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  • Low Pay Commission

    National Minimum Wage

    Report 2014

  • National Minimum WageLow Pay Commission Report 2014

    Presented to Parliament by the Secretary of State for

    Business, Innovation and Skills by Command of Her Majesty

    March 2014

    Cm 8816

  • Crown copyright 2014

    You may re-use this information (excluding logos) free of charge in any format or medium, under the terms of the Open Government Licence v.2. To view this licence visit www.nationalarchives.gov.uk/doc/open-government-licence/version/2/ or email PSI@nationalarchives.gsi.gov.uk Where third party material has been identified, permission from the respective copyright holder must be sought.

    This publication is available at www.gov.uk/government/publications

    Any enquiries regarding this publication should be sent to us at the Department for Business, Innovation and Skills by phone on 020 7215 5000 or by email to enquiries@bis.gov.uk

    Print ISBN 9781474100427 Web ISBN 9781474100434

    Printed in the UK by the Williams Lea Group on behalf of the Controller of Her Majestys Stationery Office.

    ID 2626413 03/14

    Printed on paper containing 75% recycled fibre content minimum.

    www.nationalarchives.gov.uk/doc/open-government-licence/version/2/www.nationalarchives.gov.uk/doc/open-government-licence/version/2/mailto:PSI@nationalarchives.gsi.gov.ukwww.gov.uk/government/publicationsmailto:enquiries@bis.gov.uk

  • iii

    Contents

    Introduction vii

    Executive Summary xi

    Recommendations xix

    List of Figures xxi

    List of Tables xxv

    1 The Economic Context to the October 2013 Rates 1Introduction 12013 National Minimum Wage Upratings 2The UK Economy in 2013 3

    Gross Domestic Product 4Prices, Settlements and Earnings 7Real Wages 11Employment and Unemployment 13Productivity 17Revised Forecasts for 2013 and 2014 19

    Conclusion 20

    2 The Impact of the National Minimum Wage 21Introduction 21National Minimum Wage Jobs 22National Minimum Wage Workers 27Impact on Earnings and Pay 31

    National Minimum Wage Relative to Prices and Earnings 31Earnings Distributions 41Pay Gaps 47Pay Settlements and Pay Structures 49Research on Earnings and Pay 52Views on Earnings and Pay 56Summary on Earnings and Pay 58

    Impact on the Labour Market 59Employment and Employee Jobs 59Hours 67Vacancies and Redundancies 68Unemployment and Inactivity 70Research on Employment, Hours and Unemployment 71Views on Employment and Hours 74

  • iv

    National Minimum Wage

    Impact on Competitiveness 75Costs 75Prices 77Profits 79Births and Deaths of Firms 81Productivity 83Research on Competitiveness 84Views on Competitiveness 86

    Summary of Research 88Conclusion 89

    3 Young People and Apprentices 91Introduction 91Young People 91

    Youth Rates 91Earnings 92Labour Market Position 104

    Apprentices 114Apprentice Pay 118

    Conclusion 122

    4 Compliance and Operation of the National Minimum Wage 125Introduction 125Developing the Compliance and Enforcement Regime 125

    Implementing the Compliance Strategy 126Reviewing Penalties and Fair Arrears 127Revising the Naming Scheme 128Reviewing the Prosecutions Policy 129Raising Awareness 130Improving NMW Guidance 130Resourcing and Ensuring Access to the Enforcement Regime 131

    Addressing Compliance and Enforcement Issues 132The Nature and Extent of Non-compliance 133Apprentices 134Care Workers 136Unpaid Work: Interns, Work Experience and Volunteering 141Migrant Domestic Workers 144Fair Piece Rates: Homeworkers and Hotel Cleaners 147Accommodation Offset 148Transport Costs 151

    Conclusion 152

    5 The Rates 155Introduction 155Economic Prospects 155

    Prospects for Growth 156Prospects for Inflation, Pay Settlements and Earnings 162Prospects for Employment 166Summary of Forecasts for 2014 and 2015 168

  • v

    Stakeholder Views 169The Adult Rate 169The Youth Rates 171The Apprentice Rate 172

    Implications of Other Government Legislation 173Pension Reforms 173Changes to Personal Tax and Benefits System 175Abolition of the Agricultural Wages Board for England and Wales 176Changes to Other Regulations 177Other Government Announcements 178

    International Comparisons 178Recommended Rates 179

    The Adult Rate 179The Accommodation Offset 181The Youth Development Rate, 16-17 Year Old Rate and Apprentice Rate 181

