Annex to chapter 2
annex
General Council Statement
The National Minimum Wage
Contents
The 1998 Congress is meeting at a time of great change in the world of work. The unfair and unbalanced framework of law implemented by the Conservative government is to be fundamentally altered. The Labour government is committed to new rights for individual workers and trade unions to promote fairness, flexibility and social partnership.
Following the publication of the Low Pay Commission=s report and the Government=s response it is clear that the National Minimum Wage (NMW) will become operational in April 1999. That the UK is to have a minimum wage at all is a tribute to the persistence and dedication of those who have campaigned over the last 30 years for basic minimum standards for the low paid. It is an achievement of which the trade union movement can and should be proud.
This statement sets out the General Council=s evaluation of the steps taken so far to implement the NMW. It also sets out what unions must do to make the best use of the NMW. In the General Council=s view the trade union movement should play a central role in the monitoring and enforcement of the NMW. Most importantly, a strategy must be developed to recruit more low paid workers as trade union members and improve their pay through collective bargaining.
The General Council=s approach has been shaped by the Statement to the 1996 Congress, Composite Resolutions 13 and 14 of that Congress and the 1997 Report to Congress. The 1996 Statement set out the case for a floor under wages in the UK. It noted the retreat from equality under successive Conservative governments, documented the widening gap between the rich and the poor and set out the case for a labour market with legally guaranteed minimum standards to promote fairness, efficiency and flexibility. The Labour Party=s clear manifesto commitment to the NMW was therefore generally consistent with previous Congress policy:
>There should be a statutory level beneath which pay should not fall - with the minimum wage decided not on the basis of a rigid formula but according to the economic circumstances of the time and with the advice of an independent Low Pay Commission, whose membership will include representatives of employers, including small business and employees.= New Labour - Because Britain Deserves Better, p.17
The document Partners for Progress, endorsed by the 1997 Congress, reaffirmed the TUC=s support for the principles of social partnership. It emphasised that the trade union movement has an essential role to play in national life. Partners for Progress suggested that unions, employers and government should work together and identify the appropriate policies to deal with a range of labour market issues. The General Council continue to believe that a national consensus is essential if an enduring framework of minimum standards (including the NMW) is to be established. That is why the General Council gave a warm welcome to the appointment of the LPC.
The 1996 General Council Statement and Composite Resolution 13 supported the proposal to establish the Low Pay Commission (LPC) which had been adopted as Labour Party policy earlier in 1996. As reported to the 1997 Congress, the General Council made representations to Margaret Beckett, President of the Board of Trade, that the LPC should operate according to the principles of social dialogue and should be properly representative of the social partners. The General Council remain committed to the view that the LPC should now be given permanent status and adequate resources to monitor the impact of the NMW and to recommend periodic upratings in the level.
The progress that has been made since the General Election in May 1997 should not be underestimated. The Government took swift action to establish the LPC and introduced legislation to implement the NMW. One of the most important features of the LPC=s work was that both employers and unions had to engage with practical issues of implementation. Giving employers a voice in the process of fixing the NMW level has also given them a stake in the outcome. They have travelled a long distance from their opposition to the principle of the NMW. The LPC=s work proves that social partnership can be effective - that employers and trade unions can co-operate to implement major national policies and tackle some of the country=s most serious problems.
Fixing the Level - TUC Evidence to the Low Pay Commission
The TUC was invited to submit written evidence to the LPC in October 1997. In framing the evidence the General Council used the formula of half male median earnings which is widely recognised as a benchmark of fairness. However, it has been clear since 1996 (when the Labour Party adopted the proposal for the establishment of the LPC) that the Government will not fix the NMW on the basis of a formula and the LPC also made it plain that they would not be using a formula to identify the appropriate level of the NMW.
It should be recalled that the 1995 Congress adopted a collective bargaining target for minimum earnings of ,4.00 an hour. The intention was that unions should have achieved this target by the end of 1997. Progress towards the target was noted in the TUC=s written submission to the LPC in October 1997. This suggested that a minimum wage level of somewhat more than ú4.00 an hour would be practical in early 1999 when the NMW was likely to be implemented. Wages would probably be increasing at slightly above inflation during the intervening period and unions would be making further agreements consistent with the collective bargaining target.
