Next National Minimum Wage Rise Must Be Modest - CBI

A series of above-earnings increases to the UK's National Minimum Wage have made it one of the highest in the world, exceeded only by France and Australia, the CBI said today (Saturday).

In its submission to the Low Pay Commission, the CBI argues that the minimum wage's increasing coverage of the labour market has achieved its aim of establishing a 'floor' for lower paid workers.

The wage rose to be above half of median hourly earnings for the first time in 2005. With last Monday's increase to 5.52, the minimum wage has risen by 53% since its introduction in 1999 - significantly outstripping average earnings growth of 38.8%.

The UK's minimum wage has risen faster than in any other OECD country when accompanying productivity gains are taken into account.

The CBI is calling for only a modest increase to the minimum wage in 2008, and says that the cumulative impact on firms not just of increased minimum wage costs but also of new employment rights must be taken into account.

The ability of some firms to employ more staff or invest in the business is impeded, as is their scope to reward other staff for good performance or career development. Certain sectors are particularly affected by minimum wage increases; retailing, farming and agriculture, social care, food manufacturers, hospitality and catering, textiles and hairdressing.

Some firms have to reduce staff hours and benefits to remain competitive and others are reporting that job losses are increasingly likely. The risk that black economy employers will undercut law-abiding firms also increases if the minimum wage rises ahead of average earnings, so the CBI welcomes the Government's commitment to putting more money and resource into enforcement, as well as sanctions for rogue employers.

John Cridland, the CBI's Deputy Director-General, said: Many people's living standards have been helped by the minimum wage. But previous steep rises have loaded extra costs onto employers, who face a less certain outlook for next year as interest rates bite and the world economy slows.

This year's increase makes our minimum wage the third highest in the world. The era of continually increasing the numbers of employees covered by the wage should now come to an end - the Low Pay Commission itself acknowledges the present situation requires 'a more cautious approach'.

The CBI's concern that a rapidly rising wage 'floor' would squeeze pay differentials above it has become a reality. Firms now have less financial headroom to reward good performance and incentivise staff to take on new responsibilities or participate in training.

Employers are in favour of a minimum wage which stays relevant and enables those at the lowest end of the labour market to maintain their standard of living, but the increases must always remain affordable for the whole economy.