The government accepts minimum wage rate recommendations
The Low Pay Commission welcomed the Government’s acceptance of its recommendations for the rates of the minimum wage affecting workers under 25 and apprentices to apply from 1 October 2016 – including:
- its first recommendation for the effective new minimum wage for 21-24 year olds, where the Government agreed that it should increase by 3.7 per cent to £6.95 an hour.
- an increase in the Youth Development Rate, affecting 18-20 year olds, of 4.7 per cent to £5.55 an hour.
- an increase in the 16-17 Year Old Rate of 3.4 per cent to £4.00 an hour.
- an increase in the Apprentice Rate of 3 per cent to £3.40 an hour.
For workers aged 25 and over, the Government is introducing the £7.20 National Living Wage – in effect a fifth minimum wage rate – from 1 April 2016. The LPC will make recommendations this Autumn on the rate of the National Living Wage to apply from April 2017, bearing in mind the Government’s ambition for the rate to reach 60 per cent of median earnings by 2020, subject to sustained economic growth. It will continue to advise on the other rates on its previous basis: protecting as many low-paid workers as possible without damaging jobs or the economy.
The key focus for these recommendations was the position of 21-24 year olds because – as a consequence of the introduction of the National Living Wage – this group effectively becomes a new age band within the minimum wage (the previous adult rate – applicable to workers 21 and over – now only affects these workers).
Commenting on the above recommendation, LPC Chair David Norgrove said:
Establishing a new pay floor for 21-24 year olds raises important issues of principle. On the one hand, we heard concerns that a lower rate for this group compared to workers aged 25 and above would be unfair, difficult to use in the workplace, and lead to firms substituting younger for older workers. But we also received evidence that a level set near to the National Living Wage could price 21-24 year olds out of employment, and make it harder for firms to adjust to higher pay costs.
In reaching a view, we bore in mind that Government limited the National Living Wage to workers aged 25 and over because younger workers are more exposed to the employment risks of a high minimum wage. Critically also, the LPC’s objective for workers under 25 is to recommend rates that should not reduce employment (unlike for the National Living Wage, where our role is to advise the Government on a path where some consequences for jobs have been accepted).
Unemployment rates for 21-24 year olds are twice as high as those for 25-30 year olds and the ‘bite’ already the highest of any age group. However, 21-24 year olds have seen falling unemployment rates and pay growth twice as fast as for workers aged 25 and above. Our recommended increase balanced these considerations, delivering a higher increase than last year in both cash and percentage terms. It means both the real and relative value of the minimum wage for 21-24 year olds is likely to reach its highest ever level.
Our recommendation is made against the backdrop of forecasts and evidence from the Government predicting solid growth in the economy, employment and earnings. Should economic and pay performance prove weaker than anticipated, we will take this into account in future recommendations”.