The National Minimum Wage was introduced on this day in 1998. Hailed by Tony Blair as salvation for low-paid workers, in reality it propped up poverty pay – and was a weak alternative to empowering trade unions.

Credit: Steve Eason / Stringer / Getty Images

Twenty-five years ago today, the National Minimum Wage Act 1998 was passed, receiving Royal Assent to go on the statute book. The resultant national minimum wage was introduced on 1 April 1999 following the establishment of the Low Pay Commission, which is charged with making recommendations to the government on the rates. It was not an ‘April Fool’, but neither could it be said to be the bold advance many in ‘new’ Labour said it was.

Tony Blair had vowed to lift people out of poverty, especially children, and the minimum wage was one of the flagship policies by which he sought to do so. It was part of the ‘new’ Labour ‘welfare-to-work’ active labour market programme where work would pay more than being benefits on welfare.

In the year of its introduction at Labour Party conference, Blair batted back the arguments used against it, saying it would not lead to jobs losses, inflation or company bankruptcy. He was proven right on all three scores. But the reasons for that can be found in the timidity of the national minimum wage.

When the national minimum wage was established, the rate for those over twenty-two years old was just £3.60 per hour, and for those between eighteen and twenty-one, it was even lower at £3.00 per hour. In 2023, there are now five rates: £10.42 per hour for those over 23 years old, £10.18 for those between 21 and 22 years old, £7.49 for those between 18 and 20 years old, £5.28 for those between 16 and 17 years old and £5.28 for apprentices. The national minimum wage makes no provision for overtime rates.

The National Minimum Wage Act 1998 was a classic piece of ‘new’ Labourism because while it recognised and addressed a palpable problem created by the Conservatives and their neoliberal version of capitalism, it did so in a way that was very far from being full-blooded.

Indeed, the Act was a form of ‘light touch’ regulation of employers and not just because the rate was set so low at the beginning and had been kept that way ever since. It is also because the enforcement of the minimum wage is so lax. Though there are enforcement orders, there are no penalties paid by employers unless they fail to act upon already having received an enforcement order. 

And it was not until ten years ago that the process of ‘naming and shaming’ employers not paying the minimum wage was begun. It is still the case that aggrieved workers have to pursue employers that fail to pay the minimum wage, whereas HM Revenue and Customs could carry out spot checks to enforce employers abiding by the law in the way the Healthy and Safety Executive is supposed to on workplace safety.

But the problems and weaknesses of the minimum wage are much more than this. First, having different levels for different ages takes no account of the manifest reality that the cost of living for any adult is pretty much the same, no matter their age. It is even greater for those that have young children.

Second, and to reinforce the point about the low rates, the ‘living wage’ was created in 2011 by the Living Wage Foundation. The ‘living wage’ for 2023 is £10.90 per hour for those eighteen and older outside London and £11.95 within London. However, it is entirely voluntary and is based upon employers being convinced of the so-called ‘business case’—of recruiting, retaining and motivating staff—for paying a slightly higher wage. Anti-poverty campaigners believe £15 per hour is the very least that is now needed, but even that can be doubted since the beginning of the cost of living crisis.

Third, even with the minimum wage, there is more in-work poverty than ever before, with many claiming benefits in order just to try to make ends meet. This is the clearest indication that the national minimum wage has effectively legitimised low pay by giving it a statutory underpinning. It also means that the state is effectively subsidising low-paying employers by allowing them to pay this level which then necessitates these workers to also claim benefits. This is one of many hidden handouts to employers.

Lastly, not only is the minimum wage not a substitute for collective bargaining but its introduction was deliberately used as an alternative—an especially weak one—to state support to resuscitate the widespread practice of collective bargaining. In the 1970s, Britain was at its most equal because unions were strong and collective bargaining covered some 80 percent of workers. In 1999, and only as a result of concerted union pressure, Labour introduced the Employment Relations Act. But in ‘new’ Labour’s hands, it was again a consciously weak mechanism for unions to gain statutory union recognition and collective bargaining rights from recalcitrant employers.

Both the minimum wage and the statutory union procedures testified to Blair’s boast that Britain had ‘the most lightly regulated labour market in the European Union’. Underlying this was the ideology of only tinkering around the edges with very limited reform and, instead, placing far more faith in the so-called dynamism of the ‘free market’ to raise living standards albeit with a bit of finessing through a little ‘light touch’ regulation. Now, rather than providing a safety net, the state’s main role was merely to finesse the operation of the free market in order to unleash its dynamism of wealth creation. This wealth would supposedly trickle down to the poor.

The salience of this for today is not only that we still have the paltry national minimum wage in a time of a cost of living crisis. It is also that it is a harbinger of what a Starmer-led Labour government will and will not do. He plans no changes to the minimum wage, having rejected any substantial uplift in its rates. He has done this not only to show his fiscally conservative and prudent nature to investors and the financial markets but also to lower the expectations of what working-class people can hope for from an incoming Labour government. 

 

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