Politics: Ministers warn on minimum wage

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The Government yesterday dropped some heavy hints about the proposed minimum wage and said there would be serious consequences for the economy if it is set too high.

In a formal submission to the Low Pay Commission, which will advise the Cabinet at what level to set the minimum hourly rate, ministers also made it clear that, despite the comments of some government figures, there should be no lower rate for trainees. The document says such a policy would simply discourage people from undertaking jobs where employers were seeking to provide employees with extra skills.

Peter Mandelson, Minister without Portfolio, is among those supporting a training rate. It would be difficult to avoid businesses making spurious claims about the amount and quality of training provided.

The best "proxy" for a training rate would be to provide a lower minimum for those under 25, the document indicates, a policy opposed by unions. John Edmonds, leader of the GMB general union, said an age rating would be "fundamentally unfair" and a lower rate should only be linked to accredited training.

Part of the problem for the Government is that it wants to ensure workless 18- to 24-year-olds who take job placements under the New Deal scheme receive the going rate for the job. If the full minimum were applied to those over 17, ministers would feel obliged to extend it to those on the programme.

"It is especially important that the minimum wage does not affect the numbers of opportunities available through the employment option of the New Deal," the paper says.

Ministers also made clear they would be unhappy if the rate applied to people under 18, "given the Government's desire to encourage 16- and 17- year-olds to stay on in full-time education". The paper also leans on the commissioners to set a "sensible" rate. "The higher the ... minimum wage, the greater the risk of an adverse effect on employment, inflation and the PSBR," it says.

The submission reminds the commission of its inflation target of 2.5 per cent and says the Bank of England will have to take account of the likely impact of the national minimum wage on earnings and prices in assessing the prospects for inflation when setting interest rates.

The TUC has urged the commission, due to report by the end of May, to introduce a rate of pounds 4 an hour, but it is more likely to be nearer pounds 3.50.