Minimum wage increase
Tony Blair has unveiled an increase in the national minimum wage.
He said the rate would increase to £5.05 in October and to £5.35 next year, while for 18 to 21-year-olds it will rise from £4.10 to £4.25.
Speaking at his monthly press conference, the prime minister said the move will benefit "about 1.4m people".
Government Response: Department of Trade and Industry
Patricia Hewitt, trade and industry secretary, said: "The great news is that well over a million workers will receive a guaranteed pay rise by this October, rising to almost a million and a half people by October 2006.
"The minimum wage has made a real difference to the lives of thousands of low paid workers - particularly women, who make up some 70 per cent of those benefitting. Year on year increases protect some of society's most vulnerable people from exploitative rates of pay.
"Despite predictions to the contrary, the national minimum wage has not affected the job prospects of low-paid workers in the
Stakeholder Response: Forum of PrivateBusiness (FPB)
Nick Goulding, chief executive of the FPB, said: "We are still measuring the effect of the last minimum wage hike on small firms and it would be irresponsible to increase it again so soon.
"Small firms are not opposed to the minimum wage, in principle, but there is growing anger that it is increasing as a matter of course. We urge the government and the trade unions to understand that the minimum wage is causing pain and a further increase could have devastating consequences on jobs and the competitiveness of small firms.
"Big business can absorb increases in the minimum wage as they employ relatively few staff on it. It is actually small businesses that are hit hardest, especially those businesses in poorer and remote areas.
"Above all, it is an unwelcome additional pressure on businesses already being stung with a range of higher costs including increased employers' National Insurance contributions and rocketing levels of insurance premiums."
Stakeholder Response: Federation of Small Businesses (FSB)
Alan Tyrell, FSB employment chairman, said: "Continuous year-on-year above inflation increases in the NMW are dangerous for the economy and send the wrong message to employers.
"The NMW has already risen by 34.7 per cent in a five year period when private sector wage increases have remained stable.
"The minimum wage should be adjusted as a direct response to economic conditions –and not as a concession to trade unions or in a bid to win votes."
Stakeholder Response: British Retail Consortium (BRC)
Kevin Hawkins, BRC director general, said: "The BRC are pleased the Low Pay Commission [LPC] has taken our evidence into account and only recommended an increase of four per cent to the NMW. Whilst this is still an above inflation increase, retailers will be relieved as the two consecutive increases of seven to eight per cent (October 2003/4) are proving very difficult for both larger and smaller retailers to absorb in today’s trading conditions.
"Retail sales growth is slow and the current economic climate is generally uncertain.
"The LPC’s recommendations for this October reflect the BRC’s concern about the continued impact of the NMW on pay differentials and the Chairman of the Commission has admitted that they do not yet have enough data from the ONS which would enable them to make a final assessment.
"We therefore urge the Commission to review the recommendation for October 2006 as and when further data is available and in the light of the state of the economy later this year."
Stakeholder Response: Chartered Institute of Personnel and Development
Charles Cotton, reward adviser at the CIPD, said: "We support a sensible minimum wage, and accept that regular increases in the rate are necessary to maintain the value and effectiveness of the measure for low paid workers and as an encouragement to employers to make more effect use of labour rather than rely on low pay.
"However, increases in the minimum wage should not be governed by the political timetable. Action should be taken to build confidence in the timetabling of future increases, to avoid suspicions that they have been motivated by short-term electoral considerations rather than sound economic ones.
"While a possible rise of around four per cent would appear to be in line with average pay increases, it should be noted that a minimum wage above £5 represents a psychological breakthrough and may have a greater knock-on effect as a result.
"Up to now, the effects of the minimum wage on profits and jobs in low paid service sectors have been offset by strong consumer demand. With consumer demand expected to moderate this year and next, a higher minimum wage could have a bigger impact on profitability, with possible consequences for jobs in these sectors.
"The pre-election debate on immigration suggests tighter controls are inevitable. Future increases in the minimum wage will need to take into account the possibility that employers will be finding it more difficult to hire low skilled migrant workers.
