Who should set the national minimum wage?

Anna Scott

Earlier this month Alan Buckle, former deputy chairman of KPMG International, published his report into the national minimum wage.

The report recommended overhauling the Low Pay Commission – the independent body that sets the level of the NMW – so that HMRC has greater powers to tackle employers not paying the wage, and the wage is increased in line with the rise in the cost of living.

The government should take the lead in becoming a living wage employer, the report added. 

The Labour Party, which commissioned the report, took the opportunity to set out what it would do to the NMW were it to win next year’s General Election. Leader Ed Miliband said a Labour government would set a statutory level target for the wage between 2015 and 2020, which would be linked to average earnings.

Both the Conservatives and Liberal Democrats have both said they want the national minimum wage increased, but the Prime Minister’s spokesman said setting the level should be a matter not for politicians, but for the Low Pay Commission.

The employers’ organisation, the CBI, agrees. Deputy director-general Katja Hall said that the NMW’s success has been the result of it being set by a non-governmental body, and a government-proposed target would undermine the Commission’s independence.

“The simplicity of the national minimum wage is one of its strengths, but ultimately pay must reflect productivity. Every business should pay the national minimum wage, so we support better enforcement,” she added.

But for many people, particularly in the capital, making ends meet while working for £6.31 an hour is pretty tough already, even before this week’s announcement that inflation rose to 1.8% in April.

The argument for a living wage that takes account of the rise in the cost of living has gained momentum, with support from London Mayor Boris Johnson, and a number of high-profile employers – including Buckle’s own KPMG – agreeing to pay their lowest paid workers a wage higher than the national minimum.

But the CBI argues that the living wage must be voluntary because it “takes no account of a businesses’ ability to pay, particularly smaller firms”, and therefore reporting on it isn’t appropriate. Such smaller firms – and their growth – are often cited as the backbone of the economy.

It’s a quandary. But it’s also worth remembering that back in 1997, the Conservative Party and the CBI opposed the introduction of the national minimum wage, arguing that it would damage the UK’s competitiveness. Yet now the minimum wage is one of the few popular legacies of the New Labour Government that all groups and mainstream political parties can agree on.