Pay rise for low-paid workers

THE GOVERNMENT announced a pay rise for more than a million low-paid workers today. Prime Minister Tony Blair said the minimum wage, championed by unions and derided by small business organisations, will rise from £4.85 to £5.05 an hour in October, paving the way for an increase to £5.30 next year.

The Government said the number of people helped by the minimum wage would rise from 1.3m to 1.4m next year.

This year's rise of 4.1% is ahead of UK inflation at 1.6%, as measured by the consumer prices index, but lower than the 4.5% annual increase in average British wages during 2004, according to Office of National Statistics figures.

The Low Pay Commission, which advises the Government, said it took into account not only the benefit to employees but also the impact on business. The combined rises for 2005 and 2006 add up to more than 10%, ahead of anticipated average wage growth.

'We are aware that many businesses have found the last two significant increases in the minimum wage more challenging, and in particular the October 2004 upratings,' said Adair Turner, commission chairman.

'We have therefore recommended only a slight increase above average earnings, and concentrated it in the second year to allow business more time to absorb the impact.'

Breaking through the symbolic £5 mark will please unions, although Unison, Britain's biggest union, last year called for a rise to £6.50. Think-tank the New Policy Institute has called for £7. Businesses warn that such increases are unsustainable, especially for smaller firms.

The national minimum wage was introduced in 1998 and is currently set at £4.85 for those aged over 22, and £4.10, which will rise to £4.25 for those between 18 and 21. A £3 an hour minimum wage was introduced last October for 16 to 17-year-olds, which will be reviewed next year. Apprentices are exempt.

The Federation of Small Businesses said businesses hardest hit were hairdressers, hotels and shops.

'Continuous year-on-year above inflation increases are dangerous for the economy and send the wrong message to employers,' said Alan Tyrell, chairman of the FSB. 'The minimum wage should be adjusted as a direct response to economic conditions and not as a concession to trade unions or in a bid to win votes.'

At his monthly Downing Street Press conference, Blair said the minimum wage was 'a powerful symbol of how this country is changing for the good'.

Cabinet ministers, led by Chancellor Gordon Brown, marked the increase at simultaneous events across the country.

With a commitment to further rises in a third term, Labour sees the wage as a major vote winner at the election, which is expected in May.

Strategists aim to connect low pay in the 1980s and early 1990s with Tory leader Michael Howard, who was a minister, and other Opposition MPs, such as Peter Bone.

Bone, branded Britain's meanest boss after boasting that he paid employees less than £1 at the party's 1995 annual conference, is now the Tory candidate in Wellingborough.

The Conservatives hit back today by hinting they would scrap income tax altogether for low-paid workers. Leader Howard said a rise in the starting level of tax would be 'a high candidate' for its tax-cutting agenda.

Howard today told BBC Radio 4 it was 'extraordinary' that workers on the minimum wage have to pay income tax, even if they only work, for part of the week.

'I don't think it really makes sense at all for someone who works 20 hours a week on the minimum wage to be paying income tax,' he said.

At present, the 10% starting rate of the tax is payable as soon as a worker earns £4,745 a year - or £91.25 a week.