In October 2004 a minimum wage for 16-17 year olds was introduced to prevent the exploitation of young people in very low-paid jobs providing minimal training and few development prospects. The data and evidence we have gathered indicate that the introduction of this minimum has not encouraged young people out of full-time education (FTE) or training, nor has it damaged their prospects in the labour market.

The labour market position for 16-17 year olds not in FTE has been weakening over a number of years, and we are concerned by the rise in the number that are not in education, employment or training. We do not believe, however, that the minimum wage has been a factor in this development, rather that the trends that were apparent prior to its introduction have continued.

We have no doubt that there continues to be a need to protect the position of 16 and 17 year olds in the labour market and we believe that to do this it remains appropriate to have a separate minimum wage rate set at a lower level than that for older workers. We see the main purpose of the 16-17 year old minimum wage as providing a wage floor to prevent exploitation, but we want to guard against the risk that young people may feel disillusioned with the world of work due to very low wages. We recommend, therefore, that the minimum wage for 16-17 year olds be increased to £3.30 per hour from October 2006. In arriving at this recommendation, we took account of the absence of any uprating in October 2005. We recommend that future reviews of the 16-17 year old rate be carried out in line with the timing of the reviews of the rates for older workers.

We also reviewed the use of the older workers' Development Rate and the 12 months exemption for apprentices under the age of 26. It was evident that the Development Rate remains little used and that it would be difficult to justify objectively an age limit on the apprenticeship exemption given forthcoming legislation to outlaw discrimination on the grounds of age. We believe, therefore, that the evidence is strongly in favour of abolishing the older workers' Development Rate and, simultaneously, of extending the 12 months apprenticeship exemption to cover all apprentices aged 19 and over. We submitted our findings to a review of these matters carried out by the Government in late 2005.

We also considered the other apprenticeship exemptions currently in place, but came to the view that it was too soon for a full-scale review. Instead, we recommend that the Government invite the Commission to carry out a full review of the apprenticeship exemptions and report in 2008.

Introduction

3.1 A statutory minimum wage for 16-17 year olds was introduced in October 2004 in line with the recommendation in our 2004 Report. It applies to those below age 18 but above compulsory school age. In our 2005 Report, we decided against recommending any increase to the 16-17 year old rate due to the lack of evidence on its initial impact. Accordingly, it has remained at its introductory level of £3.00 per hour. At our suggestion, the Government invited us to review the operation of the 16-17 year old rate and report in February 2006, with recommendations suitably adjusted to take account of the absence of any uprating in 2005.

3.2 In our 2004 Report we re-examined the case for 16-17 year olds to be provided with the protection of a minimum wage. We had previously recommended that 16-17 year olds should not be entitled to a statutory minimum wage as we considered that this age group formed a distinct segment of the labour market. We took the view that 16-17 year olds should be strongly encouraged to remain in education or training at least until the age of 18 and therefore should not be regarded as fully participating in the labour market. While we still believed this to be the case, the evidence gathered for our 2004 Report indicated that a number of full-time jobs for this age group offered extremely low rates of pay while providing minimal training and few development prospects. In the light of evidence of this kind of exploitation, we felt it appropriate to recommend the introduction of a minimum wage for 16-17 year olds from October 2004.

3.3 The introductory rate for the 16-17 year old minimum wage was set cautiously and well below that of the youth Development Rate. Our aim was to strike a balance between stopping exploitation and avoiding any action that might encourage young people out of education or training to the detriment of their longer-term prospects. In recommending the introduction of the £3.00 minimum wage rate, we noted that it should be reviewed periodically, but said that we saw no reason to link its level to increases in the youth Development Rate.

3.4 In our 2005 Report, we reviewed the minimum wage exemptions covering apprenticeships and accredited training, focusing in particular on the older workers' Development Rate and the 12 months minimum wage exemption for apprentices aged 19 or over, but under the age of 26. These exemptions were two of the measures put in place when the minimum wage was introduced in 1999 to ensure that it was sufficiently adaptable to encourage employers to increase the provision and quality of training opportunities.

3.5 However, we have questioned the value of the older workers' Development Rate over recent years as all the evidence suggests it is little used. We have also questioned the appropriateness of the current 'below age 26' threshold which applies to the 12 months apprenticeship exemption in the light of the Equal Treatment Directive (2000/78/EC) due to be implemented in the UK in 2006. The legislation will outlaw discrimination at work on the grounds of age. This led us to the provisional conclusion that the older workers' Development Rate should be abolished from October 2006, and that, simultaneously, the 12 months exemption from the minimum wage should be extended to cover all apprentices aged 19 and over, with no upper age threshold.

3.6 We are pleased that the Government has acted upon our provisional conclusion by carrying out its own review of these exemptions to the minimum wage, working closely with us, in good time for both issues to be addressed appropriately in the context of the forthcoming Equal Treatment Directive legislation.

3.7 In this Chapter we look first at the operation of the 16-17 year old minimum wage. We consider the impact of its introduction, looking at participation in education and the labour market performance of this age group. We review the impact on earnings and estimate the number of beneficiaries of the £3.00 minimum wage rate. We then consider the views of stakeholders on the introduction of the rate and on its future level. We conclude with our recommendation on the uprating of the 16-17 year old rate for October 2006.

3.8 We then focus on developments in relation to the older workers' Development Rate and the 12 months minimum wage exemption for apprentices. We outline the background to the exemptions, stakeholders' views and the current status of these exemptions following the Government's review. Lastly, we examine other trainees and consider the case for a full review of the minimum wage exemptions that apply to them.