Minimum Wage - Good or Bad?

The national minimum wage hourly rate for adults is to climb to £6.08 in October 2011. The rise represents a 15p and a 2.5 per cent increase and was recommended by the Low Pay Commission.

Despite the economic uncertainties, the LPC said that the decision for the increase was a unanimous one. The hourly rate for employees aged between 18 and 20 will rise by 6p (1.2 per cent) to £4.98. For workers aged between 16 and 17, the rate goes up by 4p (1.1 per cent) to £3.68. While for apprentices there is to be a 10p (4 per cent) increase to £2.60.

Responses from the business community to the announcement of rises in the national minimum wage have, as you would expect, been divided.

Most large employers pay well above the minimum requirements, so the change is most likely to affect smaller firms. Now it's worth reminding ourselves of the fact that most businesses in this country fall within the category of small, despite appearances to the contrary in some towns. Something like 90% of all businesses employ 10 or fewer people. Based on an average workforce of 10 people doing a 40 hour week i.e 400 man hours times 15p the additional cost isn't going to break the bank is it? There are however people out there, including my MP, who think that the minimum wage is the sperm of the devil and that employees should be encouraged to perform some sort of fiscal limbo dance whilst their employers shout encouragingly, "How low can you go?"

Anyway with that in mind here's how the great, the good, Vince Cable, and our old friend David Frost, reacted to the announcement.

Stephen Robertson, the director general of the British Retail Consortium (BCC), said: "At a time when the priority should be getting more people into work, any increase in staff costs is an extra hurdle. This rise in the national minimum wage is at the very top end of what retailers could be expected to live with. Employers have just been hit by an increase in national insurance. Business rates have soared and retailers are still absorbing much of the increase in VAT. This increase in the minimum wage is yet another challenge to retailers when trading is already difficult on the high street. In the current climate it is the private sector which is driving the economic growth that will provide the jobs and tax revenues of the future. The minimum wage must reflect the economic realities businesses are dealing with. This announcement is out of step with reality."

The BRC also argued for longer time frames between the announcement of increases and their implementation so that employers are better able to prepare for the changes. Which makes me wonder whether or not the BRC should actually exist in the first place, six months should be longer enough for any business to prepare, particularly in an age where almost all employers use some form of computerised payroll software, either directly or via a bureau.

David Frost, the director general of the British Chambers of Commerce (BCC), described the move as "wrong", which strangely enough is my daughters response when she sees a photograph of one of my models who happens to be naked - still it's all about perspective. 'Dave' added, "The change to the national minimum wage rates is the wrong increase, at the wrong time. With over a million unemployed, the priority has to be getting people back into the job market.

"Youth unemployment is at a record high, and we can't afford to price young people out of work. It's clear from speaking to businesses that a significant number are having to freeze wages in 2011. These changes will be a barrier to job creation, and ultimately economic recovery."

However, Neil Bentley, the deputy director general of the CBI, saw the increase as "balanced".

He said: "This moderate increase strikes the right balance during a period of economic uncertainty. It means that workers on the minimum wage will not fall behind the rest of the workforce in terms of pay rises. A larger rise would have hit businesses hard and could have put many lower paid jobs on the line."

Vince Cable, the Business Secretary, defended the measure, insisting that "more than 890,000 of Britain's lowest-paid workers will gain from these changes" and that the rises are "appropriate, reflecting the current economic uncertainty while at the same time protecting the UK's lowest-paid workers".

For once I find myself in agreement with both the CBI and lounge lizard Vince, jobs aren't created on the basis of the minimum wage they are created on the back of demand, hopefully a demand that increases sales by at least twice the amount of the additional wage costs