future."
Low Pay Commission visit to Lincolnshire

2.51 The Government stressed how successful the National Minimum Wage had been. It noted that output had slowed, reflecting a decline in housing market activity and consumer spending as a result of interest rate rises earlier in the year. The Bank of England has also noted (for example, in its November 2005 Inflation Report) that discretionary spending had reduced due to increases in taxation and utility bills, as well as fuel prices.

2.52 The Government noted that, despite the slowdown, profits remained fairly strong and the labour market robust. Unemployment had risen marginally and earnings had been broadly stable. It noted that the bite of the minimum wage (its level relative to average earnings) had increased, but that coverage remained at around 5 per cent of all jobs. In international comparisons of minimum wages relative to average wages, the UK minimum wage was roughly in the middle. The Government found little adverse impact of the minimum wage on the low-paying sectors.