Second Report of the Low Pay Commission

Report Summary  

Chairman's Foreword

Introduction 

1 Following our initial recommendations, the Government asked us to monitor the implementation of the National Minimum Wage and report again in December 1999. In particular, it asked us to review the position of 21 year olds. It then issued Regulations and guidance and launched an extensive advertising campaign. These helped businesses and workers prepare for implementation on 1 April 1999. 

2 Building on our work for the first report, we commissioned twenty-three research projects, undertook large-scale surveys of companies in low-paying sectors, considered all available data and held two seminars. We took written and oral evidence and visited all parts of the UK. Our regular and open contacts with employers, workers and their representatives have been key to our work. 

Findings 

Impact 

3 Several years will be needed to assess the full effects of the National Minimum Wage. But already it is clear that a large number of people have benefited. Two-thirds of beneficiaries are working women and, of these, two-thirds are part-time workers. Well over one and a half million workers were entitled to higher pay by April 1999 because of the minimum wage, and our initial assessment is that the substantial majority of these workers, in the formal sector at least, are now receiving their entitlement.  

4 The National Minimum Wage was set cautiously so as not to undermine competitiveness. Its introduction added only around 0.5 per cent to the national wage bill, with no measurable impact on overall employment. The absence of general pressures to restore wage differentials, and the way in which firms have managed the change, mean that additional costs caused by the National Minimum Wage have been manageable for most businesses.  

5 Employment continued to grow in low-paying sectors in the quarter following the introduction of the minimum wage, and there are no signs of a significant minimum wage effect in the unemployment figures. Our research programme and consultation show that any job losses have been small. We found many different ways in which firms were adapting to the legislation other than shedding labour. In the longer term, there is a particular need to monitor whether there are changes in the structure of employment.  

6 Both employers and workers have adjusted well to the introduction of the minimum wage. Small businesses have been most affected, yet have successfully managed the transition. Each sector has had to adopt its own strategies to cope with the additional pay costs and, for some sectors or types of businesses within them, the adjustment has been considerable. Nevertheless, for the vast majority of employers, the transition has been successful and, consequently, most low-paid workers are receiving their full entitlement.  

Defining Workers, Pay and Working Time 

7 While in general the definitions of a worker, pay and working time have performed well, a small number of anomalies have emerged. More guidance is needed on voluntary workers and on people undertaking therapeutic activity. Coverage of students should be more consistent. The level of the accommodation deductor needs to be kept under review, and the broader question of non-standard work (such as sleeping over) should be reviewed in the longer term as the National Minimum Wage settles in. 

Young People and the Development Rate 

8 The Development Rate for young workers has meant a pay rise for very many young people while not affecting their employment opportunities. Most 21 year olds are already earning at or above the level of the full minimum wage. To include them in the upper threshold, therefore, makes sense. The data also suggest that a level of £3.20 per hour for 18­20 year olds would pose no significant problems for employers. The six-month Development Rate for older workers has the potential to improve their employment prospects. But more work needs to be done to ensure this potential is realised. 

Compliance and Enforcement 

9 The National Minimum Wage should be largely self-enforcing, and the initial publicity was successful in raising awareness among employers and workers. Early indications are that the vast majority of businesses are meeting their obligation to pay the National Minimum Wage, but not all workers entitled to it are receiving it. The Inland Revenue has made a successful start to enforcement, adopting a pro-active stance towards non-compliance. There are further practical steps which might be taken to increase compliance by raising awareness and improving enforcement procedures. 

Conclusion and Next Steps 

10 The National Minimum Wage has been introduced successfully, with no significant adverse effects on the economy. Large numbers of low-paid workers have benefited, particularly women, and the National Minimum Wage, together with the Working Families' Tax Credit, will benefit low-income families. Low-paying sectors have adapted well. This success needs to be built on. Levels of compliance should be improved, and the minimum wage will need to be uprated. 

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