    Implications of the Recommended Rates 182Position Relative to Average Earnings 182Coverage 183Impact on Household Income 185Wage Bills 185Exchequer Impact 185

    Conclusion 186

    6 The Future Path of the National Minimum Wage 187Introduction 187

    The Role of the National Minimum Wage 189The Low Pay Commission 190

    Part 1: The National Minimum Wage to Date 191The Path of the National Minimum Wage Since its Introduction 192The Impact of the National Minimum Wage 193The Wage Share of Income 199Labour Costs and Take-Home Pay 200

    Part 2: Conditions Needed for Faster Increases in the National Minimum Wage 204Stakeholder Views 204General Economic Conditions for Faster Minimum Wage Increases 207Previous Experience of Faster Increases in the National Minimum Wage 210Sectoral Conditions for Faster Minimum Wage Increases 211Implications of a Higher Bite for Low-paying Sectors 217

    Part 3: Scope to Affect the Conditions Needed for Faster Increases in the National Minimum Wage 218

    Scope to Influence General Economic Conditions 218Conditions Directly Created by Government Policies 219Sector Productivity 220Small Firms and the National Minimum Wage 221Other Considerations 223Clarifying the Forward Path of the National Minimum Wage 225

    Conclusion 227Conditions for Faster Increases in the National Minimum Wage 228

  • vi

    National Minimum Wage

    Annex A: The Bite of the National Minimum Wage in Low-paying Sectors 230Retail 230Hospitality 232Cleaning 233Social Care 234Childcare 235Hairdressing 236

    Annex B: Take-home Pay 238

    Appendices

    1 Consultation 243

    2 Low Pay Commission Research 247

    3 Minimum Wage Systems in Other Countries 263

    4 Main Data Sources 269

    References 277

  • vii

    Introduction

    Since we submitted our 2013 Report there has been an upsurge of public interest in the National

    Minimum Wage (NMW), often in the context of a broader discussion of living standards. Several

    independent bodies have initiated reviews of aspects of the NMW. The value of the minimum wage

    to those who receive it, the ability of employers to afford it, and strengthening the arrangements for

    enforcing it, have all been very widely discussed among politicians and in the media.

    The economic climate has also changed since we submitted our last report. The context then was

    one of acute financial pressures on employers and their employees in tough business conditions, as

    it had been when we submitted our 2012 Report. This year we have also seen and heard evidence

    about difficult economic circumstances, but we have also heard that, at least for some, conditions

    have eased in the last twelve months as the economy has grown more strongly.

    Our recommendations are again based on an extensive examination of the evidence. This has

    included written and oral submissions from stakeholders, meetings with employers and workers in

    low-paying sectors and small firms, a programme of commissioned external research and detailed

    in-house analysis of labour market and other economic data.

    RemitThis is the 15th Low Pay Commission report. Our remit from Government stated the Governments

    aim of having NMW rates that help as many low-paid workers as possible, while making sure that

    we do not damage their employment prospects. It asked us 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 2014; and

    review the contribution the NMW could make to the employment prospects of young people.

    In making recommendations in these areas we were asked to take account of the state of the

    economy, and employment and unemployment levels. We were asked to report to the Prime

    Minister, Deputy Prime Minister, and the Secretary of State for Business, Innovation and Skills by

    the end of February 2014.

    In September we were also asked to carry out an additional assessment. The Secretary of State

    for Business, Innovation and Skills requested that we take a longer-term view of the NMW, and

    consider the conditions that need to be in place to allow a faster increase in the minimum wage,

    taking into account the implications on employment. This year our report contains an extra chapter

    which provides this assessment, which is also available as a separate document.

  • viii

    Evidence We are again very grateful to those organisations and individuals that provided evidence about

    the NMW. We received 61 written responses to our consultation, some of which were helpfully

    extended at short notice to comment on the additional assessment mentioned above. Eight

    organisations presented to us at our regular meetings, and in November last year 35 came to our

    oral evidence sessions. Our Secretariat held more than 40 meetings with stakeholders. Appendix 1

    lists those who responded to our call for evidence.

    We have also visited employers, workers and others affected by low pay in the four countries of

    the UK. Eight visits took place during our work for this report, during which we had a total of 40

    meetings. We visited Birmingham and Wolverhampton; Gloucester and Newport; Dundee and Perth;

    London; Middlesbrough and Sal

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