There have been calls for the National Minimum Wage to evolve, so that different rates apply to different sectors. Could this be a good idea for NMW v2.0? This second part of a four part series from Lewis Silkin on low pay considers the issues.

Some have called for higher sectoral rates of the national minimum wage. The argument goes like this: businesses in certain industries could pay people more, so they should pay people more.

A sectoral approach to national minimum wage

The inherent problem with a sectoral approach is how to define the boundaries of a business. Take the Co-op for example. It is a retailer, a bank and a provider of funeral services, so what sectoral rate would apply to its business? Or another example: minicab app Uber – is it a technology business or a transport business? This idea of a sectoral approach is not something that can be easily legislated for.

Recently, the TUC has argued for “industrial pay bodies” in low pay sectors to negotiate binding pay rates. Yet such a plan would be something of a regression; “industrial pay bodies” would likely be analogous to the old Wages Councils. Abolished by the Trade Union Reform and Employment Rights Act 1993, these were bodies that covered the majority of low pay sectors and set minimum rates. The rates had the force of law and were enforced by the Wages Inspectorate. However, Wages Councils were ineffective in boosting the pay of those at the bottom as little action was ever taken in cases of non-compliance. Wages Councils were abolished in 1993 and there would be little appetite to reinstate them, or a similar scheme.

A similar sectoral approach has been used for some time in South Africa. There is no generally enforceable minimum wage, except in a few specific sectors such as forestry, security and farming. This approach has not led to unemployment in these areas, but there are real concerns about the level of compliance. Some have suggested that 70% of employers in some sectors fail to pay the minimum rate they are supposed to.

Reducing low pay

Given this, a sectoral approach could only sensibly be adopted on a voluntary basis. The Low Pay Commission could research different industries, targeting those that are particularly affected by low pay issues such as retail, care and hospitality, and then publish these suggested rates. Unions could use these rates when they seek to collectively bargain. However, given that unions in the UK tend to have less influence than in other countries, and collective agreements are generally unenforceable, it is unlikely that significant progress could be made this way in reducing low pay. The extra time, effort, and cost that the Low Pay Commission would incur in coming up with these rates would likely be futile.

This is the second in our four part series focusing on low pay.

Part one: "What next for the Low Pay Commission?"

Part three: "National Minimum Wage: would a regional approach to NMW work?"

Part four: "The UK's productivity puzzle: a problem worth solving?"

By Tom Heys, Lewis Silkin


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