The British National Minimum Wage

DOIhttp://doi.org/10.1111/1467-8543.00124
Date01 June 1999
Published date01 June 1999
The British National Minimum Wage
David Metcalf
Abstract
Great Britain has had statutory regulation of minimum pay for much of this
century but never previously had a national minimum wage (NMW). This
paper outlines the history of minimum wage regulation culminating in 1997
with the establishment of the Low Pay Commission (LPC) and the
introduction of the NMW in 1999. The main issues considered by the LPC
were the de®nition of the NMW, the rate itself, and what to do about younger
workers. Although there is general agreement that minimum wage systems
reduce wage inequality, their impact on the distribution of household income
is more controversial. Evidence presented suggests the NMW may have a
more egalitarian impact on household incomes than is sometimes asserted.
The Report of the LPC is only the beginning of the story. Responses to it
were generally favourable; parliamentary regulations are needed to translate
the recommendations into law; the NMW has to be enforced and evaluated.
This necessary follow-up to the Report is discussed in the concluding
sections.
1. Introduction
Statutory regulation of minimum pay has existed for most of this century in
the United Kingdom but there has never previously been a national
minimum wage (NMW). From April 1999 there is a NMW of £3.60 an
hour for those aged 22 and over, with a lower rate of £3 for those aged 18±
21.
This paper is organized in four parts. Section 2 deals with institutions and
processes. A brief history of minimum wage regulation is presented in
Section 2.1, followed in Section 2.2 by a discussion of the Low Pay
Commission (LPC) which recommended the NMW. The three main
debates inside the LPC are the subject of Section 3; they concern the
de®nition of the NMW, the choice of the rate itself and how to treat
younger workers, and are discussed in Sections 3.1±3.3, respectively.
Evidence on the groups of workers who will gain from the introduction of
the NMW is presented in Section 3.4. Section 4 examines international and
David Metcalf is at the Centre for Economic Performance, London School of Economics.
British Journal of Industrial Relations
37:2 June 1999 0007±1080 pp. 171±201
#Blackwell Publishers Ltd/London School of Economics 1999. Published by Blackwell Publishers Ltd,
108 Cowley Road, Oxford, OX4 1JF, UK and 350 Main Street, Malden, MA 02148, USA.
domestic evidence on the impact of NMW systems. Most OECD countries
have some system of minimum wages, and the UK is put into a comparative
context in Section 4.1, which concludes that minimum wage systems reduce
pay inequality, but any impact of the NMW on the distribution of
household income is more controversial; some evidence for the UK is
presented in Section 4.2.
Section 5 sets out the reactions and follow-up to the Report of the LPC
recommending the level of the NMW, published in June 1998 (LPC 1998).
Reactions to the Report are analysed in Section 5.1. The Report is only the
beginning of the story. The Regulations by which the recommendations are
translated into law are discussed in Section 5.2; the important matter of
enforcement is examined in Section 5.3; and, ®nally, implementation and
evaluation of the NMW are considered in Section 5.4.
2. Institution and processes
2.1. History of minimum wage regulation
Great Britain has had statutory regulation of some wages for almost all of
this century (see Metcalf 1981: chapter 5). For example, the Fair Wage
Resolutions (FWR) were introduced in 1891 in an attempt to eliminate
unfair competition for public-sector contracts based on undercutting
recognized pay rates. These FWRs were in place for ninety years.
Similarly, the Wages Council system was established in 1909, peaked with
a coverage of 3.5 million workers in 1953, and successfully provided
surrogate collective bargaining for many low-paid workers until the
system was abolished in 1993.
Both the union movement and the Labour Party supported the Wages
Council system of setting minimum wages, and both were generally, but
not universally, hostile to a statutory NMW, because they aspired to
replace the Councils by collective bargaining. But the advent of the
Conservative government in 1979 stymied any such extension of collec-
tive bargaining. During the 1980s the Wages Councils' `bite' Ð their pay
rates relative to average pay Ð weakened, under-21-year-olds were
removed from coverage, and inspection and enforcement efforts ground
to a halt. Led by Rodney Bickerstaff from (as it was then) the National
Union of Public Employees, ably supported by Chris Pond from the Low
Pay Unit pressure group, ®rst the TUC (in 1985) and then the Labour
Party (in 1986) embraced the NMW. For traditionalists in the union
movement, the embrace was not very warm. Even in the debate in which
the TUC adopted the NMW, Ron Todd, General Secretary of the
TGWU, expressed the `fear that a statutory minimum could be used by
employers to undermine trade union organization, negotiation and
collective bargaining', and as late as 1991, Gavin Laird of the AEU was
arguing that `you can't advance free collective bargaining and at the same
#Blackwell Publishers Ltd/London School of Economics 1999.
172 British Journal of Industrial Relations

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