Political use of minimum wage upsets business

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Increases in the minimum wage should be tied to movements in basic pay to prevent ministers from manipulating the low pay rate in order to resolve political difficulties, manufacturing employers said on Monday.

Business leaders have been alarmed by Alistair Darling’s suggestion that “changes to the minimum wage regime to support younger workers” could be used to compensate low-paid youngsters who will lose out as a result of government’s decision to scrap the 10p tax rate. In a bid to stave off a revolt by Labour MPs in Monday’s vote on the Finance bill, the chancellor has offered to compensate some of the 5.3m people expected to be left worse off by the controversial tax measure.

David Yeandle, deputy director of employment policy at EEF, representing manufacturers, said: “We are concerned that the government seems to be planning to use the national minimum wage in a political way to try to resolve problems that have been created by its controversial tax changes. Manufacturers should not have to incur additional costs to resolve the government’s current political difficulties.

“Future increases in the national minimum wage should be set by using a pre-determined formula, based on retrospective movements in basic rates of pay across the economy. This would then prevent such political interference as well as enable manufacturers to plan with greater certainty for the direct and indirect impact that future increases will have on their business.”

John Hutton, the business secretary, has written to the Low Pay Commission asking it to look at the options for such changes, an aide told the FT last week. 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 by 3.8 per cent in October to £5.73 an hour, compared with £4.77 for 18-21-year olds – at no extra cost to the exchequer.

Increases for this October have already been agreed. Any changes to compensate low-paid youngsters for the loss of the 10p tax band would therefore not come into effect until the next round of minimum wage rises falls due next year.

The CBI employers’ organisation and British Chambers of Commerce have also criticised government suggestions that the minimum wage might be used to compensate people suffering as a result of tax measures. “Employers cannot be expected to plug the gap in controversial tax changes,” said Sally Low, BCC director of policy.

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