National minimum wage enjoys trouble-free introduction

The national minimum wage, introduced in April 1999 amid dire warnings of rampant inflation and mass unemployment, has in fact caused relatively few ripples during its first 18 months, according to the Department of Trade and Industry.

The DTI's first annual report on the national minimum wage, published last week, suggests that the vast majority of employers have had little difficulty complying since the low pay threshold became law in April last year.

The statistical evidence is conclusive. The Inland Revenue, which enforces the 1998 Minimum Wage Act, investigated just 6,000 cases of non-compliance in the year to April 2000. In all but 136 of these, the employer fell into line immediately, and of the remainder, just 12 proceeded to a full employment tribunal.

In each case, the tribunal found in favour of the employee, ordering employers to hand over a total of 1.25 million pounds in wage arrears. No criminal prosecutions were brought.

The retail and hospitality sectors were the worst offenders, the DTI said.

The DTI report also underlines the relatively reduced scope of the Minimum Wage Act. It estimates that no more than 1.5 million workers have seen their pay packet rise, even after last month's ten pence increase in the minimum wage, to 3.70 pounds an hour, is factored in.

This harmonious picture contrasts sharply with the doom-laden predictions of some commentators in the run-up to April 1999. Economic think-tank Business Strategies predicted that the new law would force businesses to rely on increases in efficiency to remain in profit, leaving them with no choice but to lay off staff in the event of a slump in sales. BS forecast that some 80,000 workers would lose their jobs as a direct result of the minimum wage within three years of its introduction.

The Forum of Private Business, an association of privately-owned small firms, took an even more pessimistic view, predicting total job losses of 315,000.

In the event, employers large and small have coped with little difficulty. UK unemployment has actually fallen since the minimum wage was introduced, leaving the labour market stretched as tight as a drum. Even more surprisingly, inflation has also fallen during the same period, dipping to a record low of 1.9% per year in August 2000.

Analysts say this is due to a combination of two factors. Firstly, the economy has grown by a healthy 3 to 4% over the last 18 months, leaving most businesses with more slack than they might have expected. Job losses related to the minimum wage might well have been higher if it had been introduced against a backdrop of economic recession.

Secondly, the DTI reports that there is some evidence that many employers, especially small firms, have absorbed the extra wage costs by raising productivity. This is also the view of the Confederation of British Industry, which perhaps unexpectedly took a relaxed view of the minimum wage all along.

Small business associations add that the impact on small-to-medium sized firms has been minimal, arguing that relatively few SME employees were paid less than 3.70 an hour before the minimum wage was introduced. SMEs by and large are not the poorest payers, said a spokesman for the Federation of Small Business. It's often the larger companies who flout minimum wage rules.

While there is still strong resistance amongst employers to the Trades Union Congress' recent call for a hike in the minimum wage to 5 pounds an hour, even the Forum of Private Business has now softened its stance on the NMW as it is currently set. A spokesman said this is because there is now a wider appreciation among FPB members of the ethical dimension of the minimum wage issue.