Celebrating 10 years of the UK minimum wage... or 100?

This year marks the 10th anniversary of the introduction of the UK minimum wage. But it can also be argued to represent its centenary, writes XpertHR benchmarking editor Michael Carty.

Earlier this month, the latest annual increase to the UK national minimum wage came into effect. The 1.2% rise in the minimum adult rate (to £5.80 per hour) was the lowest increase since the national minimum wage was introduced just over a decade ago, in April 1999. But 2009 also sees the 100th anniversary of a UK minimum wage (PDF format, 257.7K), according to the Centre for Economic Performance (CEP).

A century since the Trade Boards Act 1909

Indeed, the CEP points out that today (Tuesday 20 October 2009) marks the 100th anniversary of the passage into law of the Trade Boards Act 1909, from a Bill introduced to Parliament by one Winston Churchill (then president of the Board of Trade) earlier that year, on 24 March 1909.

In an article in the current edition of the CEP's CentrePiece magazine, academics Simon Deakin and Francis Green trace the century-long history of the minimum wage in Britain, which they describe as "a hundred years of controversy, progress and regress since the first minimum wage was introduced."

According to Deakin and Green:

"The Trade Boards Act of 1909 empowered the relevant Government ministry of the day, the Board of Trade, to set up a board in any industry in which wage rates were 'exceptionally low compared with that in other employments'. The trade boards resembled joint negotiating bodies, with representatives of employers and workers from the trades concerned and some independents."

The trade boards had powers to set minimum hourly rates of pay and equivalent piece rates. The number of industries covered by the trade boards quickly expanded from four in 1909 (ready and bespoke tailoring, paper box making, lace finishing and chain making) to more than 40 by 1921, by which point some three million UK workers were consequently benefiting from a minimum wage.

The Wage Councils Act 1945 brought widespread reform to this system, and saw the trade boards become wages councils, covering approximately one in four UK workers.

But over the ensuing decades, Deakin and Green observe that "the wages councils system struggled to maintain its legitimacy [...] The prevailing view was that the retention of statutory controls was holding back the development of voluntary collective bargaining."

The wages councils system started to unravel in the 1960s and 1970s, with the abolition of a number of wages councils. By the time of Margaret Thatcher's Conservative Government in the 1980s, "the policy pendulum moved decisively in the direction of labour market deregulation," according to Deakin and Green. The Wages Act 1986 removed much of the power of the wages councils, and the final 26 wages councils were abolished in 1993.

The National Minimum Wage Act 1998 revives the tradition

The 1999 introduction of the National Minimum Wage Act 1998 followed the accession to power of a new Labour Government in 1997. And as Deakin and Green point out: "[T]he 1998 Act owes much to the wages council system, [and] even more to the original trade boards model of 1909."
Over the last 10 years, the national minimum wage has firmly established itself as part of the UK employment landscape. The national minimum wage currently covers some 950,000 UK workers, according to the TUC.

Earlier this year, research from our colleagues at IRS found that since its inception, the national minimum wage has gained wide acceptance among employers, with nine out of 10 of survey respondents supporting the then-current adult rate.

The national minimum wage and the 2010 general election

So what will the future hold for the national minimum wage?

As we noted above, the October 2009 national minimum wage uprating marked the lowest increase yet seen. The focus is now on what can be expected from the 2010/2011 national minimum wage increase, which will come into effect from 1 October 2010. Much hinges on who wins the 2010 general election.

If Labour wins the 2010 general election, the national minimum wage will rise each year between 2010 and 2014, according to Gordon Brown in his speech to the Labour party conference in Brighton. CBI deputy director-general, John Cridland, was critical of Brown's promise of guaranteed national minimum wage rises, commenting: "There is a danger of undermining [the Low Pay Commission's] standing if politicians make promises about what will happen to the minimum wage in future."

But if a new Conservative Government emerges in 2010, will we see another swing of the pendulum back towards labour market deregulation, with possible consequences for the national minimum wage?

David Cameron promised in his Conservative party conference speech that if elected, his party would "fight for the poorest". But the Conservatives have yet to weigh in with any explicit promises on their plans for the national minimum wage.

In a separate article in the Autumn 2009 edition of the CEP's CentrePiece journal, academic and CEP labour market research programme director Alan Manning looks at future prospects for the national minimum wage (PDF format, 349.5K). Manning says:

"The UK's national minimum wage is here to stay. Although the Conservative party abolished the wages councils and fought the introduction of the minimum wage, they no longer propose to remove it."

Writing on XpertHR, Darren Newman considers what a new Conservative Government could mean for UK employment law (subscription required), including the national minimum wage. He notes that under the terms of the National Minimum Wage Act 1998, it would be entirely permissible for the statutory pay floor to be frozen or even reduced by an incoming Conservative Government. According to Newman:

"Whether or not such a course is politically likely is a different matter, but the important point is that the change could be made without the need for primary legislation."

The future of the UK national minimum wage therefore appears assured, although its form could yet change substantially.