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Executive Summary >>Back to main report index Chapter 1: Introduction 1. In response to representations that business needed as much notice as possible of forthcoming changes to the National Minimum Wage, we announced in January 2001 that we would submit our third report early to the Government in two volumes. This second volume addresses a number of important aspects of the minimum wage, including its treatment of young people and training, its impact on incomes, implementation issues, the accommodation offset, compliance and enforcement, and the future review process. Our conclusions and recommendations on these matters continue to be based on wide-ranging consultation and analysis. Chapter 2: Young People and Training 2. Young people have benefited from the National Minimum Wage without any discernible negative impact on their employment. There is also no evidence of any adverse impact on the New Deal, on apprentices or on training provided by employers. An age-related Development Rate for young adults lacks equity and our longer-term aim remains to link the Development Rate to accredited training rather than age. To achieve this without risking an adverse impact on youth employment, however, changes must be phased incrementally: we will need to be confident that there will be no adverse employment impact from lowering the age at which the main rate applies. We believe this is already the case for 21 year olds and we recommend once again that they should receive the adult rate; this recommendation is supported by pay data on the lowest-paid young people and on those in new jobs, and by evidence of employer practice. For 18–20 year olds we recommend that the age coverage of the Development Rate should be kept under review. 3. We note that take-up of the Development Rate for older workers has been low; we would like to review the merit of continuing this concessionary rate again in the light of future developments. And we will need to make a full assessment of the impact of the National Minimum Wage on those younger workers excluded from it and keep their treatment under review. The relativity between the Development Rate and the main rate has protected employment and training opportunities without any adverse impact on incentives to work. We therefore recommend an increase in the Development Rate in line with the main rate to £3.50 per hour in October 2001 and £3.60 per hour in October 2002. Chapter 3: Impact on Incomes 4. While the minimum wage affects households across the income distribution, it has had most impact on the poorest working households. The effect of the tax and benefits system is to reduce the impact on incomes for some, but not all, households affected by the minimum wage. The minimum wage has led to a small reduction in poverty rates. It must be seen as part of a package of in-work support: in combination with the minimum wage, recent tax and benefits changes have reduced the number of people living in poverty by nearly a quarter. By underpinning the system of tax credits and benefits the minimum wage supports the strategy of in-work benefits to help the low paid in work. And by providing a guaranteed level of income in work, the minimum wage increases the incentive to move into work. Chapter 4: Compliance and Enforcement 5. The vast majority of employers are complying with the National Minimum Wage. We are not complacent, however, because some workers continue to be underpaid. Although overall awareness of the existence of the minimum wage is very high, we recommend further publicity for the headline rate, the enforcement service and the Helpline number to improve awareness among the public. The enforcement system is generally seen as effective, but we hope that Government will strengthen it further by using its initiatives to promote compliance with tax and other legislation also to tackle non-compliance with the minimum wage. We welcome the pilot projects being developed by the Government in partnership with external agencies to promote the reporting of non-compliance. 6. We also welcome proactive enforcement by the Inland Revenue and Government publicity for enforcement actions and we hope that they will do more of both of these. Some workers continue to experience detriment and dismissal related to the minimum wage, and we recommend that the Inland Revenue and the Advisory, Conciliation and Arbitration Service (ACAS) continue to monitor service to customers at the boundary between the two organisations and examine the scope for action to strengthen it. Chapter 5: Implementation Issues 7. The definition of the National Minimum Wage adopted in the Regulations has worked well and the great majority of employers has found the operation of the National Minimum Wage Regulations unproblematic. But we received some representations about specific issues including the Supported Employment Programme, voluntary workers, the accommodation offset, tips, the funding of the social care system, and fair estimate agreements for output workers. The Government made additional funding available for supported employment in 1999/2000. We believe the Government should do so again and should also provide reassurance to employers about how the Supported Employment Programme will work in future. We also invite the Government to examine with the voluntary sector how far their concerns can be met within the framework of the current legislation. 8. The accommodation offset has remained at the same rate since the introduction of the minimum wage in 1999. We recommend that it should be increased to £3.25 per day. We consider the issue of whether tips which are not paid through the employer's payroll should be included in the minimum wage but conclude that the present system is the fairest. And we received proposals on fair estimate agreements: we recommend that the Government should consult representatives of output workers and employers on possible change in this area. 9. The social care sector is in an almost unique position because of its reliance on public funding. We recommend that the Government should ensure that the new concordat on commissioning of care to be endorsed by central and local government, health bodies, and nursing and care home providers makes clear that commissioning policies should reflect the costs of provision. Chapter 6: Future Reviews 10. A process for reviewing the National Minimum Wage at regular intervals will ensure that it continues to provide effective protection for low-paid workers and predictability for businesses. As the National Minimum Wage is relatively new and we are still learning about its impact, each review should take account of all relevant factors and allow scope for judgment. Formulaic uprating would not satisfy this requirement. We therefore recommend that the Low Pay Commission should continue to review the minimum wage through a comprehensive process of data gathering, consultation and analysis. Reviews also need to be frequent enough that the minimum wage does not lose its effectiveness as a wage floor. Hence we recommend biennial reviews, with the Commission reporting in February to allow sufficient notice of implementation the following October. Chapter 7: Conclusion 11. 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. | |
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