Happy Birthday to the National Minimum Wage!

The Momentum UK Team 31 March 2014

You probably don’t think about the National Minimum Wage very often - but it may have affected you more than you think! This month it turns 15 and to celebrate, we’re taking a look at how it came to be, and the mark it’s made on British society.

Grand ambitions

Of course, the key aim of the National Minimum Wage (NMW) was to help the very lowest paid workers and remove the problem of poverty pay - this occurs when wages are so low that they don’t help to lift people out of poverty. The main point of tension around the concept was striking the balance between wages that are high enough to live on, and wages that would cripple businesses.

Controversial policy

The introduction of the NMW faced strong opposition from the beginning. Shortly after Tony Blair’s government was elected in 1997, influential paper The Economist wrote:

“Coming up with a minimum wage that will not seriously harm the economy, and destroy jobs, will require the wisdom of Solomon – or extraordinary luck”

Fifteen years on, it would appear that they were proved wrong. In a relatively short space of time, the NMW has gone from being regarded as political suicide, to an accepted and welcomed part of British life; a recent poll of political scientists by the Institute for Government found that the NMW was the most admired policy of the last 30 years!

Lasting legacy

What have the effects of the NMW been? It goes without saying that the key impact of the legislation has been to raise the wages of the very lowest-paid, but how has it affected the wider economy? The main concern voiced by those opposed to the NMW was that forcing employers to increase wages would mean that there were fewer jobs available - it now appears that this has not been the case. According to a recent report from the Resolution Foundation:

“There is now a consensus that, at the moderate levels of the minimum wage we have experienced in the UK, there has been very little if any adverse effect on employment.”

The report also indicated that it isn’t just low paid workers who have benefitted from the NMW:

“Workers on wages quite some distance above the minimum wage appear to have seen their wages rise, as firms have responded by—to some degree—maintaining pay differentials among low wage workers.”

So it seems that we have all benefitted from the introduction of a minimum wage, even if we earn well above the NMW threshold.

When the NMW came into effect in April 1999, the adult rate was set at £3.60 per hour. By 2009 it had reached £5.80 per hour, and in October this year it is set to increase to £6.50 per hour. Although it gives a vital boost to the very lowest paid workers, it is estimated that less than 5% of UK workers are actually paid the NMW rate - the vast majority of us earn more.

Where are we now?

The average salary in the UK is now £26,500 - where do you fit on the scale? Work out how your take-home pay will change in April using our interactive salary calculator.

Although controversial in the beginning, the National Minimum Wage has been proven a success - it’s hard for most young workers to imagine a time without it, and it looks like it’s here to stay.

Now the NMW is into its mid-teens, are we on the brink of a “difficult phase”? What do you think it will look like when it turns 30? Share your predictions in the comments below, or get in touch on twitter @YourWealthUK!

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