Low Pay Commission recommends 3% increase in the National Minimum Wage to £6.70
The Low Pay Commission (LPC) has today recommended to the Government that the adult rate of the National Minimum Wage, which applies to workers aged 21 and over, should rise by 3 per cent to £6.70 from October 2015.
The LPC’s aim is to advise on a rate that protects as many low-paid workers as possible without damaging jobs or the economy. We have carefully weighed the risk of doing too little to raise the earnings of the lowest paid against the risk of recommending more than business and the economy can afford.
With inflation now forecast at 0.5 per cent, would, if accepted by the Government:
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be the largest real-terms increase in the NMW since 2007, taking its estimated real value three-quarters of the way back to its highest ever level.
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increase the NMW to its highest value relative to other wages. Its bite – the value as a proportion of typical wages – is already at its peak. This would increase it further. Influential in our recommendation has been evidence of strong employment growth in low-paying sectors and firms of all sizes.
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expand coverage of the number of jobs covered by the main rate of the minimum wage to an estimate of . This compares with 900,000 at the start of the downturn in 2008, as the minimum wage has risen in relation to median earnings.
Commenting on the recommendation, David Norgrove, Chair of the LPC said:
“Last year we were pleased to recommend the first real terms increase in the value of the minimum wage since the recession. We argued that the minimum wage had proved its worth over the course of the slowdown, increasing relative to earnings generally and protecting the low paid during the downturn in a way not seen before albeit, as with wages for all other workers, its real value fell.
Sharp increases in the minimum wage would put jobs at risk – not least bearing in mind pressure on low-paying sectors and small firms. We do believe however that the continued recovery, and in particular the impressive growth in employment of the low paid, should this year allow a further increase in the real and relative value of the minimum wage.
An increase of 3 per cent to £6.70 is a larger real terms increase than last year and, on the basis of the most recent Bank of England inflation forecast, should restore three-quarters of the fall in the real value of the NMW relative to its peak in 2007.
We judge that the improved economic and labour market conditions mean once again that employers will be able to respond in a way that supports employment. However, our recommendation this year is predicated on a forecast which foresees lower costs for business in fuel and energy, a strong economic performance, significant recovery in earnings across the economy and rising productivity. If these expectations are not borne out over the year we will take this into account when considering next year’s recommendation”.
As well as its recommendation for the adult rate, the Low Pay Commission has also recommended:
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an increase of 3.3 per cent to £5.30 in the Youth Development Rate, which applies to 18-20 year olds;
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an increase of 2.2 per cent to £3.87 in the 16-17 Year Old Rate;
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an increase of 2.6 per cent to £2.80 in the Apprentice Rate, which applies to all apprentices in year one of an apprenticeship, and 16-18 year old apprentices in any year of an apprenticeship;
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an increase of 27 pence in the accommodation offset to £5.35. The offset is the one benefit-in-kind that can count towards the minimum wage. This is the maximum daily sum employers who provide accommodation can deduct towards those costs.
Notes to Editors
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The National Minimum Wage (NMW) is the UK’s pay floor – designed to protect as many low-paid workers as possible without hurting jobs or the economy. The Low Pay Commission is an independent body whose role is to advise the Government on the NMW. Every February, it makes recommendations for the value of the NMW based on a careful review of evidence including economic analysis, submissions from stakeholders, research and a programme of visits.
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The LPC has today submitted its recommendations to the Secretary of State for Business, Innovation and Skills, the Prime Minister and the Deputy Prime Minister accompanied by its 16th Report setting out a detailed review of the evidence on which they are based. It publishes today the letter to the Secretary of State , the executive summary of the report and a key facts and figures brochure . The report as a whole will be published when the Government provides its response to the recommendations.
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The LPC works on the basis of an official remit. This year the Government asked the LPC to: * monitor, evaluate and review the levels of each of the different NMW rates and make recommendations on the levels which should apply from October 2015; * consider whether any changes can be made to the Apprentice Rate to make the structure simpler and improve compliance and also consider whether the structure and level of the Apprentice Rate should continue to be applied to all levels of apprenticeship, including higher levels; and * consider whether, as concluded in our 2014 Report, the UK is entering a new phase where real increases in the NMW can be afforded. We should review the conditions that need to be in place to allow the value of the minimum wage to increase in real terms, including an update on our previous advice on the future path of the NMW.
