During the first decade of the National Minimum Wage the UK enjoyed a period of continuous economic growth. That period came to an abrupt end in 2008, when we entered what we now know to be the longest and deepest recession since World War II, with a total loss of output of around 6 per cent. In the face of that recession, the Low Pay Commission, ably steered by my predecessor Professor Sir George Bain, recommended a cautious increase to the minimum wage from October 2009, which sought to protect both the real earnings of low-paid workers and their jobs.

Over the last year, the labour market in general has proved more resilient than forecast, but we have still seen large falls in employment and increases in unemployment. The low-paying sectors have held up better than the economy as a whole, but the impact has varied significantly. Social care, childcare and hairdressing have all seen an increase in employment, but the majority of job losses in the low-paying sectors fell in the two largest sectors: retail and hospitality. The last year has also seen major changes in the compliance and enforcement regime, with the introduction of a new system of penalties and fair arrears.

As we look ahead, the outlook for the economy seems more than usually uncertain. It seems the UK economy is on track for recovery, but the speed and strength of that recovery are unclear. I believe that our recommendations are appropriate in these uncertain times, balancing as they do the needs of low-paid workers against the challenges that remain for businesses. This year, the Commission has paid particular attention to the vulnerability of young people in the labour market. This group has been affected more than any other in the recession, continuing a long-term downward trend in their labour market prospects. Our recommendations reflect that vulnerability and we are commissioning new research to better understand the forces at play. Also with a focus on young people, we have, for the first time, made recommendations for an apprentice rate within the National Minimum Wage framework.

My first year at the Low Pay Commission has been eventful and interesting. I am grateful to all of the organisations, individuals and businesses who have taken time to send us their views or to meet us on our programme of visits. This real-life evidence on the impact of the minimum wage is a core part of our work. I look forward to continuing the Commission’s work next year.

David Norgrove
February 2010