Minimum wage is UK’s ‘most successful economic policy in a generation’

Tony Blair at a cabinet meeting in 1999. The thinktank’s study has been released to mark 25 years since his first Labour administration introduced the minimum wage. Photograph: Alastair Grant/AP

The minimum wage has driven up the pay of millions of Britain’s lowest earners by £6,000 a year, making it the single most successful economic policy in a generation, according to a leading thinktank.

Since its introduction in 1999 by Tony Blair’s first Labour administration the policy has secured cross-party agreement, and should be seen as the basis for further improvements in the welfare of low wage workers, the Resolution Foundation said.

The minimum wage will increase on Monday 1 April as it rises from £10.42 to £11.44, in the third-highest annual change in its history – a rise of 9.8% in cash terms and 7.8% above inflation.

In a study released to mark 25 years since the policy’s introduction, the foundation said workers would have been £6,000 a year worse off since 1999 if their pay had only risen in line with average wages rather than the increases recommended by the independent Low Pay Commission.

Nye Cominetti, principal economist at the Resolution Foundation, said parliament should use a review of the commission’s remit “to discuss the future of the minimum wage and low pay more widely ahead of the election”.

She said: “Politicians should reflect on why the minimum wage has been so successful – such as the combination of long-term political direction and independent, expert-led oversight – and whether this approach could be broadened to tackle some of the UK’s other low pay challenges.”

The foundation said MPs should consider how the level of statutory sick pay had fallen in relation to average wages and could be brought under the umbrella of the commission.

Some critics of the minimum wage have argued it is too high while others believe it has not risen fast enough to reduce poverty in the UK.

The Living Wage Foundation charity operates the real living wage, which sets a minimum £12 an hour wage across the UK and £13.15 in London.

It is aimed at UK workers aged 18 and over but it is not a legal requirement, and businesses choose whether to pay it.

The charity says more than 460,000 employees working for 14,000 firms currently receive the real living wage.

A report by the International Monetary Fund on the effect of minimum wages across developed and developing countries found that “research spanning several decades has not settled the debate”.

It said that some studies found a minimum wage had significant benefits for workers while “others conclude that it is harmful. Many studies have been inconclusive”.

The Resolution Foundation said analysis of the UK showed that between 1980 and 1998, hourly pay growth in the UK was twice as fast for the highest earners as it was for the lowest earners – 3.1% versus 1.4% a year.

“But since 1999 this trend has reversed, and hourly pay inequality has fallen with pay growth for the lowest earners five times that seen by the highest earners – 1.6% versus 0.3 per cent per year,” it said.