If the economy really is on the up, we must make sure the lowest paid benefit

Earlier this week the Governor of the Bank of England added his voice to concerns about the fall in wages in recent years. Mark Carney told the TUC conference that, as productivity increases, Britain will finally get a pay rise. Yet history tells us this is not always the case. In both Britain and the US the link between the growth of wages and GDP has weakened over the past few decades. In particular, there is a need to ensure that the lowest paid are benefitting as the economy recovers.

The National Minimum Wage has been one of the most successful tools for tackling low pay. As the chair of the Low Pay Commission that set the first rate, I am incredibly proud of what it has achieved in its 15-year history. When we started our work, I remember seeing jobs advertised paying £1 an hour. This extreme low pay was eliminated by the introduction of the minimum wage. And despite the concerns raised by many at the time that a minimum wage would cost jobs, the balance of evidence suggests there has been no adverse impact on employment.

Yet the more general problem of low pay remains: one in five workers, or five million people, are low paid. I believe that the Low Pay Commission must evolve to meet this new challenge.

Earlier this year I chaired an inquiry of leading labour market economists into the future of the minimum wage. I argued that the Government should publish an ambition for the level of the minimum wage expressed as a proportion of the median wage that could be attainable over the medium term. As the economy recovers, the goal should be to re-establish the ambition of the minimum wage in its first five years, when it made strong progress against median earnings.

A five-year ambition, for example, would give businesses more certainty than the current year-to-year process and ensure time to plan, with some flexibility in this timescale to allow the Commission to set out the appropriate course and respond in case of economic shocks. The view of the inquiry was that 60 per cent of median earnings is a reasonable goal, based on the UK experience and international evidence on the level of minimum wages that countries can support without affecting employment.

The core model of a single mandatory minimum wage that is recommended from year to year by the independent and evidence-based social partnership model of the Low Pay Commission would remain intact under these proposals. But it would have a much broader and more empowered remit, so that it becomes the Government’s official watchdog on low pay – setting out a course of action, monitoring progress and making recommendations to Government on how to make a higher minimum wage possible.

If Mark Carney is right about productivity increases in the coming years, these measures will help to ensure that the lowest paid see the benefits.

Sir George Bain was the first chair of the Low Pay Commission, which sets the National Minimum Wage rate each year.