Basic wage to hit £5 an hour next year

Companies are bracing themselves for the introduction of a £5-an-hour minimum wage next year as independent research shows that many firms are already paying well above the current legal floor.

The war of words between business and unions over the national minimum wage will intensify today with publication of Income Data Services' latest findings, which show that basic pay rates at many companies have already leapfrogged the national minimum wage to hit £5 an hour.

The Government's legal pay floor goes up by almost 8 per cent to £4.85 from £4.50 an hour on Friday, but employers are increasingly looking ahead to next year's rise. Incomes Data Services (IDS), an independent think-tank, said a highly competitive labour market had forced businesses to offer wages above the national minimum level. "Many firms have already moved their lowest rates to £5 an hour," Alastair Hatchett, at IDS, said. "So there is clearly room for the minimum wage to rise to at least this level in 2005."

The report said there was little evidence that an average 7 per cent rise in the wage since 1997 had hurt employment, pointing to the 110,000 new jobs in retail and hospitality in the year to March.

The trade unions leapt on the report, saying it supported their calls for another large rise next year but business leaders said many firms were already worried about the rise to £4.85.

Brendan Barber, the general secretary of the TUC, said there was room for the wage to go above £5 next year, as employment had grown in sectors of the economy where the minimum wage had had the most impact.

"The minimum wage is doing the business," he said. "It helps about a million people every time it goes up, most of them part-time women workers, and jobs have been gained not lost."

The CBI, Britain's largest employers group, accused the TUC and the IDS of "jumping the gun" by assuming businesses could cope with a £5 rate. "The fact is that more and more companies are starting to say that the wage is having an impact. It's on their radar," Susan Anderson, its director of human resources policy, said. "We already know many firms are worried about the next rise to £4.85. We cannot afford to go on for ever giving people increases well above rises in average earnings."

But Mr Barber accused the CBI of "crying wolf" every time the minimum level was increased. "It's time they accepted that the wage works and instead concentrated on helping the Government and trade unions crack down on employers who are not paying staff the legal minimum," he said.

IDS said major employers had established what it called a "mezzanine" pay floor of between £5 and £5.20 on top of the £4.50 legal minimum. It said the starter rate for a checkout assistant at Tesco was currently £5.10 rising to £6.55 after 12 months. The minimum rate for a customer adviser at Marks & Spencer is £4.95 and the established rate £5.30.

One employer told IDS it had set its own minimum level well above the statutory floor to avoid having to return to the issue, while others had moved their annual pay review dates to fit in with the October review.

The TUC pointed to figures from the Office of National Statistics which show that since the minimum wage was introduced in 1999 at £3.60, the number of employees in the country has risen every year since, despite four consecutive minimum hourly rate increases.

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