National Minimum Wage

National Minimum Wage
5.60 Usdaw pointed out that almost 60 per cent of the retail workforce in the UK was part-time
and that, according to official statistics, in 2010 the average part-time contract in retail was
16 hours. This suggested that the majority of the 1.6 million part-time workers in retail would
not be eligible for auto-enrolment. It also said that those most likely to be affected, the very
small employers, would not come within the scope of pension reforms this year.
5.61 During the period for which we are making our minimum wage recommendations (October
2012-September 2013), only employers employing over 1,250 workers will be affected by
the new arrangements. Boulding, Johnson and Yeandle (2010) suggest that over 50 per cent
of employees in large firms (250+ employees) eligible for auto enrolment under the new
reforms already have a qualifying pension. This percentage drops considerably for
employees in medium-sized and small firms. The impact assessment produced by the
Department for Work and Pensions (2011) shows that of those employees eligible for auto
enrolment, it is expected that between 20 and 40 per cent will opt out, although this is not
broken down by size of firm.
5.62 The research we commissioned for our 2011 Report, undertaken by the National Institute of
Economic and Social Research (George and van de Ven, 2011), found that existing employer
pension provision was less prevalent among low-paid workers in small firms and that on
average, to offset employer contributions required under the reforms, wages would need to
fall by between 0.8 and 1.1 per cent. Our own analysis has shown that during the phasing
stage when the employer contribution is 1 per cent (currently between October 2012 and
September 2016), for a worker on the minimum wage working 40 hours a week, the
employer contribution will be just under £70 a year (0.55 per cent of the worker’s wage).
For someone working 30 hours a week, the annual cost falls to £38 (0.4 per cent of the
worker’s wage). Given the coverage and likely take-up, we estimate that the cost to
employers in the first year (2012/13) will be no more than 0.2 per cent of their total wage
bill on average.
5.63 It is clear that the new pension arrangements will have an impact on both employers and
workers. However, the evidence shows that the impact will be greatest for smaller firms, and
they will not be joining until at least June 2015. The phasing of contributions will also lessen
the impact in the early years. The data also show that existing qualifying pension provision is
already high in large firms, and these are the only ones that will be affected from October
2012. We have, therefore, carefully considered the impact of the new pension arrangements
in reaching our recommendations on the minimum wage this year. We will monitor the
reforms in future years, and consider the impact as firms of different size join and as
contributions increase.
Changes to Personal Tax and Benefits System
5.64 The 2012/13 tax year will see changes to the tax and benefits system that will affect
minimum wage workers. We considered these changes in our deliberations for the 2012
recommendations. According to the 2011 Budget (HM Treasury, 2011a) the personal tax
allowance for those aged under 65 will be increased by £630 to £8,105 in April 2012. Those
earning between £7,475 and £8,105 (working between 23.6 and 25.6 hours a week at the
minimum wage) will be removed from income tax altogether while anyone earning more
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