Reappraising the NMW. Still Fit for Purpose?

The campaign to persuade employers to pay the 'living wage' - a rate that is considerably higher than the prescribed National Minimum Wage - has also been fuelling concerns about the adequacy and relevance of the National Minimum Wage (NMW), and its effectiveness as a wage-setting mechanism. Particularly in the aftermath of successful industrial actions like the London Underground cleaners' strike in 2010 (which used the ‘living wage’ as the basis for the claim), the question, inevitably, is what is the point of the national minimum wage - particularly if it is set at such a low level? Is it now so unfit for purpose as to be irrelevant?

In the UK the Low Pay Commission is routinely accused of being over-cautious. Much of the criticism focuses on the Commission’s reluctance to impose an excessive burden on employers’ costs, thereby inhibiting job creation or distorting pay differentials. As the Commission itself has conceded, such concerns have not, in fact, materialised ('The Impact of the National Minimum Wage on Pay Setting since 1994', Income Data Services, 2011). Apart from the low level at which it is set, there are continuing concerns about deliverability. Even if the NMW can assist low paid workers in segmented labour markets where the wage levels are so low as to bear little resemblance to the rest of the labour market, non-compliance and enforcement concerns are still a major issue, despite the improvements made by the Employment Act 2008 to the enforcement regime (which came in the aftermath of the TUC's Commission on Vulnerable Work).

As argued in this paper, notwithstanding such concerns the NMW does still have the potential to perform its primary function as a regulatory intervention, which is to establish a legally enforceable minimum floor of income from the contractual wage. That ‘floor’ within the wages component of the wage-work bargain can then be supplemented by in-work welfare provision – in effect, the State’s secondary ‘wage’. This is a major plank in efforts by the International Labour Organisation (ILO) to widen the floor of social protection advocated in the Bachelet Report, 2012. This was, indeed, how New Labour also envisaged the scheme would work. In effect, a minimum floor of contractual wage income supplemented, as necessary, by State support through tax credits and other in-work assistance. As explained by Bob Simpson in his commentary in 2004, the NMW had ‘the limited role of supporting the system of tax credits’ and which by 2003 was being ‘reformed with the ostensible aim of increasing incentives to work’ (B. Simpson ‘The National Minimum Wage Five years On: Reflections on Some General Issues’ (2004) 33 ILJ 22.

The importance of that secondary wage is seen in the way Working Tax Credit currently meets childcare and a range of other costs; and schemes like Housing Benefit assist with workers’ rent costs. In the case of rent, take-up has risen dramatically. A combination of low wages and increasing rents has produced a sharp rise in the number of working Housing Benefit claimants (417,830 more in three years) - an increase of 86% since 2009 according to the National Housing Federation in Home Truths 2012: The Housing Market in England (NFH, 2012).

The problem is that both the NMW and in-work welfare systems, as distributive justice mechanisms, are under attack. The Coalition government has made it clear that the NMW from the end of 2012 onwards will only be raised by ‘below inflation’ rises - a stance intended to signal concerns that raising it any higher could jeopardise their ‘growth’ and ‘enterprise’ agendas. To that extent, it does not really matter what the Low Pay Commission thinks, or relies on in terms of ‘evidence’. The ultimate decision is always the government’s, and it is ultimately a political one. On the welfare side, the decision has been taken to restrict increases in Working Tax Credit, and its replacement, the Universal Credit after October 2013, to 1% for at least the next three years (Chancellor’s Autumn Statement, Dec 2012).

As considered in the paper, this is bad news for many low paid workers struggling with rising prices and rising housing costs. Nor does it bode well for low paying employers. They are, of course, among the biggest groups of ‘welfare dependants’. As the paper will argue, it is difficult to see how these developments can possibly advance the government’s commitment to introduce policies to encourage take up of employment, ‘make work pay’, and promote labour market retention ('21st Century Welfare', 2010 Cm 7913).

Finally, the shortcomings in the NMW system are linked to other problems affecting wage levels in the UK, including the final retreat from statutory sectoral wages and conditions resulting from the Coalition's abolition of the Agricultural Wages Board, and the forthcoming demise of the Agricultural Minimum Wage. The AMW's removal brings the agricultural sector into line with other sectors where wages councils disappeared in 1993. However, there is no indication of any plans to fill the gap that this will leave - particularly in a sector where casualization means that there is next to no chance of collective bargaining becoming a feature of wages and conditions setting.