The LPC=s report, published in June, is a sustained argument for the NMW. It is also unanimous. While it would have been possible for the Government simply to have announced a figure for the NMW, the exercise that the LPC went through was essential in establishing a minimum wage which has legitimacy with unions, employers, government and the low paid themselves. Gathering evidence, interviewing witnesses, undertaking regional visits and speaking directly to low paid workers all played an important part in the preparation of the LPC=s recommendations. There can be little doubt that this process helped to reduce the volume of employer complaints about the NMW and shifted the principal employers= organisations from outright hostility to neutrality or qualified support. Research for the LPC also found substantial evidence that many employers had already taken steps to prepare for the implementation of the NMW.
When the LPC=s report was published there was considerable disappointment that they were not able to recommend a minimum wage figure higher than ,3.60 an hour. Of course this disappointment is legitimate and the TUC, in line with the written submission to the LPC, would have wished to see a higher figure.
It should be remembered, however, that some employers= organisations were arguing for a NMW as low as ,3.00 an hour as recently as October 1997. Figures of ,3.50 an hour were at the upper end of the range which employers said they found >acceptable=. There can be little doubt that the outcome for the low paid is better than would have been the case without the LPC.
The General Council therefore welcomed the Report as the first example of successful social partnership since the General Election. Securing the agreement of both union and employer representatives to the ReportÕs conclusions was a considerable achievement and provides a solid base for the uprating of the NMW in the future.
Over the last fifteen years the gap between rich and poor has widened further and faster in the UK than in any other major Western European country. Even at the modest figure of ,3.60 the NMW will benefit nearly two million people or one in eleven workers. While this is a relatively high level of coverage when compared with minimum wages in other countries it does no more that reflect the great inequalities that now exist in the UK.
It might be argued that experience under the Wages Councils suggests that the NMW can be fixed at a level up to ,3.85 without there being any adverse effects on employment. However, the LPC=s relative caution in recommending a lower figure is not entirely surprising. This is the first time that there has been a NMW in the UK and there is no evidence available which allows a definitive judgment to be made about the likely impact of the NMW on the economy. The General Council believe that the first Report of the LPC is not the final word on low pay. Indeed, the Report makes clear that the level of the NMW should be reviewed within two years of its introduction. It is essential that the Government implements the LPC=s proposed uprating of the NMW to ,3.70 in June 2000 and that the Commission considers a further uprating soon thereafter. The NMW must not only retain its real value as a floor under wages but must be uprated by the Government to a higher level following a recommendation by the LPC. A politically contested NMW which erodes over time will not provide the protection that low paid workers need. Nor will it prevent employers from continuing with strategies based on low pay, low productivity and low skill employment.
The most controversial section of the LPC Report concerns the treatment of young workers. The LPCÕs terms of reference required them to look at the impact of the NMW on workers under the age of 26. Given that young adults are more likely to be unemployed than older workers it is entirely legitimate for the LPC to be concerned about youth unemployment. The LPC recommended that workers between the ages of 18 and 20 should be paid a Development Rate of ,3.20 an hour.
In the General Council=s view this cannot be a sustainable policy in the medium term. In recent years unions have been negotiating to remove age based rates from collective agreements with full adult rates payable at the age of 18. A similar principle should apply to the NMW. The TUCÕs evidence to the LPC was explicit in ruling out a lower level of NMW based on age. The General Council will continue to press this argument in 1999 when the LPC review the treatment of young adults.
A better approach to the issue, in line with the TUC=s evidence to the LPC, is to allow the payment of the Development Rate only in those cases where the worker is undertaking training towards a recognised qualification. It is encouraging that this is the long run view of the LPC:
AWe look forward to a time when the Development Rate of the NMW is solely dedicated to clearly identifiable and accredited training, fully supportive of a high-wage, high-skill economy@. (LPC Report para 5.65)
The LPC Report contains a full assessment of the issues including unemployment, training and the commencement of adult rates. The LPC noted that a significant number of those giving evidence considered that the adult rate should begin at 18 or 19 and that the majority thought that any lower rate should not extend above the age of 20. However, as the LPC Report makes clear, before a Development Rate based on training can be introduced, Government, employers and training organisations need to develop coherent strategies for the education and training of 18 year olds. The General Council endorse this conclusion and look forward to urgent action.