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As well as its recommendation for the adult rate, the Low Pay Commission has also recommended:
- an increase of 3.3 per cent to £5.30 in the Youth Development Rate, which applies to 18-20 year olds;
- an increase of 2.2 per cent to £3.87 in the 16-17 Year Old Rate;
- an increase of 2.6 per cent to £2.80 in the Apprentice Rate, which applies to all apprentices in year one of an apprenticeship, and 16-18 year old apprentices in any year of an apprenticeship;
- an increase of 27 pence in the accommodation offset to £5.35. The offset is the one benefit-in-kind that can count towards the minimum wage. This is the maximum daily sum employers who provide accommodation can deduct towards those costs.
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The Accommodation Offset is the maximum daily sum employers who provide accommodation to NMW workers can deduct towards those costs. We recommend that the offset increases by 27p from £5.08 to £5.35.
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The members of the Low Pay Commission comprise:
- David Norgrove, Chair * Kay Carberry, Assistant General Secretary, TUC * Neil Carberry, Director of Employment and Skills, CBI * Peter Donaldson, Managing Director, D5 Consulting Ltd * Richard Dickens, Professor of Economics, Sussex University * Bob Elliott, Professor of Economics, Aberdeen University * John Hannett, General Secretary, Usdaw * Neil Goulden, Neil Goulden Consulting Ltd * Brian Strutton, National Secretary, GMB
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In April 2014 there were 1.4 million minimum wage jobs in the UK. 5.3 per cent of the UK labour force was paid within 5p of the minimum wage. This included: 1.2 million NMW jobs held by those aged 21 and over; 139,000 NMW jobs held by 18-20 years olds; and 40,000 NMW jobs held by 16-17 year olds.
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The LPC has commissioned around 140 research projects since 1999 on the impact of the NMW. They show that, over the period, the low paid have received higher than average wage increases, with the NMW having little adverse effect on employment or the economy.
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Over the course of the recession the real value of the NMW fell because of high inflation - as did wages for all other workers. But its relative value compared to other wages increased. This was the first recession going back to at least the 1970s when the lowest paid didn’t fare relatively worse than everyone else.
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The relative value of the NMW is now at its highest ever. Its bite - the value relative to median earnigns - is 53 per cent for workers aged 22 and over. It is at nearly 80 per cent for low-paying sectors. It is at 92 per cent for the lowest paid 10 per cent of the UK workforce.
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The NMW is now beginning to recover its real value. If accepted by the Government, the 2015 recommendation could restore three-quarters of the fall in the real value since its peak in 2007 (based on CPI inflation, and the Bank of England’s February 2015 inflation forecast of 0.5 per cent for Q4 2015).
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One factor influencing this year’s recommendation has been strong employment growth. Total employment has continued to grow in the economy as a whole and in the low-paying sectors with the year to September 2014 showing the highest annual (September-September) increases in employment and jobs since the introduction of the NMW, as well as strong growth in hours and vacancy levels. Indeed, although the bite has risen sharply in the low-paying sectors since 2007, the number of employee jobs in this part of the economy has grown more rapidly than those elsewhere – 4.3 per cent over the last year compared with 3.1 per cent for other sectors. Employment growth has generally been strong across all firm sizes. Furthermore, the employment performance of most groups of workers particularly affected by the minimum wage – women, older workers, disabled workers, ethnic minorities, and migrants – has been better since 2008 than that of others not so affected by the NMW.
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In April 2014, 0.8 per cent or 208,000 employees aged 21 and over were paid less than the NMW. Some employees are legitimately paid below the hourly rate of the NMW, such as when employers deduct small sums for accommodation costs up to the maximum daily legal limit, the accommodation offset. Others are not. There is high NMW non-compliance among employers of apprentices and in sectors like social care.
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There are four main rates of the NMW. The current and recommended value is shown in the table below.
| Rate | Current level (to October 2015) | Proposed increase | Recommended rate (from 1 October 2015, subject to Government decision) |
|---|---|---|---|
| Adult Rate (workers aged 21 and over); | £6.50 | 3% | £6.70 |
| Youth Development Rate (workers aged 18 - 20); | £5.13 | 3.3% | £5.30 |
| 16-17 Year Old Rate; | £3.79 | 2.2% | £3.87 |
| Apprentice Rate (applicable to apprentices in their first year, and apprentices aged 16-18); | £2.73 | 2.6% | £2.80 |
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