When the National Minimum Wage was introduced in April 1999 the adult rate was set at the deliberately cautious level of £3.60 an hour. About a million low-paid workers benefited. Since then the Low Pay Commission has overseen a gradual increase in the minimum wage relative to the growth in average earnings with no significant adverse effects on employment or inflation.

While the increases in the minimum wage have not outstripped or even kept pace with the increases of the highest paid, it is worth pointing out that, historically, the wages of the lowest paid have rarely kept pace with average wages. In the years immediately before the minimum wage, for example, the relative position of the lowest paid suffered by comparison with those of everyone else.

The improvement in the position of the lowest paid since the minimum wage was introduced is in part due to the work of the Low Pay Commission under the chairmanship of my predecessors, Lord Turner and Sir George Bain. Under their leadership the Commission made great progress in establishing the minimum wage as an accepted part of the UK labour market. As importantly in my view, they also established a way of working within the Commission based on partnership, openness and a respect for evidence. This approach, together with mutual respect for the positions of different Commissioners and a willingness to work towards consensus, has underpinned the successful working of the Commission to date. In my first year as chairman I have been impressed by the way in which Commissioners have worked together, with the importance attached to backing up opinion or hypothesis with evidence and with the collective appreciation of the importance of consensus. I am pleased, if a little daunted, to be following two chairmen with such excellent records. I will try to do as well.

This year sees the retirement from the Low Pay Commission of six Commissioners, four of whom have been members of the Commission since it was first established in July 1997. These four ­ Willy Brown, John Cridland, Paul Gates and David Metcalf ­ have made an immense contribution to the Commission and therefore to improving the pay of the lowest paid. They depart from the Commission with our gratitude and respect. Also leaving are Angie Risley and Ian Brinkley, both of whom have made a real and lasting contribution.

This year we have been deliberately cautious. We do not make recommendations two years in advance: we confine ourselves to recommendations for uprating the minimum wage in October 2007, offering only a general indication of what is likely to be recommended in 2008. Moreover, we recommend an increase for October 2007 that is slightly below the expected increase in average earnings ­ the first such recommendation since 2002. In the light of the available evidence this prudent approach seems to me entirely appropriate and in the best long term interests of the National Minimum Wage and those affected by it.

Our cautious approach this year should not be taken as a signal that the minimum wage is too high. After four years of substantial increase, this year the evidence pointed to the need for moderation. Next year that might change, or the need for caution might be even stronger. Either way, I am determined that, under my chairmanship, the Commission will continue to be evidence-driven.

Although our recommendation is cautious, taking into account this year's recommended increase the minimum wage will have risen by more than 53 per cent since its introduction in April 1999. During the same period, average wages are expected to have gone up by 41 per cent.

The minimum wage has improved the pay of low earners and helped narrow the gender pay gap without significant adverse effects on business or jobs. That success reflects the commitment of Commission members and the input of our stakeholders. I am grateful to have been able to work with and learn from the six Commissioners who are leaving this year. I am also grateful to the Commission secretariat for their dedicated and professional approach. I am looking forward to working with them and with the substantially changed Commission in the coming year.

February 2007