Changes made by the Government to the LPC=s recommendations have reduced the coverage of the NMW. The Development Rate has been cut from ,3.20 to ,3.00 and the full rate of the NMW will be payable from a workerÕs twenty-second birthday. The net effect of these changes is as follows:
1.9 million workers will now benefit from the NMW instead of the 2 million workers under the LPC=s proposals;
the number of young adults below the age of 21 benefiting from the NMW falls from 235,000 under the LPC=s recommendations to 225,000 (a very small reduction of 10,000 people) under the Government=s proposals;
91,000 workers who would have benefited from the LPC=s proposals will not benefit from the NMW as implemented by the Government; and,
80,000 of these workers are between the ages of 21 and 22.
A further consequence of the Government=s changes is that there are now three rates for the NMW:
,3.60 for all workers over the age of 22;
a ,3.20 Development Rate for workers over 22 in the first six months of employment who are also receiving externally recognised vocational training; and,
a ,3.00 Development Rate for workers between the ages of 18 and 22.
This clearly conflicts with the LPC=s >keep it simple= principle.
In the General Council=s view the Chancellor of the Exchequer was wrong to make these changes to the LPC=s recommendations. The 1998 Employment Outlook published by the Organisation for Economic Co-operation and Development (OECD) includes a chapter on minimum wages. For these purposes the key finding is that:
ANegative employment effects for young adults (those between 20 and 24) are generally close to or insignificantly different from zero. For prime age adults the most plausible specifications suggest that minimum wages have no impact on their overall employment outcomes.@ (p.47-48)
In other words, minimum wages in other countries have had no effect on the employment prospects of young adults.
On the other hand, the General Council note that the OECD Employment Outlook does find that a rise in an existing minimum wage can have an adverse impact on the employment of teenagers (16-19 year olds). But these effects are described as >insignificant= in explaining the large decline in the number of young workers active in the labour market in OECD countries. For example, in France the employment population ratio of teenagers declined by over 18% from 1975-96 but only 0.3% could be explained by minimum wage effects. An even more dramatic decline occurred in Spain despite a fall in the relative value of the minimum wage. As a result:
AThe substantial difference across countries in teenage employment trends can only be marginally attributed to differences in the evolution of minimum wages and must be explained by other factors.@ (P.48)
Once again this is a strong argument against the excessive caution displayed by the Chancellor. Overall macro-economic policy is far more important in determining the employment prospects of young workers. Indeed, youth unemployment is more influenced by the general level of unemployment than by the impact of minimum wages. There is consequently no economic justification for the changes the Government has made to the recommendations of the LPC.
A further recommendation of the LPC is that the NMW should not apply to those aged 16 and 17. The LPC did consider providing a specific lower rate for this group but rejected the idea on the grounds that it is inconsistent with the principle that the NMW should be kept as simple as possible. In the General Council=s view 16 and 17 year olds are in a transitional stage from full-time education to full-time work. Indeed everybody in this age group should either be undertaking vocational training or remain in full-time education. Under the Further and Higher Education Bill currently before Parliament, 16 and 17 year olds will have a right to one day=s paid education and training each week. Similarly, their conditions of employment are subject to regulation under the EU Young Workers= Directive. As the TUC=s evidence to the LPC pointed out, the full adult rate should be payable at 18 with a lower level of minimum wage payable to those workers undertaking training towards recognised qualifications .
Reference has already been made to the nearly two million people whose earnings will rise following the implementation of the NMW. The beneficiaries include:
one in three homeworkers;
one in five part -time workers;
more than one in ten women;
more than one in ten black workers; and
nearly one in five lone parents.
Seventy-two per cent of all those seeing an improvement in their pay will be women and 55 per cent are women working part-time. There can be little doubt that this represents the greatest step forward for pay equity since the Equal Pay Act. Even a modest NMW of ,3.60 creates real opportunities to tackle the undervaluation of women=s work and skills. In particular, the implementation of the NMW must be seen in the context of job evaluation. Negotiators should bear in mind the equal pay implications when agreeing changes to pay structures to accommodate the NMW and should make a determined effort to raise the earnings of the lowest paid women. The General Council will wish to keep the position under review and monitor the impact of the NMW on the gender pay gap. The General Council will also keep a close watch on changes to the tax and benefits system, particularly the impact on women workers and those with families.
