National Minimum Wage – new government approves increase and new apprentice rate

The Conservative party was a vociferous opponent of the introduction of a National Minimum Wage. As long ago as 1991 Michael Howard, then Employment Secretary, rejected calls for its introduction with a claim that it would “cost two million jobs.” These claims were repeated in 1997 on the announcement of its introduction by the incoming Labour government.

In fact, despite neither party having a crystal ball as to what would really happen, it is now accepted that the NMW’s protection vastly outweighs its effect on unemployment figures. A 2006 study by the London School of Economics found that:

The consensus is that the minimum wage has not cost jobs, either in the aggregate economy or in the low wage industries and occupations.

..despite this outcome being contrary to the predictions of conventional economic theory. Read a summary of the study here:

David Cameron, and the coalition government, are cautious converts to the NMW, and have accepted the proposals of the Low Pay Commission that rates be increased as follows, effective 1st October 2010:

New National Minimum Wage rates

  • Adult rate: £5.93 (up from £5.80)
  • Development rate: £4.92 (up from £4.83)
  • 16-17 year old rate: £3.64 (up from £3.57)
  • Apprenticeship rate: £2.50

Note that the Adult rate now applies from age 21 instead of 22. The Development rate thus applies to 18, 19 and twenty-year-olds. The apprenticeship rate is a new development – a 37 hour week would now pay £92.50. There was already a de facto minimum of £95 per week, but the introduction of an hourly rate is designed to stop abuses of apprentices by having them work excessive hours.