The introduction of the minimum wage in the UK in 1999 is the single most successful economic policy in a generation according to a report out today
The Resolution Foundation think tank report found that the move raised the pay of the nation’s lowest paid workers by £6,000 a year compared to their earnings simply rising in line with typical wages
The policy was introduced against a backdrop of rising pay inequality. Between 1980 and 1998, hourly pay growth in the UK was twice as fast for the highest earners as it was for the lowest earners (3.1 per cent versus 1.4 per cent per year).
But since 1999 – when the minimum wage was brought in – this trend has reversed, and hourly pay inequality has fallen with pay growth for the lowest earners five times that seen by the highest earners (1.6 per cent versus 0.3 per cent per year).
This rapid pay growth for Britain’s lowest earners is equivalent to them earning £6,000 more per year, compared to if their earnings had simply continued to grow in line with typical wages since 1999.
The introduction and ramping up of the minimum wage – notably with the introduction of the National Living Wage in 2016 – has also helped to tackle Britain’s long-standing problem of high levels of low pay (defined as earning less than two-thirds of median hourly pay).
For several decades, a stubbornly consistent fifth of workers were stuck in low pay, but since the introduction of the minimum wage the share has fallen from 22 per cent in 1999, to just 9 per cent in 2023.
A rising minimum wage has also meant that many in lower paying occupations have been able to enjoy real wage rises even amid the wider wage stagnation of the past 15 years. Between 1998 and 2023, median hourly pay rose by 66 per cent for bar staff and 52 per cent for cleaners in real-terms, compared to just 21 per cent for median earners.
The minimum wage has also risen rapidly in international terms. Having been introduced at a low level compared to the OECD average back in 1999, by this April the UK will have the one of the highest minimum wages in the world relative to typical wages – lower than New Zealand (and some other smaller economies) but roughly level with France and Korea.
The minimum wage is set for a particularly big increase this coming Monday (1 April) as it rises from £10.42 to £11.44. This is the third-highest annual change in its history – a rise of 7.8 per cent in real terms, and 9.8 per cent in cash terms.
The Foundation notes that the success of the minimum wage is in large part due to the careful oversight of the independent, expert-led Low Pay Commission throughout its 25-year history.
Over that period, the minimum wage has gone from being highly politically contentious to enjoying strong cross-party support. But despite its popularity, and with an election approaching, the Foundation notes that neither of the main parties have set out a clear path for where the minimum wage should go after 2024.
Furthermore, while there have been significant hourly pay gains for low-paid workers over the past 25 years, other areas of their low-paid work – from the security and intensity of jobs, to the enforcement of legal rights and access to decent sick pay and maternity leave – have plenty of room for improvement.
The Foundation says that many of these areas are beyond the remit of the minimum wage, and need to be at the heart of debates about the future of low pay in Britain that are bound to take place during the election campaign.
Nye Cominetti, Principal Economist at the Resolution Foundation, said:
“The introduction of the minimum wage 25 years ago is the single most successful economic policy in a generation, boosting the wages of millions of Britain’s lowest earners by up to £6,000 a year.
“The policy was introduced in the face of fierce opposition, but now experiences strong cross-party support. With its current remit ending this year, now is the time to discuss the future of the minimum wage and low pay more widely ahead of the election.
“Politicians should reflect on why the minimum wage has been so successful – such as the combination of long-term political direction and independent, expert-led oversight – and whether this approach could be broadened to tackle some of the UK’s other low pay challenges.”
