Major reform of minimum wage recommended by policy’s key architect

The UK should undertake major reform of the minimum wage to help tackle the pervasive problem of low pay argues one of the policy’s key architects. The call comes in the final report of the Resolution Foundation’s review of the future of the minimum wage, chaired by Professor Sir George Bain the founding chairman of the Low Pay Commission.

The review recommends a fundamental overhaul of the minimum wage, arguing that the cautious approach of the late 1990s was right for its time, but that it is now too narrow, short-sighted and passive to dent today’s wider problem of low pay. While the core of the approach should be maintained, the review says the minimum wage and Low Pay Commission should be strengthened in three main ways:

• By broadening the Low Pay Commission into a powerful new watchdog on low pay, driving the government’s work on low pay in the same way the Office for Budget Responsibility 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 1 million workers out of low pay
• By making the minimum wage itself 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. Professor Bain is clear that the LPC should still recommend the rate from year to year, but says it should also advise the government on how a higher minimum wage could be made possible, for example by more adequately funding social care and examining the level of employer taxes facing small firms. The review also responds to employers’ calls for more certainty on the minimum wage, arguing that the LPC should not just make one year recommendations, but also a preliminary recommendation for two years’ time

• 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 than the minimum wage. The report also recommends that the LPC publish a minimum wage rate for London. This would not be mandatory at first, but would inform debate about employers’ responsibilities

The review has been overseen by a panel of academics and policy experts, under the chairmanship of Professor Bain, and has been hosted by the Resolution Foundation for the last nine months. The report suggests that preparatory steps to implement its recommendations could be taken this year and that the government elected in 2015 should publish its strategy to reduce low pay and its ambitions for the minimum wage early in the first parliament.

Around 1.2 million workers earn the minimum wage (or no more than 5 pence above it). A further 1.4 million earn within 50 pence of the hourly minimum. And 5 million workers meet the official OECD definition of low-pay, earning below two-thirds of the median full-time hourly wage, currently £7.71 an hour.

Professor Sir George Bain, chair of the review and founding chair of the Low Pay Commission, said:

“When I helped set the UK’s first minimum wage in 1999, it felt like an embattled experiment.  Now the policy has the support of all parties and a powerful academic consensus shows it has raised wages without costing jobs.

“But it is time to admit that the policy we designed in the late 1990s was a child of its times. It is narrowly focused, short-sighted in the way it is set, and passive in what it expects of employers. This caution was important when we introduced a new policy into a hostile world. But today it has become a weakness, limiting what the minimum wage can achieve.

“Leading thinkers on left and right have argued in recent months that the minimum wage should be strengthened. This report sets out what that would mean. We think the core of the current settlement should be retained, but that we should build on this success a broader, more far-sighted and more assertive approach.”

The final report, More than a Minimum, will be published by the Resolution Foundation on Thursday 13 March. Professor Bain will present the report at a launch event at 10.30am to be held at the Resolution Foundation offices.

Ends

For more information contact:

Warwick Smith (head of communications) 020 3372 2959 or 07443 042722 warwick.smith@resolutionfoundation.org

Natalie Cox (communications officer) 020 3372 2955 or 07983 550337 natalie.cox@resolutionfoundation.org

Notes 

1.Members of the expert panel that conducted the review were:

Professor Sir George Bain (CHAIR) –founding Chair of the Low Pay Commission and former President and Vice-Chancellor of Queen’s University Belfast; Professor Paul Gregg – Professor of Economic and Social Policy and Director of the Centre for Analysis and Social Policy, University of Bath; Professor Alan Manning – Professor of Economics and former Head of the Economics Department, London School of Economics; Dr Abigail McKnight – Toyota Senior Research Fellow at the Centre for Analysis of Social Exclusion (CASE) at the London School of Economics; Professor Karen Mumford – Professor of Economics at the University of York and Chair of the Royal Economic Society Women’s Committee; Dr John Philpott, Director, The Jobs Economist consultancy; James Plunkett – Director of Policy and Development, Resolution Foundation; Nicola Smith – Head of Economic and Social Affairs Department, Trades Union Congress; Tony Wilson – Director of Policy, Centre for Economic and Social Inclusion.

2.The review was launched in July 2013 and has published two previous reports – 15 Years Later (an initial discussion paper from July 2013) and Minimum Wage Act II (an interim report released in February).

3.The work received the generous support of the Barrow Cadbury Trust, an independent, charitable foundation committed to bringing about socially just change.  The Trust provides grants to grassroots community groups and campaigns working in deprived communities in the UK, with a focus on Birmingham and the Black Country. The Trust also works with researchers, think tanks and government, often in partnership with other grant-makers, seeking to overcome the structural barriers to a more just and equal society.

4.The minimum wage currently stands at £6.31 an hour and the government has said it will accept the Low Pay Commission’s recommendation for it to rise to £6.50 from 1 October.

5.The Resolution Foundation is an independent think tank which works to improve the lives of people on low to middle incomes.