Increasing the minimum wage to 5.35 next year is fair and affordable

In its annual submission to the Low Pay Commission (LPC), the TUC will today (Thursday) recommend an increase in the adult national minimum wage to 5.35 for next October, rising towards 6 by October 2006.

These increases would lift the national minimum wage by more than the projected growth in earnings and give a boost to the pay packets of up to two million workers.

In its oral evidence to the LPC today (Thursday) the TUC will point out that previous increases in the minimum wage have benefited fewer than the LPC’s target of up to two million workers. A minimum wage set at 5 or less - as the business lobby is suggesting - would mean that the value of the wage would fall against average earnings, which are expected to rise by nine per cent over the next two years.

The TUC is also recommending that the adult minimum wage be paid from the age of 18 rather than at 22. The submission proposes an increase that would sustain the level of the 3 minimum wage for 16 and 17 year olds in 2005 in relation to earnings, and says that for 2006 it would like to see an interim review to set a rate that benefits larger numbers of young workers.

Brendan Barber, TUC General Secretary, said: This increase would be fair and affordable. The TUC has taken a considered and constructive approach to the minimum wage. We have looked at the hard evidence and worked with our partners on the Commission to ensure that the wage is set at the right level to benefit business and the target number of low-paid employees.

There is no economic argument against continuing to increase the minimum wage above inflation and the growth in earnings. But there is a very strong case for ensuring that up to two million low paid workers get a pay rise over the next two years, not a pay cut.

Why the adult national minimum wage can increase in 2005 and 2006:

The minimum wage has increased from 3.60 in 1999 to 4.85 in 2004, 50 per cent faster than the growth in average earnings across the whole economy. Despite employer protestations, this rapid rise has had no detrimental effects. In fact, the number of jobs in the low paying sectors as a whole have increased by 4.9 per cent since the minimum wage was introduced, adding an extra 260,000 jobs to the UK economy. (The low paying sectors are retail, hospitality, social care, cleaning, textiles and footwear, security and hairdressing.) Profits and investment levels are also healthy. Clearly there is more ’headroom’ for the minimum wage than employers would like to admit.
Despite the rapid increases since 1999, the minimum wage has never benefited as many people as the Low Pay Commission hoped. Had the LPC known that they would undershoot their target coverage they would probably have set a higher rate. Therefore there is room for a bold increase.

Why the adult national minimum wage should be paid from age 18: Most people believe that adulthood starts at 18.

Modern pay systems reward competencies not age or service.

Most 18-21 year olds are fully competent and are doing the same work as their older colleagues. It is discriminatory for employers to pay them less simply on the grounds of age.

Unfair treatment in the workplace can demoralise young workers.

Why the national minimum wage for 16 & 17 should increase modestly next year and be reviewed in 2005: The minimum wage for this age group could be considerably higher than the current rate of 3 per hour. However, the TUC wants to be absolutely sure that such a rise will not have an adverse effect on job opportunities. As 16 and 17 year olds have only been covered by the minimum wage since October 2004, it is too early to make a proper assessment of the impact. Therefore the TUC is arguing for a relatively modest increase in 2005 to ensure that young workers do not fall behind the growth in average earnings. The LPC should then re-assess the situation. The TUC predicts that the findings of such an inquiry will permit the LPC to recommend a substantial rise for 2006.