Blog: Twenty years of the National Minimum Wage



Eleanor Mannion

Eleanor Mannion and Laurie Anderson look back on the last 20 years of the minimum wage.

 

This year marks the 20th anniversary of the official introduction of the National Minimum Wage in the United Kingdom. The concept, formally introduced in 1999, followed on from a century of development stemming back to 1909.

The first minimum wage legislation took the form of the Trade Boards Act 1909 targeting industries notorious for employing cheap labour, seeking to bring both regulation and fairness to their payment regimes by the establishment of Trade Boards. Although purposeful, the widespread view of the time was that these boards were a secondary solution, less effective than the collective bargaining power of the masses. 

Over time, the Trade Boards developed and became known as Wages Councils and in the decades that followed they were subject to a plethora of criticism. The 1968 Donovan Commission was highly critical of the councils, citing that minimal progress had actually been made and their effectiveness was justifiably called into question. It was not until the 1980s however when political pressure continued to mount and the Wage Council regime was dismantled.

The dawning of the National Minimum Wage, as we now know it, rose from a rare point of agreement between both the Conservative and Labour parties. It was accepted on both sides that Wages Councils had no function, however, the regulation of pay did require some greater oversight.  

‘The National Minimum Wage’ was the creation of the Labour Party, included in their 1992 election manifesto committed to introducing, ‘a statutory minimum wage of £3.40 an hour’. Unfortunately, while accepting the need for wage oversight, the Conservative Party staunchly rejected the concept of a minimum wage. During their election campaign, the minimum wage was cited as ‘a job-destroying notion’ suggesting that the direct result could be a loss of up to two million jobs. It took until 1997 when the Labour government won the general election with a manifesto promise of “a sensibly-set national minimum wage” that the National Minimum Wage Bill was published.  

The road to implementation was not without speedbumps as the bill was scrutinised over 19 sittings, totaling nearly 70 hours of debate. The Third Reading was concluded on 9 March 1998, following an all-night sitting where amendments such as protecting those who may become eligible in future, by virtue of their age, being sacked by employers just before their birthday. Progress continued until 20 July of the same year, where the government was defeated by the Lords’ acceptance of a major Conservative change, to grant the Secretary of State powers to exempt certain groups from National Minimum Wage entitlement. Following further debate and technical changes, the bill was given Royal Assent on 31 July 1998 – enshrining the National Minimum Wage in law. It legally became payable for the first time from the 1 April 1999. 

The rates began at £3.60 per hour for those over the age of 21 and £3.00 for those between the ages of 18 and 20. In 2004 a third rate was introduced making a £3.00 per hour minimum rate for 16 and 17-yea-old workers. Since then rates have steadily increased, as well as additional age brackets being implemented. As of Monday those between the age of 21 and 24 are entitled to a minimum of £7.70 per hour, sitting at more than double the sum at the National Minimum Wage’s date of creation, with those over 25 entitled to a minimum of £8.21 per hour. 

Hailed as one of the great political instruments of the last 50 years, the place of the National Minimum Wage in a modern day Britain is not without criticism. A frequently argued stance is that imposing a national minimum that applies at the same rate throughout the country is prejudicial. Often cited examples include comparing the cost of living in London to nearly any other city within the UK, with the results showing the costs to be exponentially higher. Campaign groups such as the Living Wage Foundation have focused on the level paid to workers and employees, arguing that it is not sufficient to keep up with the cost of living. Despite a successful campaign which encourages organisations to be accredited Living Wage employers, to date, there is no legal obligation on employers to factor the living costs, whether rising or not, into the wages paid as the statutory minimum does not require this. 

Such is the strength of the minimum wage legislation, there are serious implications for employers if they fail to pay this to their workers or employees. HMRC have been given enforcement powers and over the past five years, employers have been increasingly ‘named and shamed’ with high profile cases hitting the press and increasing numbers of claims crossing the doors of employment tribunals. In 2017 to 2018, HMRC investigators identified £15.6 million in pay was owed by employers failing to pay their employees the minimum required. This agenda of catching out unfair employers shows no signs of slowing as the budget to investigate and enforce breaches has increased to £26.3 million. 

More recently, the National Minimum Wage legislation has been used as a tool to expand worker rights. In the gig economy, it provides a litigation route to those who wish to challenge their employment status and be recognized as a worker or employee, a status afforded the right to be paid the minimum wage. Recent case law has also focused on the definition of working time for which the minimum wage is payable. The case Mencamp v Tomlinson-Blake [2018] EWCA Civ 164 currently on appeal to the Supreme Court will consider whether staff in the care sector who regularly undertake “sleep in” shifts should be paid the minimum wage during such a shift and previous referrals to the ECJ confirmed that peripatetic staff should be paid during their travel time. 

The concept of a minimum hourly rate of pay, conceived at the start of the 1900s, recognized the inequality of bargaining power between the employer and employee. Most employers accept the need for minimum rates, some even going further and paying a living wage rather than the statutory set minimums. The fact that the carrot and stick name and shame project by HMRC is required suggests that some still need to come around to the idea. The fear of job losses and wage stagnation which were presented 20 years ago did not come to pass. Instead, the legislation has provided a level of wage security for the lowest paid workers in the UK and has acted as a springboard for such workers to enhance their employment rights.

Eleanor Mannion is a senior associate and Laurie Anderson is a second year trainee at MacRoberts LLP.