Financial Times FT.com

Business protests at footing part of the bill

By Jean Eaglesham, Chief Political Correspondent

Published: April 25 2008 02:43 | Last updated: April 25 2008 02:43

Employers protested against picking up part of the bill for Gordon Brown’s “political miscalculation” over the 10p tax rate on Thursday, as it also emerged that any boost to the minimum wage for young workers hit by the change will not take place until October 2009.

Business reacted with alarm to Alistair Darling’s decision to highlight “changes to the minimum wage regime to support younger workers” as a potential form of compensation for 5 per cent of those losing out from the 10p change.

John Hutton, the business secretary, has written to the Low Pay Commission asking it “look at the options” for such changes, an aide said on Thursday. The commission is independent but ministers have the final say on whether to accept its recommendations. The government could use this power to require young people to be paid the full adult minimum wage – set to rise in October to £5.73 ($11.31), compared to £4.77 for 18-21-year olds – at no cost to the exchequer.

But employers, who would bear the extra burden, are alarmed at the unprecedented ministerial intervention in what had been seen as a largely apolitical process. “Employers cannot be expected to plug the gap in controversial tax changes,” Sally Low, director of policy at the British Chambers of Commerce, told the FT.

“If the government uses the national minimum wage, and in turn employers, to compensate the low-paid for their political miscalculation, then they will risk undermining the whole credibility of the system. It is absolutely crucial that the way in which the minimum wage is set is seen to be independent and fair.”

The CBI said an increase in the minimum wage differential for young people would have only a “moderate” practical impact. But John Cridland, deputy director general of the employers’ body, warned it was “not appropriate for government to deal with political problems caused by tax changes by expecting business to make up the difference, and particularly small businesses with a limited ability to pay”.

The government could face a backlash from its MPs, as well as business, once the full implications of its plans to use the minimum wage as a compensatory device become apparent. Rebellious backbenchers expect ministers to ensure those hit by the 10p abolition receive help that is backdated to the tax change taking effect this month.

But changes to the minimum wage taking effect this October, increasing the rates for both adults and young people, have already been agreed. Officials confirmed on Thursday that any changes to the rates to reflect the impact of the 10p abolition would be included only in the next round, to be implemented in October 2009.

What is more, Mr Hutton has stressed to the commission that he is “keen to ensure any changes don’t impact on business or the economy in a negative way”. This will be welcome news for employers – but is unlikely to assuage backbench concerns.

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