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7. Conclusion >>Back to main report index The National Minimum Wage has an important place in the labour market and makes a difference to the living standards of many workers. Its impact must be kept under review. The Low Pay Commission's work would be assisted by standing terms of reference that enable us to plan a strategic, longer-term programme of research. We believe that our recommendations will help ensure the continuing effectiveness of the minimum wage, both in the immediate future and the longer term. 7.1 In the first volume of this report we concluded that the implementation of the National Minimum Wage has been a success: it has benefited many workers without damaging the economy. In particular, it has been generally manageable across low-paying sectors and has helped low-paid workers. In this volume, as well as looking at the impact of the National Minimum Wage, we demonstrate that the other aspects of the minimum wage have also worked well and consider the next steps in its development. 7.2 The National Minimum Wage has provided a significant increase in the incomes of young people, without any negative impact on their employment. Indeed, employment of young people has continued to grow since the introduction of the minimum wage. 7.3 We are concerned about the inequity of a lower rate for young people. Our longer-term aspiration remains that any lower rate should be linked to training rather than age. But we are also concerned about the possible negative effects on young people's employment prospects if we recommend the immediate abolition of the young persons' Development Rate. We have therefore concluded that it would be prudent to take a progressive approach to lowering the age at which the main rate applies. We propose to look at this issue over time. Most importantly, we shall examine the condition of the labour market to determine when we can safely recommend that the age at which the main rate applies could be lowered without having a detrimental impact on young people's employment. With this in mind, we do not consider it appropriate at this stage to recommend that young people receive the main rate. But the vast majority of employers treat 21 year olds in line with other adult workers. And the lowest decile pay of 21 year olds, and their pay in new jobs is closer to that of older than younger workers. Excluding them from the main rate appears illogical to employers and employees alike, since labour market practice predominantly recognises 21 year olds as adults. We believe that 21 year olds should receive the main rate and we are confident that this change would not have any adverse impact on their employment. We will keep the age coverage of the Development Rate under review in our future work. 7.4 Although firms' take-up of the Development Rate for older workers has been low so far, this could improve as employer awareness of the facility, which is also currently low, increases and as employers adapt to increases in the main rate of the National Minimum Wage over time. We will need to keep the usefulness and relevance of the Development Rate for older workers under review. 7.5 The level of the Development Rate has protected employment and training without any discernible negative impact on incentives to work. We have therefore concluded that the Development Rate, both for young people and for older workers, should broadly maintain its relative value and rise in line with the main rate. We estimate that at least 115,000 young people aged 18—20 will benefit from our recommendation and the impact on the cohort wage bill for this age group should be no more than 0.81 per cent. 7.6 We believe that the current exemption of 16 and 17 year olds from the National Minimum Wage is justified on the grounds that they should not be seen as full participants in the labour market. We are concerned, however, about possible substitution effects and the very low rates of pay which some 16 and 17 year olds receive. But we believe that a longer period is needed before we can assess whether or not there have been significant unintended effects from the exemption of 16 and 17 year olds, and whether or not there is a case for extending some kind of minimum wage protection to this age group. We believe that the Commission should look at this issue in the future. 7.7 We are pleased that evidence and research indicate that the vast majority of employers comply with the National Minimum Wage. The enforcement system is generally working well, but we were told that some workers continue to be underpaid. We welcome the proactive enforcement work by the Inland Revenue. We consider that the effectiveness of enforcement could be increased still further by giving more publicity to the enforcement service and to successful enforcement action, using other government compliance initiatives to promote compliance with the minimum wage, and co-ordinating more closely the work of the Inland Revenue and ACAS. 7.8 We considered the impact of the minimum wage on income distribution, poverty and work incentives. The minimum wage has contributed to a narrowing of the earnings distribution, and has increased the incomes of the lowest paid. We have always recognised that the minimum wage should be considered in the light of other measures to make work pay, such as the tax and benefits system. We are pleased that the minimum wage has had a positive effect on take-home incomes and has contributed to an improvement in the financial incentive to work for the unemployed. In general, the minimum wage provides an effective underpinning of the tax and benefits system and helps to prevent the system being misused to subsidise exploitative wages. 7.9 We looked carefully at evidence on the definitions of workers, working time and pay. We gave close attention to the impact of the National Minimum Wage Regulations on disabled workers and the voluntary sector. We concluded that although there are still some issues of concern to employers and employees, overall the definition of the minimum wage adopted in the Regulations has continued to work well. And we have recommended an increase in the maximum accommodation offset in line with increases in the main rate since the introduction of the minimum wage. 7.10 We believe that the National Minimum Wage must be reviewed regularly if its benefits are to be maintained. The National Minimum Wage is at an early stage in its development and more needs to be learned about its impact. We need to be able to consider a comprehensive range of factors in future reviews and to have long enough between them to conduct the necessary research, consultation and analysis. And businesses and workers need adequate notice of changes to ensure effective communication and implementation. We have therefore recommended that the minimum wage should be reviewed regularly taking account of research and data on its impact, consultation, and analysis of a comprehensive range of factors. These reviews should take place every two years, with the Commission reporting in February for implementation of any changes the following October. 7.11 We have made significant use of short-term research in our reports to date, but at this stage in the development of the minimum wage we consider it necessary to be able to make longer-term plans. As we said in our second report, it will be several years before we can make a full assessment of the impact of the minimum wage. Even though we have recommended biennial reviews and reports, continuous research and monitoring is necessary to support such regular reviews. We need to track the impact of the minimum wage on the whole economy, low-paying sectors, young people, training and vulnerable groups, and compare developments over the longer term. 7.12 The Government has said that it will now make the Low Pay Commission a permanent body. We welcome this. The work of the Commission would be enhanced if it were given standing terms of reference that would enable a strategic, longer-term programme of research to be established. We do not propose that the Commission should report as a matter of routine between reviews, although we recognise that the Government may, as it has done in the past, ask us to conduct special reviews if the need arises. 7.13 In this volume we have addressed a range of sometimes complex and often challenging issues that have an impact on business competitiveness and workers' incomes. But we have kept our recommendations simple and straightforward. Once again there is a unanimous view that the Commission's recommendations are bold enough to make a difference, but prudent enough not to have an adverse effect on employment or the economy. | |
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7.14 This second volume completes our third report, a coherent package of analysis and recommendations on the next steps for the development of the National Minimum Wage. Its introduction has been a historic labour market intervention and it has now been widely accepted, even by many who initially opposed it. The co-operation between employers and workers, and their representatives, in making a success of the minimum wage should not be underestimated. In doing so, they have made a reality out of a commitment to partnership. We are confident that this positive and enlightened approach will help ensure the continuing effectiveness of the minimum wage, both in the immediate future and in the longer term. | |
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