The national minimum wage in the UK sets minimum hourly rates that employers must pay their workers. It covers almost all workers in the UK. There are three age-based rates and an apprentice rate, which are set in October every year by the by the Chancellor of the Exchequer and enforced by HM Revenue & Customs (HMRC). The minimum wage is based on gross pay, before tax and national insurance are deducted.
There are no variations or exclusions based on region, size of employer, industrial sector or occupation. Workers cannot be excluded on the basis of their hours of work, employment pattern, length of service or contract status.
There are some categories of workers who are excluded from the minimum wage. These include workers who are self-employed, those who are under the school-leaving age, who live in their employers’ homes (domestic workers), interns, volunteers and students on work placement schemes as well as members of the employer’s family and prisoners.
Until the early years of the 20th century, wage rates were freely determined by the employer because trade unions were in their infancy and did not engage in collective bargaining over wages. This led to very low wages in some industries, and for particular categories of workers like women and children.
In 1909, the Trade Boards Act created four Trades Boards that set minimum wages for industries where wages were particularly low - ready and bespoke tailoring, paper box making, lace finishing and chain making. This system was extended to the service and manufacturing sector through the creation of wage councils in 1945. Throughout the 20th century, minimum wage rates were set by different trade associations, and trade unions campaigned on behalf of their members over the minimum wage rates for particular occupations.
The Labour government enacted the National Minimum Wage Act 1998, which came into effect on 1st April 1999. This move was then widely opposed by industry representatives who predicted - wrongly as it turned out - that setting a legally enforceable minimum wage would have an adverse effect on employment levels. Today all political parties are committed to the national minimum wage.
The law on national minimum wage in the UK (2013)
It is against the law to pay less than the national minimum wage. Workers who are being paid below the national minimum wage can take their employer to court for backdated wages going back 6 years.
From 1 November, 1998 it has been against the law to dismiss or victimise someone because they are eligible for the national minimum wage. This prevents employers from replacing workers who are entitled to the minimum wage with those who qualify for a lower rate or are excluded altogether.
The Employment Act 2008 strengthened the penalties that could be levied against employers found to be paying less than the national minimum wage. In addition to the backdated wages, this act introduced an automatic penalty for employers who fail to comply with the national minimum wage, which came into force on 6 April 2009. However, this penalty is capped at £5,000 and is halved if an employer complies fully with a notice of underpayment within 14 days of service. Since 1 January 2011, the Department of Business, Innovation and Skills (BIS) have been able to name and shame by press release, employers who fail to adhere to national minimum wage law.
Problems and issues for the future
Several years after the introduction of a statutory minimum wage, research indicates that agency workers, migrant workers, domestic workers, those paid by piece rates, care workers and workers in sectors like catering and hospitality continue to be paid below the minimum wage.
Though the minimum wage is a legal requirement, enforcement remains a big issue. The compliance teams, whose job it is to investigate and remedy any breaches of this legislation are very small. The average time taken from complaint to enforcement remains too long: the time taken from the registration of a complaint by a worker to the closure of a case ranged from between 79.5 to 198.6 working days in 2011 (House of Commons written answers for questions posed on 12 July 2011, pt 0003).
However, by far the biggest issue is that the national minimum wage is not an adequate wage on which a worker can have a decent living standard. Because the minimum wage is set at such a low level, linked more to benefit levels than average earnings, as well as because of poor enforcement, some families remain in poverty despite having members who work. Research by Kenway (2008) for Joseph Rowntree Foundation shows that more than 50% of children living in poverty live in households where there is someone in work. Many campaigners, unions, working groups and employers now favour the payment of what they call a “Living Wage”. In October 2012, the accountancy firm KPMG (which supports the living wage idea) reported that 20% of all workers in the UK, nearly five million people, are paid below it.
The living wage
The living wage is an hourly rate calculated according to the basic cost of living in the UK and set independently and updated annually. It is a calculation of the minimum pay rates needed to let workers lead a decent life taking into account the cost of living including housing, transport, childcare, council tax and other necessities in London and other parts of the UK.
The UK Living Wage is calculated by the Centre for Research in Social Policy. The London Living Wage is calculated by the Greater London Authority. The figures for the current hourly living wage in Greater London and in other parts of the UK are available at: http://www.livingwage.org.uk/
Employers choose to pay the living wage on a voluntary basis. A broad coalition of trade unions, church groups, community organisations and charities like the Living Wage Foundation and CitizensUK have campaigned for a living wage for workers. They have used social sanctions, media publicity, petitions, and in the case of big business, tabled questions at public events like their Annual General Meetings to raise the issue of a living wage. Additionally, the trade unions have also backed strike action and actions short of a strike to fight for a living wage for their members.
Some of the employers who pay the Living Wage include universities in London (Queen Mary’s, SOAS, Birkbeck); the Cardiff, Birmingham, Newcastle and Norwich local authorities; and TFL for its cleaners since 2010. In 2012, the Houses of parliament were in the news over the campaign by cleaners working there for a living wage.
A 'National Living Wage' announced in 2015: Surely this is good news?
A surprise announcement made by the Tory Chancellor George Osborne in the 2015 budget was a new 'National Living Wage' to be introduced the following year (2016) of £7.20 per hour. Surely this is good news?
Firstly, the so-called 'national living wage' is not a living wage. The concept of a living wage is based on what it takes for an average family to meet the basic cost of living, which is different across the UK. For example, travel costs and rents are vastly greater in London, which the living wage reflects. So one uniform 'national' living wage cannot reflect the varying costs of living across the country.
Secondly, the living wage is set every year and takes into account the inflation and other changes in the economy that effect living costs. It is therefore not possible to set a figure for a living wage in advance.
Additionally, the proposed amount of £7.20 per hour in 2016 was the prescribed living wage for UK in 2011 (in that year the London living wage was £8.20). The actual living wage in 2015, when the statement was made, was £9.15 in London and £7.85 elsewhere. So the amount proposed for the future falls far short of the real living wage even today.
It would be far more accurate to describe this as a rise in the national minimum wage.
By calling it a 'national living wage' Osborne has co-opted the label of 'living wage'. In some ways this indicates the acceptability of the concept of living wage and the success of the campaign for a living wage. However, it is also a dangerous dilution of the concept and threatens to undermine it by deliberately mis-applying it. Several newspapers lauded Osborne's announcement without questioning the use of the term 'living wage' for what is clearly not a 'living wage'.
What is the difference between the living wage and the national minimum wage?
|National Minimum wage
|The national minimum wage is the least that an employer can legally pay a worker, per hour, for any work they do for them.
|The living wage is an informal benchmark, not a legally enforceable minimum level of pay, like the national minimum wage.
|What was it in 2012?
|For 2012, the national minimum wage was:
Aged 21 or over: £6.19 per hour
Aged 18-20: £4.98 per hour
Aged 16-17: £3.68 per hour
Apprentices under 19 or aged 19 or over in their first year: £2.65 per hour
|For 2012, the living wage is now set at £8.55 an hour in London and £7.45 an hour in the rest of the UK.
|What happens if an employer pays below this rate?
|They are breaking the law. The worker has the right to take them to court and claim backdated wages.
|Campaigners can use social sanctions against employers who pay low wages.
|How many employers pay this?
|Compliance remains high, but particular sectors and particular categories of workers are exploited by employers.
|80% of workers are paid above this rate.