The Impact of Other Labour Market Legislation

2.67 Pending employment legislation on bank holidays and age discrimination may impact on the wage costs of some firms, and therefore have implications for the appropriate level of future increases in the minimum wage beyond 2006.

Bank Holidays

2.68 The Government intends to extend statutory holiday entitlement to include bank holidays, thereby giving a typical full-time worker 28 days annual leave. At present, some employers include bank holidays as part of the annual leave entitlement. Thus, some full-time workers receive 20 days leave including the eight bank holidays. The Government has not yet announced a date for implementation or indicated whether it will be staged. It is our belief that the necessary arrangements are unlikely to have passed through Parliament and into law before we consider the minimum wage rates for 2007 and 2008 in early 2007. Although we are aware of the implications of this change, we have not therefore taken them into account in reviewing our recommendations for 2006. We will, however, need to review the situation before making any future recommendations for 2007 and beyond. The timing of the introduction of bank holiday entitlements and, in particular, whether those entitlements are phased over a number of years or introduced in one, may have implications for appropriate increases in the minimum wage over subsequent years.

Members of a hospitality association expressed concern that the new bank holidays legislation would have a huge impact when it is introduced. It was not just the additional pay bill but also finding the flexibility to cover the additional leave. This problem would be particularly acute for small firms.
Low Pay Commission visit to Llandudno

2.69 As regards impact, we have little additional information to that available at the time of our 2005 Report. We concluded then that the proposed change was unlikely to have such a large or widespread impact as to make our recommendations for 2005 and 2006 inappropriate. However, we also noted that some firms would be adversely affected and that the pace of introduction would determine the severity of the adjustment faced by these firms.

Age Discrimination Legislation

2.70 We stated in our 2005 Report that we would review our recommendations for October 2006 in the light of UK implementation of European Union wide age discrimination legislation. We noted that the ability to increase the adult rate by more than average earnings growth depended on the continued existence of the youth Development Rate. We stated that our recommendation of an adult rate of £5.35 rested in part on the assumption that UK implementation of the Equal Treatment Directive would allow employers continued straightforward use of the minimum wage youth rates.

2.71 Since publication of our last report in February 2005, we have monitored progress toward implementation of the age discrimination legislation. In July 2005 the Government initiated public consultation on its proposals on age discrimination. The exercise entitled 'Coming of Age' ended on 17 October 2005. Subject to Parliamentary approval, the legislation is scheduled to come into force on 1 October 2006.

2.72 In August 2005 we responded to the formal consultation on the draft Employment Equality (Age) Regulations 2006. We wrote:

• Commission's view is that the provisions of the age discrimination legislation should ensure that employers continue to be able to make routine and straightforward use of the age related rates of pay set out in National Minimum Wage legislation. To do this the regulations and the advice accompanying them need to be clear and explicit on the continuing legitimacy of the National Minimum Wage's age related provisions.'

2.73 In our response we pointed out what we regarded as a few ambiguities in the text, but we welcomed the overall thrust of the consultation paper. The Government's intentions appeared entirely consistent with the Commission's view. For example, the consultation documents explained that the draft regulations allowed for certain exemptions 'to ensure that the Age Regulations do not discourage employers from using the development rates of the NMW'.

2.74 In October 2005 the Commission made further representations to the Government prompted by consideration of the wider implications of the proposed legislation. We were concerned that a narrowly defined exemption for youth rates of pay might have unintended consequences and that the guidance about the extent of the exemptions proposed would need to be clear and unambiguous.

• Commission's long held view is that a lower minimum wage for younger workers is justified for reasons set out in detail in several previous reports. The Government has accepted that view and enshrined it in legislation. Whether employers who, while abiding by minimum wage regulations, pay young workers less than adult workers should be afforded the same protection as those employers who have a pay scheme that mirrors the NMW's age bands is, strictly speaking, outside the LPC's remit. However, it seems strange to treat a company that pays its workers an adult rate at 21 more harshly than a firm that makes its workers wait until they are 22.
• a reading of DTI consultation papers and associated guidance would be unlikely to alert companies in this position to the fact that they were likely to be affected by the new age regulations. The guidance needs to spell out more clearly that reward systems that determine pay according to age will not be covered by the NMW exemption unless they adhere to the NMW age profile.
• of the complications identified above could be resolved were the Government to adjust the age at which the youth Development Rate is payable from 18-21 to 18-20. As you know, this is a course of action that the Low Pay Commission has repeatedly recommended on other grounds....'

2.75 We understand that the Government will not be publishing the revised Age Regulations incorporating changes made as a result of consultation before this report is published. However, the Commission is satisfied that the Government remains committed to maintaining the youth Development Rate of the National Minimum Wage.

2.76 In our 2005 Report we also recommended a change in the upper age limit for the youth Development Rate from the 22^nd to the 21^st birthday. The Commission is disappointed to record that the Government has decided not to accept this recommendation.