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Adair Turner comments on minimum wage - 28-02-2005
Over a million of the UK's lowest-paid workers will see their wages increase in October when the adult National Minimum Wage rate will increase from 4.85 to 5.05 and the rate for 18-21 year olds will rise from 4.10 to 4.25.

The Government has also provisionally accepted the Commission's recommendations that the rates should be further increased to 5.35 and 4.45 in October 2006, subject to further advice from the Commission in early 2006.

The Government has accepted the Commission's recommendation that the minimum wage for 16-17 year olds (above compulsory school age) should remain at 3.00 in 2005. The Commission will review the rate and advise the Government further in February 2006.

Chairman of the Low Pay Commission, Adair Turner, said:

"The National Minimum Wage was introduced on 1 April 1999, with an adult rate set cautiously at 3.60. The Commission has since sought to produce the maximum benefit for low-paid workers that can be achieved without damaging business and employment prospects. Our recommendations on the new rates, which over the next two years will produce a slight increase in the minimum wage relative to average earnings, take us another step closer achieving our goal.

"In reaching our recommendations on the minimum wage rates, we assessed the prospects for the economy over the next two years and took views from interested parties. Our analysis suggests that previous upratings have largely been absorbed without adverse effects. But we are aware that many businesses have found the last two significant increases in the minimum wage more challenging, and in particular the October 2004 upratings. We have therefore recommended only a slight increase above average earnings, and concentrated it in the second year to allow business more time to absorb the impact.

"Although we are disappointed that the Government has decided not to accept our recommendation that 21 year olds should be paid the adult minimum wage rate, we are encouraged that it is indicating a willingness to consider this again in the near future. We see this change as an appropriate step in the evolution of the minimum wage.

"As well as looking at new rates, we have made a number of other important recommendations. On compliance and enforcement of the minimum wage, we believe that a greater deterrent to non-compliance is needed and we await with interest the Government's view on our recommendation that employers who underpay their workers should face financial penalties and pay their workers interest on any underpayment.

"The issue of salary sacrifice arose during the preparation of our report and we are pleased that the Government has accepted our recommendation to invite us to review this complex issue in more detail. We are pleased all our other recommendations have been accepted."

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