Business leaders have welcomed the decision to slow future increases in the minimum wage but said the "jury was still out" on the latest hike announced yesterday.

Accepting recommendations by the Low Pay Commission, Trade and Industry Secretary Alan Johnson increased the minimum wage by 30p to £5.35 from October. The rate for workers aged 18 to 21 will rise by 20p to £4.45 while workers aged 16 and 17 will see their minimum rate increased by 30p to £3.30 an hour.

The 30p-an-hour increase in the minimum wage is worth 5.9 per cent, which is higher than the increase in average earnings, currently running at around four per cent.

Trevor Freeman, chairman of the Brighton and Hove branch of the Federation of Small Businesses, said: "I would have liked to have seen the minimum wage go up in line with inflation because people have a right to maintain their standard of living.

"But this 5.9 per cent hike is just going to put more pressure on small businesses in Brighton, particularly those in retail where margins are very tight.

"I understand the social aspect of the minimum wage and appreciate it is overall a good thing but when it starts to drive up unemployment surely it's counter-productive."

David Frost, director general of British Chambers of Commerce, said: "The large rise announced will have an adverse effect on employment at a time when unemployment is already on the increase. Indeed, commentators have already predicted UK unemployment to increase further over the next year. This rise could particularly hit disadvantaged communities of the UK."

Sir Digby Jones, director general of employers' group the CBI, said the "jury was still out" on whether the increase was sustainable and what impact it would have on business.

He said: "The minimum wage jumped 12 per cent between 2003 and 2005 - a rate of increase far in excess of average earnings growth. More and more companies are finding it difficult to absorb the rise so another six per cent will be the last thing they need.

"But there will be relief at the commission's conclusion that the minimum wage will have then reached an adequate level and that future increases above and beyond average earnings are no longer necessary.

It is a sensible response to employer concerns that the minimum wage is starting to have a damaging impact on competitiveness.

"It also recognises that lower-paid employees have enjoyed a huge increase in the value of their wage in recent years."

Mr Johnson said the Government had accepted the recommended increases, made by the Low Pay Commission, because of the strong state of the economy and the "unprecedented" high level of employment which had seen an extra 2.4 million jobs created since 1997. He said 1.3 million workers will benefit from the rise, mainly low-paid women.

TUC General Secretary Brendan Barber said: "The minimum wage has been one of the Government's boldest and most successful reforms. Every time the rate has increased, low-paid women have benefited more than any other group."

Tuesday, March 21, 2006