UK: Minimum wage could prove maximum headache.

UK: Minimum wage could prove maximum headache. - The Low Pay Commission is due to report on a recommended minimum wage next month but, while the TUC wants a rate set at £4.62, the Government wants a low enough wage to make sense of its welfare-to-work po

Last Updated: 31 Aug 2010

The Low Pay Commission is due to report on a recommended minimum wage next month but, while the TUC wants a rate set at £4.62, the Government wants a low enough wage to make sense of its welfare-to-work policy. Certainly, some employers have forecast that the level of minimum wage projected in the newspapers - around £3.50 to £3.60 an hour - will cause lay-offs, but there is evidence that many employers have already increased wage rates to the mooted floor in order to avoid a big jump in wages when the minimum rate is introduced in April. McDonald's, for example, has raised its basic rate by 12% to £3.50 per hour for staff outside London and £4 an hour in the capital itself.

Yet, while many employers seem to be accepting a £3.50 rate as inevitable, it is less clear what the indirect effects may be. As David Yendle of the Engineering Employers' Federation (EEF) says: 'Our concern is that there will be pressures by those earning above the minimum wage to seek to maintain differentials with those below them. A skilled engineer may want to keep the same gap over, for example, the cleaning staff, that he or she now enjoys,' he explains. 'We are also worried about what will happen to future increases in the minimum wage. Could an annual uplift in line with inflation create a "going rate" for pay settlements elsewhere?'

The British Retail Consortium (BRC) is also concerned that, with the bulk of retailing staff earning just above the likely minimum, demands for a proportional increase could have a damaging effect on retailers' costs.

Elsewhere, the British Hospitality Association (BHA), whose members run hotels, restaurants, motorway service stations and clubs, are right in the firing line. Martin Couchman of the BHA is worried about the national element of the minimum wage. 'Parts of the country will be paying a rate at which a London businessman would not bat an eyelid ... a national wage would cause damage in the regions,' he says.

A study last year by accountants KPMG for the BHA found that a £3.50 wage 'would increase our members' costs by 7% and reduce employment by 3%'. Couchman is particularly concerned for tourist areas such as Cornwall, which he says will be hardest hit, with many small leisure operators being forced to close down.

One tricky issue is tips. Although it is the customer who pays, tips are seen in the leisure industry as part of the staff's remuneration.

A minimum wage ought to take this into account and be pitched accordingly.

A similar issue arises in retailing, where commission is paid by the employer as a key element in the earnings of sales assistants. The BRC says that the minimum wage rate, whatever it turns out to be, should include the benefits from commission payments.

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