More than a minimum: reforming the minimum wage

Published on Jobs, Skills and Pay

The national minimum wage celebrates its 15th birthday next month. Given the dire effects some predicted it would have – two million job losses and spiralling inflation – even its short-term survival was far from guaranteed in 1999. George Bain, chair of the Low Pay Commission when the initial rate was set, has admitted he was not sure it would last this long. Today, though, the minimum wage is a pillar of the UK’s labour market, having all but eliminated extreme low pay without damaging employment. But the cautious approach which helped the policy find its feet now looks too narrow, short-sighted and passive to dent the wider problem of low pay. As a new report from a panel chaired by Bain and hosted by the Resolution Foundation argues, if it is to thrive for the next 15 years, a fundamental overhaul is required.

There is much within the current settlement that should be retained. The minimum wage is one of those rare policies that enjoys widespread and increasingly cross-party support. The annual process through which it is set, drawing on a rigorous evidence-base and agreed by a panel with representatives from employers, unions and academia, should be retained. But, despite its successes, the minimum wage has been unable to tackle low pay more broadly (a fifth of UK employees are low paid), offers no sense of where it is going, and does not encourage employers who could afford to pay more to do so. The report identifies three ways in which the minimum wage and the Low Pay Commission should be strengthened:

First, by broadening the LPC into a watchdog on low pay, driving the government’s work on low pay in the same way the OBR drives progress on fiscal policy. This would mean the LPC going well beyond the narrow role of setting the minimum wage to support a new long-term government ambition to lift one million workers out of low pay.

Second, by making the minimum wage more far-sighted. The review recommends that the government set out its ambitions for the minimum wage over the medium term, noting that a minimum wage worth 60 per cent of median hourly earnings would be a challenging but realistic goal. The LPC should advise the government on how to put in place the groundwork for a higher minimum wage, for example, by more adequately funding social care. The review also argues that, to offer more certainty for employers, the LPC should also make a preliminary recommendation for two years’ time.

Third, by giving the LPC tools to push employers to go beyond the minimum wage, in particular by publishing analysis that shows whether certain sectors could afford to pay more. The report also recommends that the LPC publish a minimum wage rate for London. This would not be mandatory but would inform debate about employers’ responsibilities.

These recommendations alone will not solve the problem of low pay. A serious attempt to tackle low pay will require efforts to raise the productivity of low-paid workers and low-paying parts of the economy. But a more ambitious minimum wage, complemented by additional tools and overseen by a more powerful LPC, would be a meaningful step forward.

This article originally appeared on Progress online.