National minimum wage 2012/2013: What can we expect from the October 2012 national minimum wage increase?

Forged Pound CoinsGiven the current backdrop of ongoing economic uncertainty, subdued pay awards, rising unemployment and falling inflation, news of the annual increase to the national minimum wage for 2012/2013 (due to come into effect on Monday 1 October 2012) will be particularly closely watched.

The Low Pay Commission (LPC) is scheduled to deliver its 2012 report – which will set out its recommendations for the 2012/2013 national minimum wage rates – to the Government by the end of February 2012.

The Government will then announce the national minimum wage rates for 2012/2013 a few weeks later, although we do not yet know if this will form part of Chancellor George Osborne’s Budget 2012 speech on Wednesday 21 March 2012.

Here, we look at what might be expected from the national minimum wage increase for 2012/2013. This post will be kept updated as new information emerges on what we might expect from the national minimum wage in 2012/2013.

Major changes in store for the UK national minimum wage?

The 2011/2012 national minimum wage increase saw the UK national minimum wage break the £6 per hour barrier for the first time. With effect from 1 October 2011, the national minimum wage adult rate increased to £6.08 per hour, an increase of 2.5% on the 2010/2011 national minimum wage adult rate of £5.93 per hour. The LPC’s 2011 report says that “the 2011/2012 national minimum wage adult rate increase “take[s] account of the continued economic uncertainty while protecting the lowest-paid workers from falling further behind the average.”

National minimum wage 2012/2013: What can we expect?

So what can we expect from the national minimum wage in 2012/2013?

It is possible that we will see major change to the national minimum wage over the coming years. Potential changes include: the introduction of two-year national minimum wage increases; and an increase of the minimum income tax threshold to remove income tax obligations from workers on the national minimum wage:

  • The remit for the LPC’s 2012 report includes a “simplification agenda,” under which the LPC must “consider whether national minimum wage regulations can be made even simpler and easier to administer.” One aspect of this “simplification agenda” is to consider “the removal, simplification or consolidation of any elements of the national minimum wage.” The LPC is also tasked to “consider the best way to give business greater clarity on future levels of the national minimum wage, including the option of two-year recommendations.” Such a move would address a common complaint from some employers, who feel that the current system does not provide sufficient time to prepare for each year’s national minimum wage increase.  Indeed, nearly two-fifths of employers surveyed by XpertHR in 2011 said that the national minimum wage should be updated every two years (XpertHR Benchmarking subscription required).
  • The LPC’s remit for 2012 also includes the following task: “Review the labour market position of young people, including those in apprenticeships and internships.” The Daily Telegraph reported that LPC chief economist Tim Butcher has suggested that (as the Telegraph puts it) “firms may be reluctant to create jobs by recruiting inexperienced staff because they are put off by the increased wage bill.” It says that this perspective will inform the LPC’s review of the labour market position of young people. It quotes Tim Butcher as follows: “We don’t know what the [national] minimum wage effect is in isolation from the recession effect. We do know recessions affect young people as employers operate first-in, first-out and look for people with experience.”
  • In late November 2011, the Coalition Government announced what it termed “the most radical reform to the employment law system for decades.” Its proposals included further detail on the national minimum wage simplification agenda. XpertHR reports that “The Government will simplify the legislation by merging the current body of 17 different regulations into one consolidated set.”
  • Further down the line, reports suggest that the Coalition Government will announce plans to remove income tax obligations from workers receiving the national minimum wage in time for the 2015 general election. The Guardian’s Allegra Stratton reports: “[The Government is] committed to raising the income-tax-free threshold to £10,000 by 2015, but they would like to go into the next election pledging to lift all low earners on the [national] minimum wage or less out of income tax altogether. A pre-election reintroduction of the 10p rate would ease life for those on just that little bit above £10k before they can be given their earnings fully tax-free.”
  • The LPC’s invitation to tender for research for its 2013 report offers further clues as to what might be in store for the national minimum wage. These include a planned focus on “the impact [of the national minimum wage] on young people (including raising the participation age),” as well as analysis of the impact of the national minimum wage “on earnings, employment and hours” and “on the consumption spending of minimum wage workers.” Presumably, the LPC’s report for 2013 – which will set out its recommendations for the national minimum wage rate for 2013/2014 – will not be scheduled to be delivered to the Government until the end of February 2013.  

However, as XpertHR notes, it is not a foregone conclusion that we will see any increase to the national minimum wage in 2012/2013.

National minimum wage 2012/2013 recommendations from unions and employment bodies

Here is a summary of recommendations relating to the national minimum wage increase for 2012/2013 from trade unions and employment bodies:

  • British Retail Consortium (BRC) Director General, Stephen Robertson says: “We are asking that [the October 2012 national] minimum wage rise is kept at 2.1 per cent or below.”

  • The CBI wants to see “a highly cautious approach to the adult national minimum wage in light of the weak and uncertain economic recovery and high levels of unemployment.” It says that “given the particularly challenging employment prospects for young people, with the youth unemployment rate above 20%, controlling the youth and apprentice rates will be vital.”
  • The CIPD has called on the LPC to recommend that national minimum wage rates paid to younger workers be frozen in 2012/2013. In a Twitter discussion with me and @neilmorrison earlier today (Monday 3 October 2011), the CIPD stated that it believes that the “national minimum wage is harming youth employment in some sectors,” and should therefore be frozen next year (although it notes that this is “a finely balanced decision”). The CIPD also said (again via Twitter): “we’ve called for a freeze in past. We support NMW, but with rising unmplyment, temp freeze may be for greater good.” The CIPD believes that such a national minimum wage freeze for 2012/2013 should be confined to younger workers. It says that the “adult rate appears to have less overall impact but there are variations by region & sector. So policy focus wld be on the yth rates.” The CIPD argues that it would like to see national minimum wage rates for younger workers frozen until the economy recovers: “The freeze could be absolute or relative, but would last until we see more robust growth.” Access the CIPD’s full submission to the LPC here.
  • The TUC wants to see an above-inflation increase to the national minimum wage in 2012/2013. It says that national minimum wage increases set at “more than the retail prices index (RPI) [inflation] or the growth in average earnings – depending on which is higher – is both necessary and affordable, and will help address the loss in the real value of the NMW caused by below-inflation increases in the rate in previous years.” Access the TUC’s full submission to the LPC here.
  • Unison is calling for rapid increases to take the national minimum wage significantly higher, to stand at £8 per hour in 2012/2013. Unison says it will “continue to campaign for a substantial increase [to the national minimum wage], in line with the rising cost of living. The union’s recent submission to the Low Pay Commission also called for all employees to have access to a living wage of £8 an hour.”

XpertHR will of course keep you updated as to further developments regarding the national minimum wage rates for 2012/2013.

UPDATE 1 (Friday 27 January 2012):

  • The national minimum wage: ‘A machine to destroy jobs’? “The minimum wage is a machine to destroy jobs.” This is according to Prudential Chief Executive Tidjane Thiam, speaking at the World Economic Forum in Davos on Thursday 26 January 2012. Thiam argued that the national minimum wage is a “false social policy” designed to protect workers, but which serves to prevent the unemployed from finding work.

UPDATE 2 (Tuesday 21 February 2012):

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