National Minimum Wage

Chapter 5: Setting the Rate
5.86 Employment of young people is more sensitive than that of adults to the economic cycle.
With this in mind we reluctantly recommend freezing the rates for young people, which may
increase their relative attractiveness to employers. Accordingly, we recommend a Youth
Development Rate of £4.98 an hour and a 16-17 Year Old Rate of £3.68 an hour from
1 October 2012. Because of the sensitivity to the economic cycle we would expect to be
able to recommend increases for young people when economic conditions have eased.
The Apprentice Rate
5.87 In 2010 we were prudent in our first recommendation for the Apprentice Rate, intending to
support the attractiveness of apprenticeships to employers by setting it at £2.50 an hour,
substantially below the 16-17 Year Old Rate, while providing minimum wage protection to
apprentices. Last year we saw some scope to increase it, to £2.60 an hour, while preserving
this differential. Over the past year apprenticeship starts have increased for all age groups,
and we believe there is a room for a further, smaller increase. We recommend that the
Apprentice Rate be increased by 5 pence to £2.65 an hour from 1 October 2012. This
represents an increase of 6 per cent since the Apprentice Rate was introduced. We have no
presumption in respect of our decision next year, when we expect to have a larger evidence
base which we will review carefully.
Implications of the Recommended Rates
5.88 In assessing the likely impact of our minimum wage recommendations, we have looked at
various factors, including coverage and bite (its value relative to average earnings), as well as
likely changes to household income, wage bills and the Exchequer.
Coverage
5.89 In April 2011, according to ASHE there were around 1.90 million jobs that paid less than the
minimum wage rates we are recommending for October 2012. These were made up of 1.72
million jobs held by those aged 21 and over (7.0 per cent), 142,000 jobs held by 18-20 year
olds (12.8 per cent), and 33,000 jobs held by 16-17 year olds (12.8 per cent).
5.90 In order to estimate coverage, assumptions are needed about how the wages of the low paid
would change in the absence of any minimum wage upratings. In other words, in order to
estimate the value of the recommended upratings at April 2011 (the date of the latest
earnings data) the recommended rates need to be downrated using estimated wage growth.
OBR quarterly forecasts for earnings growth and inflation were used to estimate average
annual growth from April 2011 to April 2012, and from April 2012 to April 2013.
5.91 Assuming that the wages of the lowest paid increase in line with forecast average earnings,
it is estimated that about 938,000 jobs or 3.8 per cent of all jobs held by those aged 21 and
over in April 2013 would be covered by the new rate of £6.19, as shown in Table 5.2. This is a
lower level of coverage than for the current rate of £6.08 in April 2012 (when it is estimated
that 970,000 or 4.0 percent of jobs held by those aged 21 and over would be covered).
Inflation is estimated to increase faster than earnings growth between 2011 and 2013,
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