Life rarely presents an opportunity to retrace your steps. I was Chairman of the Low Pay Commission for five years – from its foundation in 1997 until 2002 – and I am pleased to be back this year on an interim basis. Paul, now Lord, Myners, from whom I took over, was a committed and effective Chairman who left big shoes to fill when he departed to become Financial Services Secretary.
At its inception, the National Minimum Wage had its detractors. Many believed it would bring both unemployment and wage inflation. But a large volume of research has demonstrated that the minimum wage has not had a significant impact on either measure over its first ten years. The reality, as a newspaper headline once proclaimed, has been ‘minimum wage, minimum fuss’.
Having helped millions of workers through its first decade, the minimum wage now faces the challenge of its first recession. After ten years of continuous economic growth, in spring 2008 the economy stalled and GDP forecasts for this autumn are now down 5 percentage points on those of last year (from 2.1 per cent to -3.1 per cent). Employment is falling and unemployment is rising. And commentators are suggesting that this recession may turn out to be the most severe since World War II.
Although the economic times have changed, I have returned to find that the Low Pay Commission remains largely unchanged. It retains its strong, evidence-based approach. After ten years of econometric and qualitative research, comprehensive consultation, and data analysis, that evidence base is more detailed and robust than ever before. I strongly believe that this approach makes the Commission the right body to ensure that the minimum wage continues, in these extraordinary times, to provide a wage floor that protects low-paid workers but does not endanger the economy. Indeed, this year we asked to postpone the deadline by which we reported to the Government so that, without risking delay to the implementation of any rate change, we had as clear a picture as possible of the breadth and depth of the recession on which to base our recommendations.
On the basis of that picture, we concluded that we must be cautious. Our recommendations on the rates seek to protect the real earnings of low-paid workers, taking account of inflation forecasts, as well as their jobs, bearing in mind the difficulties faced by employers. After a finely balanced discussion, we unanimously agreed to recommend a modest increase in the National Minimum Wage for 2009 – a recommendation that we believe is economically sound, sustainable across low-paying sectors, and will broadly keep pace with the modest growth in pay settlements and average earnings forecast for the coming year.
Responsibility for next year’s programme of evidence gathering and research will fall to my successor, and I wish him well with what I am sure will be a challenging but rewarding tenure. I have certainly found it to be so in both my terms as Chairman of the Low Pay Commission.