Minimum wage raised to £5.35

Based on article from The Economist, 7 October 2006

On October 1st, the government raised the minimum wage yet again to £5.35 an hour, which is 6% higher than the previous wage set.

The minimum wage was a radical policy introduced by New Labour in 1997 and it was critiscised heavily by the Conservatives and some economists who argued that it would lead to a loss of thousands of jobs. However, this did not happen.

The main reason is that the starting point was fairly modest at £3.60 an hour in 1999. Eighteen months later it edged up to £3.70. However, the small increase only benefited few workers. It was predicted to help 2m workers but in practice only 1m gained.

The government's increases has become much larger since. From 1999, the minimum wage has increased by 49% compared to the 32% increase in average earnings.

It is hard to say whether the high minimum wages have hurt unemployment but the Confederation of British Industry (CBI) said that firms were struggling to keep up with the wage increases. Evidence from other countries on the effect of the minimum wage have been mixed where some find hardly any impact and others do find a big change.