National minimum wage increase: what will it mean for London businesses?


New rates for the minimum wage came in on 1 October. We look at the responses for and against

The National Minimum Wage Act has been a sore point for free market evangelists and a triumph for civil liberties campaigners ever since a fresh-faced Tony Blair brought it in against the sound track to one-hit wonders D:Ream.

While its premise might seem simple, to create a standardised national wage as set by the Low Pay Commission (the quango set up as part of the 1998 act), its impact on economies is anything but and it remains hotly debated among business leaders, economists and pretty much everybody else in between.

But despite initial Tory opposition and Liberal Democratic scepticism, the national minimum wage looks set to stay and on Saturday 1 October the wage for adults aged 21 or over rose to £6.08 an hour, a rise of 15p.

Good news for 18-20-year-olds too: their rate increased by 6p, up to £4.98 an hour. For 16-17-year-olds the new wage is £3.68 an hour, while apprentice rates rose to £2.60 an hour – up by 10p.

Yet, at a time of chronic youth unemployment, the increased limit will discourage firms from creating jobs for inexperienced staff says not the Institute of Directors nor the British Chambers of Commerce but, incredibly, the Low Pay Commission itself.

Speaking to the Daily Telegraph, the Commission’s chief economist, Tim Butcher, said the Commission would be investigating the role the minimum wage plays and has in Britain’s growing youth unemployment problem.

“Recent research has found evidence that in difficult economic circumstances the level of the minimum wage may have had an impact on the employment of young people,” the commission told ministers.

“We don’t know what the minimum wage effect is in isolation from the recession. We do know recessions affect young people as employers operate first-in, first-out and look for people with experience,” said Butcher.

Writing for the Observer, Heather Stewart, chose the wage increase to highlight the plight of the minimum wage’s feisty cousin, the Boris Johnson backed London living wage of £8.30 an hour.

“A more direct approach is bottom-up agitation. In the capital, the Living Wage campaign, run by London Citizens, a coalition of religious leaders, community activists and trades unionists, was launched a decade ago to highlight the plight of many workers doing jobs essential to the smooth running of London,”writes Stewart.

Meanwhile Mark Littlewood of the Institute of Economic Affairs said the minimum wage should be scrapped altogether.

Speaking on BBC 5 live Breakfast he said: “Let’s be realistic about this, if you make it illegal to employ somebody at £6.07 pence or less, you are closing down every job that any businesses or company might think is worth doing at some price between 0-£6.07 an hour.

“Don’t be surprised when you have nearly a million of 16-24 year-olds out of work. If you’re running a business and you think a job is worth about £5, £5.50 to my business, it is now illegal to employ somebody at that rate.”

Writing in Forbes, blogger Tim Worstall, pointed to the Commission’s comments on youth unemployment and said: “We have a minimum wage in the UK which is more than 50% of the mean wage for the younger age groups and we also have a disproportionate concentration of unemployment among these groups.

“The solution, clearly, is to reduce the minimum wage for those age groups.”