"This restriction on supply at the lower end of the pay scales could reinforce the impact of minimum wages as employers compete for the increasingly scarce resource of lower paid labour. The Low Pay Commission will have to pay more attention to this possibility."
Stakeholder Response: Association of Chartered Certified Accountants(ACCA)
Professor Robin Jarvis, head of small business, ACCA said: "In principle, ACCA supports the NMW. Since it was introduced the NMW has brought benefits to many low paid workers without having the large negative impact on employment and the economy that was widely predicted.
"It is important that workers are paid a fair wage and that employees, particularly younger individuals, are not exploited. Regular 'uprates' are important to maintain the real value of a minimum wage.
"Our latest research indicates that whilst the majority of businesses appear to have absorbed the costs of previous rises, the increases are having more impact on businesses' profitability and work practices and this is a growing concern.
"The government should consider the regional and sectoral impacts of the NMW when considering the size of future increases and must be careful to ensure that the NMW only rises to levels that do not have a negative effect on employment and work practices."
Stakeholder Response: British Youth Council (BYC)
Dan Wood, chairman of the British Youth Council, said: "We welcome the increase in the National Minimum Wage rates for 18 to 21-year-olds, a rise to £4.25 in October 2005 and £4.45 in October 2006. However, we are extremely disappointed that the 16 to 17-year-old rate will remain at the same until at least 2006.
"The current minimum wage of just three pounds per hour for 16 and 17-year-olds is an insult to young people who often carry out the same work as someone older but get paid less simply because of their age. Young people are one of the lowest paid and vulnerable groups of workers and they deserve a fairer minimum wage.
"Lower wages force young people to work longer hours, damaging their health and education. Businesses will also start to target young workers as a source of cheap labour and this can only get worse if the main adult rate continues to rise.
"BYC is part of a coalition of voluntary organisations campaigning for a fair and decent NMW for 16-17 year olds. The other organisations include: The Children’s Right’s
"The coalition believes that one simple minimum wage would ensure that all workers are protected from exploitation and be easier for businesses to administrate. At the very least we're hoping that the Low Pay Commission will recommend that 18 to 21-year-olds be included in the adult wage rate and raise the rate for 16 and 17-year-olds in the near future."
Stakeholder Response: Institute of Directors (IoD)
Miles Templeman, director general of the IoD, said: "In the past our members have been relatively relaxed about the impact of the minimum wage on their business, but at the same time, we have warned consistently about the cost implications of over-indexation.
"If companies allow pay differentials to narrow, they risk losing staff. If they maintain pay differentials, their cost base increases.
"Today's announcement means that business faces a stark choice between losing staff or increasing costs. We would argue that in the future, the minimum wage should increase no faster than average earnings growth."
Stakeholder Response: Business Services Association
Norman Rose, BSA director-general, said :"As ever, the LPC has been pragmatic in its Report to government. We are deeply concerned about the effect of the large cumulative rise of the NMW over the next two years.
"While BSA welcome most of the proposals announced today the rise of nearly four times the current rate of inflation will put a severe strain on providers of support services. Clients are already expressing concern over the October 2004 increase and the net effect of the rise to £5.35 will result in them looking for alternative ways to achieve efficiencies. The rate of the NMW is now so near to public sector pay rates that government must take care that in providing better wages for lower paid employees, which we all support, it does not harm employment prospects in the process.
"BSA expresses its strong support for the LPC recommendation that 21 year-olds should receive the full NMW and is disappointed that government has decided not to accept this recommendation thus penalising unnecessarily those at the beginning of their employed careers.
"While BSA welcome the removal of the older workers' development rate, they cannot understand why government should put in jeopardy its laudable intention to increase adult vocational training by allowing employers not to pay the NMW to apprentices of all ages for a period of twelve months. This is short-sighted in the extreme.
"I am deeply disappointed that this important group of young adults will still see drawing benefit as more desirable that taking employment. Members are of the view that it would have been better for government to increase the rate this year building on its introduction last year. Nevertheless, they welcome its commitment to review this during the course of the year with a view to an increase in 2006."
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