By Richard Johnstone | 21 February 2014
The National Minimum Wage is no longer able to tackle low pay in the UK and must be reformed, with education, social work and residential care among the sectors where pay could be higher, an architect of the policy has claimed.
Sir George Bain, the founding chair of the Low Pay Commission that sets the wage rate, published a report today with the Resolution Foundation.
This found the policy had been a ‘clear success’ since being first established in 1998. However, many workers were now clustered around the statutory set hourly rate – currently £6.31 – and it had became the going rate in some sectors, the report said.
Around 1.2 million workers are paid the minimum wage, or within 5 pence of it, while a further 1.4 million workers earn no more than 50 pence above the legal minimum. In total, 5 million workers remain low paid, based on the government’s definition of earning less than two-thirds of the typical hourly wage or below £7.71 an hour.
According to the report, more than four-fifths of all the UK’s low-paid workers are found in just 14 sectors, including public services such as social work, residential care and education. Employers in these areas ‘could very likely afford’ to pay employees more, Bain said.
In today’s discussion paper, he called for the NMW to be strengthened by setting an ‘ambition’ for increases over the medium term which would then be implemented by the commission. This could be done either in an approach that mimics the Bank of England’s forward guidance on interest rates – linking wages to earnings or economic growth – or through a rolling five-year target similar to the Office for Budget Responsibility’s assessment of the government’s fiscal plans.
Bain’s review, which will make final recommendations in the spring, also said the powers of the LPC should be extended to allow it to publish ‘reference rates’ for specific sectors that could afford to pay more.
He insisted it was time to examine how to strengthen the minimum wage for the years ahead.
‘Reform of the minimum wage will be hard to get right – it would be easy to damage a policy that works well,’ Bain added.
‘But our discussions suggest there are ways to take a more assertive and ambitious approach while still keeping the flexibility of the current system.’
