TWENTY-FIVE years ago this month the National Minimum Wage Act 1998 was passed, receiving royal assent to go on the statute book on July 31, 1998.
The resultant national minimum wage was introduced on April 1 the following year.
It is viewed by many as one of the flagship achievements of the first “New” Labour government under Tony Blair and Gordon Brown.
Indeed, it was a flagship policy of “New” Labour in the 1997 General Election manifesto that gave them a landslide victory, with a majority of 179 seats in the House of Commons.
With this majority, the only thing that could hold this Labour government back was its own politics.
So, after 25 years of operation, it’s a good time to look back and assess the effectiveness of the national minimum wage in ending or ameliorating low pay and poverty.
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Prior to 1999, there was no singular national minimum wage. What limited wage regulation there was existed in the form of wage councils dating from 1945 for low-paid sectors such as retail where union organisation was weak.
These wage councils covered some 2.5 million workers, providing not just for minimum wage rates by age but also overtime rates. Consecutive Conservative governments in the 1980s and 1990s abolished these, with the last one for agricultural workers being ended in 1993.
Of course, the introduction of a national minimum wage was opposed by the Tories who wrongly believed it would increase unemployment by raising costs, so making firms uneconomic – that is, unprofitable.
When the national minimum wage was established, the rate for those over 22 years old was £3.60 per hour and. For those between 18- 21, it was £3.00 per hour.
In 2023, there are now five rates: £10.42 per hour for those over 23; £10.18 for those between 21-22, £7.49 for those between 18-20; £5.28 for those between 16-17 and £5.28 for apprentices. The national minimum wage makes no provision for overtime rates.
The National Minimum Wage Act 1998 was classic “New” Labour in that while it recognised and addressed a palpable problem created by the Conservatives and capitalism, it did so in a way that was way less than whole-hearted.
The act was a form of “light touch” regulation and not just because the rate was set so low at the beginning, but also because the enforcement of the minimum wage is so lax.
Although there were enforcement orders, there were no penalties paid by employers unless they failed to act upon an enforcement order. And, it was not until 10 years ago that the process of “naming and shaming”
employers not paying the minimum wage began. But the problems and weakness of the minimum wage are much greater than just this.
First, having different levels for different ages takes no account of the manifest reality that the cost of living for any adult is pretty much the same, no matter their age.
Second, and to re-inforce the point about the low rates, the “living wage” was created in 2011 by the Living Wage Foundation.
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The “living wage” for 2023 is £10.90 per hour those aged 18 and older outside London and £11.95 in London. However, it is entirely voluntary and should not be confused with the attempt by the Tories to steal its clothes by changing the name of the national minimum for those over 23 to the “national living Wage” in 2016. Anti-poverty campaigners believe £15 per hour is the least that is now needed.
Third, there is more in-work poverty than ever before, with many claiming benefits in order just to try to make ends meet. This is the clearest indication that the national minimum wage has effectively legitimised low pay by giving it a statutory underpinning.
It also means the state is effectively subsidising low-paying employers by allowing them to pay this level, which then necessitates these workers to also claim benefits.
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And, in the meantime as we all know, levels of wealth and income inequality continue to soar in Britain.
The case of the national minimum wage is as good an indication as any that the politics of “New” Labour was only to tinker around the edges with very limited reform and place far more trust in the so-called dynamism of the market to raise living standards albeit with a bit of finessing through a little “light touch” regulation.
The salience of this is that not only is the national minimum wage still in existence and still way too low but that it is also a harbinger of what a Starmer-led Labour government will do and will not do.
Starmer plans no changes to the minimum wage and has shown his fiscally conservative nature by lowering the expectations of what people can hope for from a Labour government. He is continually making clear that substantial and much-needed change is not on the agenda for Labour.
Professor Gregor Gall is a Visiting Professor of Industrial Relations at the University of Leeds
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