Youth minimum wage may rise to offset tax cut

28th April 2008

The suggestion by Alistair Darling that the Government may change the national minimum wage regime to compensate low-paid young workers who will lose out as a result of the decision to scrap the 10p tax rate, has alarmed business...

Under pressure from MPs, the chancellor has offered to compensate some of the 5.3 million people expected to be left worse off by the controversial tax measure. The compensation deal will be unveiled in the autumn and backdated to 6 April 2008 when the 10p tax rate was abolished. It will cover loss to pensioners aged 60 to 64, to childless people and to young people.

John Hutton, the business secretary, has written to the Low Pay Commission (LPC) asking it to examine the options for altering the minimum wage for young people, an aide has told the FT. The Government could require young people to be paid the full adult minimum wage, which is nearly a pound higher than the rate for 18 to 21-year-olds.

The LPC believes that young workers should be paid a lower rate, otherwise employers will prefer experienced workers. The Government has so far always agreed with the LPC’s recommendations, but ministers have the final say.

The EEF, which represents manufacturers, says that firms should not have to incur additional costs to resolve the Government’s political difficulties. It says that future increases in the national minimum wage should be set using a formula based on retrospective movements in basic rates of pay across the economy. This would prevent political interference and help manufacturers to plan.

The CBI and the BCC have also criticised the chancellor’s action.

As minimum wage increases for this year have already been set, any changes to the minimum wage for young people would take effect from October 2009.

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