LPC recommends moving towards a National Living Wage for over-18s
The Low Pay Commission (LPC) has published its advice to the Government on the future of the National Minimum Wage (NMW). The LPC’s report weighs up the progress of the minimum wage to date and sets out Commissioners’ views on the future of the rate.
The report comes as the National Living Wage (NLW) is set to reach the long-standing target of two-thirds of median hourly earnings, for workers aged 21 and over. Since 2016, the LPC has set the NLW with reference to a target. In this period, the NLW has risen far quicker than before the target was introduced and become one of the highest minimum wages in the world. In this context, the Government asked the LPC to help inform its next steps for NMW policy.
Commissioners’ recommendations include considering the case for reducing the NLW age of eligibility, reducing the gap between adult and youth rates and reforming the treatment of apprentices. The report discusses the advantages and disadvantages of different models of minimum wage policy.
Baroness Philippa Stroud, Chair of the Low Pay Commission, said: "Achieving the two-thirds target is a significant milestone.
"The target has boosted the incomes of low-paid workers in especially turbulent times. And whilst it has posed real challenges for employers, in already difficult circumstances, but the evidence suggests the increases to date have been implemented steadily and carefully so as not to damage employment opportunities.
"Our report reflects on the scale of this change and considers the way forward. There are various possible models for setting the minimum wage. In choosing the National Minimum Wage’s future direction, we stress the importance of clarity over the aims of the policy; and preserving the consensus-based social partnership model which ensures both worker and employer voices are heard.
"There are real opportunities in the next phase of minimum wage policy, to make advances for workers young and old. Whatever decisions are made will always need to be backed by careful attention to the economic context and a keen sense of the risks faced by employers. The Low Pay Commission’s model remains the best one for delivering these changes."
For the next phase of the NMW, the LPC advocates the Government should adopt either a further target or return to a principle-based approach. Both approaches have pros and cons. If the Government wants further ambition and reductions in inequality then a target is likely best. If the aim is to instead protect the progress made so far and be more responsive to economic conditions then a principle-based remit may be best suited.
The report also shows that the gap between the youth rates and the NLW has widened in recent years. The LPC believes this should be addressed; the gap is large by historical and international standards, is regarded as excessive and unfair by many stakeholders, and median pay for young workers has grown faster than their minimum wages, reflecting healthy demand for young workers. There is scope to reduce the gap without negative employment consequences and, if the evidence continues to support it, move towards an adult rate that begins at 18.
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