Introduction

In our remit for this report the Government asked us to monitor and evaluate the impact of the minimum wage and to consider its effect on different groups of workers. In this introductory chapter we explain how we set about fulfilling that remit and we describe the different parts of our work programme that have contributed to our conclusions and recommendations.

For this report we commissioned 11 research projects and carried out a survey of firms in low-paying sectors. We analysed data produced by the Office for National Statistics to establish better estimates of the incidence of low pay and to give us a greater appreciation of the sectors and the groups of people involved. We also used Office for National Statistics data to analyse the impact of the minimum wage on earnings, employment and other economic variables, and to estimate the likely impact of the Government's decision to increase statutory annual leave entitlement.

Consultation with employers, workers and their representatives continued to be an essential part of our work. We took written and oral evidence from a wide range of organisations and made visits throughout the UK to listen to the views of those affected by the minimum wage.

Background

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1.1 This report builds on previous reports and reflects on the impact of the minimum wage since its introduction in April 1999. In our 2006 Report, having considered relevant data and research findings and consulted widely, we acknowledged that the phase in which we were committed, as a matter of principle, to increases in the minimum wage above the average increase in earnings was over. We indicated that, when making recommendations on uprating the minimum wage for October 2007, we would start with no presumption that further increases above the growth in average earnings were required.

Terms of Reference

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1.2 Our terms of reference from the Government in June 2006 asked us to:

'continue 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; the effect on pay structures; and taking into account the forthcoming changes to the statutory annual leave entitlement.'

1.3 We were asked to report to the Prime Minister and Secretary of State for Trade and Industry by the end of February 2007.

Research

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1.4 For this report we commissioned 11 research projects through an open tendering exercise to focus on key parts of our remit and to help us arrive at our recommendations. Our research programme adds significant value to our understanding of the minimum wage and its workings. This year we sought to gain a better understanding of a number of issues, such as the movement of workers in and out of minimum wage employment, differential consumption patterns among minimum wage households relative to others, the impact of migrants on the British labour market and the enforcement of the minimum wage.

¹ The British Library, London School of Economics, Cambridge University, University of Oxford, Bodleian Library, London Metropolitan University, University of Warwick, National Library of Scotland, National Library of Wales, Queen's University Belfast and Trinity College Dublin.

1.5 We organised a research workshop in September 2006, which enabled many of the researchers to share their emerging findings with us and each other. A full list of the research projects and a summary of the findings is set out in Appendix 2. We will publish the research reports on our website (www.lowpay.gov.uk) and make them available for study in certain libraries¹.

Analysis

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1.6 We have continued to work closely with the Office for National Statistics (ONS) in order to improve the provision and reliability of data on earnings and employment. We are pleased to note that the ONS has produced a consistent earnings series, the Annual Survey of Hours and Earnings (ASHE) including supplementary information, for 2004­2006. It has also extended the ASHE series excluding supplementary data to cover 1997­2004. We are also grateful to the ONS for its work in improving the earnings data available from the Labour Force Survey (LFS), work which has informed our analyses of those with disabilities and ethnic minority groups.

1.7 In the last year, the LFS has moved from seasonal to calendar quarters. We have worked closely with the ONS to try to mitigate the impact of this discontinuity on our analyses. We are pleased to note that the ONS intends, from next Summer, to complete a back series of LFS calendar quarters. Although the change is too late for this report, it should enhance future reports. Changes to both the ASHE and LFS data series are set out in greater detail in Appendix 6.

1.8 We examined available ONS data relevant to the Government's decision to increase statutory entitlement to annual leave and we were given access to the outcome of separate surveys conducted by the Department of Trade and Industry to supplement this information. We also considered, with help from HM Treasury, the interaction of the minimum wage with the tax and benefits system. We continued to take a close interest in the implementation of legislation outlawing discrimination at work on grounds of age. We have also carried out a careful analysis of the coverage of the National Minimum Wage.

Employers' Survey

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1.9 As in the past, we conducted a postal survey of employers in low-paying sectors to assess the impact of the previous year's upratings of the minimum wage. We had some reservations about conducting the survey given that previous surveys had not provided a representative sample. However, we decided to go ahead as we felt that the survey could provide an insight into the effect of the October 2005 upratings on those businesses for which the minimum wage has had particular impact. It would also enable us to compare the views expressed with those of previous surveys and provide a useful medium to elicit views from employers on the likely impact of the increased entitlement to annual leave.

1.10 Following a competitive tendering exercise, GfK NOP was appointed to administer the survey. During the Summer of 2006 questionnaires were sent to over 33,000 businesses in 11 low-paying sectors throughout the UK. The survey achieved a 13 per cent response rate. We are grateful to those businesses that took the time to complete the questionnaires. Further information about the survey and details of the results are set out in Appendix 3.

Consultation

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1.11 In preparing this report and the recommendations it contains, we have consulted widely. These consultations have involved individuals, businesses and representatives from each of the low-paying sectors and they have continued to enhance our understanding of the concerns raised.

1.12 The written consultation exercise began in June. We encouraged individuals, firms and organisations to submit their evidence to us. We received over 90 written responses from employer organisations, trade associations, unions, voluntary organisations, pressure groups, academics and the Government.

1.13 We also held oral evidence sessions over two days, which gave a number of organisations the opportunity to expand on points they had made in their written evidence. They included the CBI, the TUC, the YWCA and delegations representing employers and workers in the low-paying sectors, including the hospitality, retail and cleaning sectors. We found these sessions informative and productive.

Visits

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1.14 As part of our monitoring of the impact of the minimum wage and as part of our programme of consultation, we are always keen to hear first hand the views of groups with an interest in the minimum wage. We want to know how it is affecting them. Our programme of visits focused on the low-paying sectors and we met representatives from small, medium-sized and large firms, as well as trade bodies and representatives from a variety of voluntary organisations, local authorities and unions representing workers in these sectors. We also met a number of workers. We had the opportunity to visit a range of urban and rural areas of England including Birmingham, Cornwall, Hull, Leicester, London, and Norfolk. We also had meetings in Belfast in Northern Ireland; Glasgow, Greenock, Fort William and Perth in Scotland; and Swansea in Wales. We are grateful to all of those who assisted us with these visits.

Conclusion

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1.15 Finally, we would like to emphasise again our gratitude to the many organisations and individuals who have shared their views with us over the course of the past two years. Their contributions have proved extremely valuable.