Next Steps for the Trade Union Movement
The LPC were clear that they were fixing a floor under wages through a single national rate. They were not seeking to establish a complete pay structure for all low paid workers. The TUC has always taken the view that the NMW is a benchmark of fairness in the labour market. The NMW cannot be and should not be a substitute for collective bargaining. On the other hand, a NMW even at the level of ,3.60 an hour, is a base on which collective bargaining can build. It will take time and patience to close the gap between rich and poor which has opened up in the last 15 years - and the trade union movement has an essential role to play in boosting the earnings of the lowest paid.
One of the most telling statistics in the LPC report is that, in April 1997, 83 per cent of those earning less than ,3.50 an hour were employed in workplaces without union recognition. The message for workers is clear - if you are a trade union member you are much less likely to be low paid. The lesson for trade unions is also clear - the implementation of the NMW creates real opportunities for organisation and recruitment. Unions should act not just as effective advocates for the low paid in the public policy debate but should take practical steps to ensure that all workers receive their entitlement to the NMW. The General Council will therefore work with unions to develop strategies for the recruitment of the low paid and ensure that unions are fully informed about the arrangements for monitoring and enforcing the NMW.
This means that a major effort is needed to brief all those involved in recruiting workers in low paid sectors. New TUC educational materials will be developed setting out the provisions of the Minimum Wage legislation and explaining how it might be used by unions to recruit low paid workers. A link will also be made to the exchange of good practice through the New Unionism project and the NMW will be incorporated into the training being delivered by the Organising Academy.
This is an important consideration in relation to young adults receiving the Development Rate of ,3.00 an hour. Trade unions should seek to recruit young workers by offering them the prospect of earnings above the Development Rate. At the same time unions should be seeking agreements which deliver genuine vocational training opportunities for young workers so that their skills are being enhanced if they are receiving the Development Rate. This will help to speed the introduction of a Development Rate linked to recognised vocational training rather than age.
The General Council and the TUC Youth Forum will work with the Low Pay Unit, the Low Pay Network and the National Union of Students to monitor the impact of the NMW on the pay of young adults and to maximise the opportunities for organisation and recruitment.
It is particularly important that wages fixed through collective agreements at a level above the NMW should not be subject to downward pressure. The Government could demonstrate their commitment to this principle by adopting a new Fair Wages Resolution which would ensure that all private contractors undertaking work for the public sector pay wages in line with the relevant negotiated public sector rates. Against the background of continued competitive tendering, Best Value in local government and the Private Finance Initiative it is essential for workers to be confident that their pay and conditions of employment are protected.
It is now three years since the ,4.00 collective bargaining target for minimum earnings was adopted by the 1995 Congress. Real progress has been made in delivering the target and the time has come to update the strategy to take account of the implementation of the NMW.
As the Prime Minister (then Leader of the Opposition) made clear at the 1995 Congress: A There is no future for Britain as a low wage, low skill, low technology economy@. That the Government still endorses this view is clear from the Competitiveness Audit published by the Department of Trade and Industry in 1997. This suggests that the overall performance of British business is mediocre and that a determined effort is needed to raise quality and productivity if the country is to be prosperous in the future. The trade union objective of increasing the earnings of the lowest paid is entirely consistent with this strategy. Our purpose is to deliver secure employment for all trade union members in worthwhile jobs with fair pay. None of these goals can be reached unless workers are employed in high performance workplaces.
The General Council therefore believe that the collective bargaining target for minimum earnings should be uprated and will consult union negotiators about the appropriate level for the new target. This will be integrated into the programme of briefing and information on the implementation of the NMW. In adopting a new target the trade union movement will show a willingness to work in partnership with employers on issues like training, skills, quality, productivity and employment security. Pursuing higher wages for the lowest paid is an essential element in any package of policies to move Britain towards a high pay, high skill and high performance economy. It is also essential for the delivery of the high quality public services on which the nation=s prosperity depends.
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