Minimum wage reform needed

The current minimum wage system is no longer fit for purpose and needs reform if it is to repeat the successes of its first 15 years.

This warning comes from Professor Sir George Bain, the founding chair of the Low Pay Commission which recommends the rate of the minimum wage, who is heading up a review of the policy’s future at independent think tank the Resolution Foundation.

Professor Bain argues that the minimum wage has been a clear success in the first 15 years of its life but that the policy now needs strengthening to keep it effective and relevant for the next 15 years.

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 (which is now £6.31 an hour, but was £6.08 an hour in April 2012 when these numbers were compiled). In total, 5 million workers remain low-paid.

The official definition of low pay is earning below two-thirds of the typical hourly wage – which currently means someone earning less than £7.71 an hour is low paid.

An interim report from the Resolution Foundation review notes that the current settlement has had many strengths but that it also falls short in important respects. The report sets out a range of options for reforming the minimum wage and giving the Low Pay Commission, which supports it, new impetus:

• Broadening the government’s work on low pay beyond the minimum wage by setting an explicit ambition to reduce the share of workers who are low paid.
• Set the ambition for the level of the minimum wage over a medium-term horizon . 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 to allow for a higher NMW over time.
• Giving the LPC additional tools to complement the NMW, creating new pressure points on employers to go beyond the NMW when they can afford to.

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