Minimum wage policy ‘no longer adequate’

The national minimum wage in the UK is no longer strong enough to tackle the country’s low pay problems, according to a report from the Resolution Foundation think tank.

The report presents the interim findings of a review headed by George Bain, who was originally responsible for overseeing the introduction of the minimum wage in 1998 under the previous Labour government.

Key points

  • The effectiveness of the statutory minimum wage in the first 15 years of its life has been 'clear'. But the policy now needs strengthening to keep it effective and relevant for the next 15 years.
  • Although the minimum wage has been highly successful at lifting most people out of extreme low pay, it has not had the upward ‘ripple effect’ that many expected. As a result, many workers earn just above the minimum wage but still too little to get by. In some sectors, the minimum wage has become the going rate.
  • Around 1.2 million workers are paid the minimum wage (or within 5 pence of it). Above that level however, a further 1.4 million workers earn no more than 50 pence above the legal hourly minimum. In total, 5 million workers remain low-paid – earning below two-thirds of the typical hourly wage, or less than £7.71 an hour.
  • Options for reform include broadening the government’s work on low pay, by setting an explicit ambition to reduce the share of workers who are low paid. The Low Pay Commission could broaden its remit to give expert advice on the drivers of low pay and policy responses.
  • The government could also set a medium-term target for the level of the minimum wage. This would reduce uncertainty by giving businesses more time to adapt, and allow government to help them – for example, by adjusting tax or skills policy.

George Bain commented: 'The minimum wage has been a clear success but the world has changed in the fifteen years since it was introduced. We now know the policy has not caused unemployment, and there is broad political support. But with more than one in five workers in Britain suffering from low pay, it’s time to talk about how we strengthen the minimum wage for the years ahead'.

Source: James Plunkett, Tony Wilson and Conor D’Arcy, Minimum Wage Act II: Options for Strengthening the UK Minimum Wage, Resolution Foundation
LinksReport | Resolution press release | Guardian report | Public Finance report

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Publication date: 
Feb 21 2014