The Low Pay Commission (LPC) has recommended that the Government raise the adult rate of the National Minimum Wage by 3 percent to £6.70 from October 2015.
When advising on the minimum wage rate, the LPC takes into consideration the amount required to protect low-paid workers, while also factoring in the consequences for jobs and the economy.
David Norgrove, Chair of the LPC, said:
“Last year we were pleased to recommend the first real terms increase in the value of the minimum wage since the recession. We argued that the minimum wage had proved its worth over the course of the slowdown, increasing relative to earnings generally and protecting the low paid during the downturn in a way not seen before albeit, as with wages for all other workers, its real value fell.
“Sharp increases in the minimum wage would put jobs at risk – not least bearing in mind pressure on low-paying sectors and small firms. We do believe however that the continued recovery, and in particular the impressive growth in employment of the low paid, should this year allow a further increase in the real and relative value of the minimum wage.”
With inflation now forecast at 0.5 per cent, this recommendation (PDF,89.3KB, 3 pages) would, if accepted by the Government:
- be the largest real-terms increase in the NMW since 2007, taking its estimated real value three-quarters of the way back to its highest ever level.
- increase the NMW to its highest value relative to other wages. Its bite – the value as a proportion of typical wages – is already at its peak. This would increase it further. Influential in our recommendation has been evidence of strong employment growth in low-paying sectors and firms of all sizes.
- expand coverage of the number of jobs covered by the main rate of the minimum wage to an estimate ofover 1.4 million (PDF, 87MB, 13 pages). This compares with 900,000 at the start of the downturn in 2008, as the minimum wage has risen in relation to median earnings.
“An increase of 3 per cent to £6.70 is a larger real terms increase than last year and, on the basis of the most recent Bank of England inflation forecast, should restore three-quarters of the fall in the real value of the NMW relative to its peak in 2007.
“We judge that the improved economic and labour market conditions mean once again that employers will be able to respond in a way that supports employment. However, our recommendation this year is predicated on a forecast which foresees lower costs for business in fuel and energy, a strong economic performance, significant recovery in earnings across the economy and rising productivity. If these expectations are not borne out over the year we will take this into account when considering next year’s recommendation”.
As well as its recommendation for the adult rate, the Low Pay Commission has also suggested:
- an increase of 3.3 per cent to £5.30 in the Youth Development Rate, which applies to 18-20 year olds;
- an increase of 2.2 per cent to £3.87 in the 16-17 Year Old Rate;
- an increase of 2.6 per cent to £2.80 in the Apprentice Rate, which applies to all apprentices in year one of an apprenticeship, and 16-18 year old apprentices in any year of an apprenticeship;
an increase of 27 pence in the accommodation offset to £5.35. The offset is the one benefit-in-kind that can count towards the minimum wage. This is the maximum daily sum employers who provide accommodation can deduct towards those costs.
Katja Hall, Deputy Director-General at CBI, commented:
“The LPC has struck a careful balance. As the economic recovery cements, the Commission has reconciled a desire to reflect this in pay packets while recognising that productivity growth – the key to sustainable pay rises – remains weak.
“We welcome the commitment to review next year’s rise if the improved business environment doesn’t materialise.
“The National Minimum Wage has been one of the most successful policies of our time thanks to the independent recommendations of the Commission, helping many low-paid workers without damaging their job prospects.
“Any artificial increase due to political expediency will help no-one and ultimately damage one of the most successful government policies in recent years.”