National Minimum Wage

Policy Position

Issues relating to the National Minimum Wage (NMW) are of great importance for the FDF in maintaining the competitiveness of, and employment levels in, the UK food and drink sector. FDF therefore submits evidence to the Low Pay Commission (LPC) every year about what the LPC should recommend to the Government about future increases in the NMW. This evidence is based on consultation with FDF members through its Employment and Skills Forum.

Whilst the NMW may initially have had only a minor direct impact on FDF members, they have always felt its indirect impact on the cost of services, such as cleaning, catering and security, that are provided to them. Suppliers of these services, which are generally labour intensive, try to pass on the direct cost of any increases in wage costs, such as the NMW, to FDF members and this therefore has an adverse effect on their competitiveness.

Over the last few years, FDF members have reported considerable upward cost pressures, particularly for fuel and raw materials, and these, together with the additional burden of increased labour costs, have had an adverse impact on them. Changes to employment regulations, such as the Agency Workers Regulations, the right to request flexible working and the removal of the Default Retirement Age, have had a significant cost impact particularly for smaller companies and companies paying the NMW to some of their employees. Business profitability has also been significantly squeezed in recent years.

FDF considers that it is critically important for the future competitiveness of the UK food and drink manufacturing sector that the direct impact of the NMW on its members is minimised. In the current more difficult and uncertain economic climate, it will therefore be particularly important for the LPC to adopt a cautious approach when making recommendations to the Government about future increases in the NMW to minimise any possible adverse impact that these increases could have on business costs, competitiveness and employment levels.


Since its introduction in April 1999, the NMW has been increased by the Government at a rate which is well in excess of the rate of inflation or the level of pay settlements that have been reported by FDF members over this period. As a result, the NMW has had a direct impact on pay levels and the structure of remuneration for FDF members. In particular, they report pressure to maintain differentials between their basic rates of pay and the NMW as some employees still attach a stigma to the term ‘minimum wage’ and therefore seek to maintain a distance from employers paying the NMW.

Over recent years, FDF has argued that an appropriate formula should be used to determine future increases in the NMW. FDF considers that this approach would give employers greater certainty about the direct and indirect impact that future increases in the NMW are likely to have on their businesses. This would therefore make it easier for employers to plan and budget for any anticipated cost increases. It would also enable them to implement any changes that they feel need to be made to their pay levels and/or remuneration structures in a more controlled and cost-effective manner.

FDF considers that the formula which should be used by the LPC to determine future increases in the level of the NMW is the movement in basic rates of pay across the economy over the previous 12 months. This formula should be used because the NMW is a basic rate of pay with employees who are paid the NMW able to enhance their earnings through additional payments such as, for example, shift pay, overtime and bonus payments. Since the NMW is a basic rate of pay, FDF would therefore strongly oppose having a formula for determining future increases in the NMW that was linked to increases in average earnings.

FDF considers that future cost increases, economic uncertainty and continued pressure to enhance employee benefits now means there should be a moderation of future increases in the NMW for the sustainability of the UK food and drink sector. FDF members are currently facing increases in both employment and non-wage costs, including energy, raw materials and insurance, which are having an adverse effect on the sector’s competitiveness.

FDF members have also had to implement many new employment rights since the NMW was introduced in 1999 and the cumulative effect of these new rights has imposed both administrative burdens and direct labour costs on them. For example, the implementation of the Agency Workers Regulations in 2011 has imposed further costs as will the proposed extension of the right to request flexible working to all employees.

FDF recognises that there may sometimes be special circumstances when the LPC should modify the result of using our proposed formula for determining future increases in the NMW. These would include forthcoming legislative changes that are likely to have a disproportionate impact on those sectors of the economy and those employers who pay the NMW to all or some of their employees.

An example of this legislative change is the staged introduction from October 2012 of the requirement for all employers to automatically enrol their eligible employees into a qualifying workplace pension arrangement, including that offered by the National Employment Savings Trust (NEST), with the employer being required to make a pension contribution for all employees who do not choose to opt out of, initially, 1% and, ultimately, 3% of a band of earnings. The LPC has previously modified its recommendation to the Government about future increases in the NMW when the statutory annual holiday entitlement was gradually increased from 20 to 28 days and FDF considers that a similar approach should be adopted when the pension auto-enrolment legislation is introduced.

FDF members have also asked for consideration to be given to repositioning the NMW so that, in the future, it is called a ‘standard pay rate’ as it is felt that this would help to reduce the potential stigma of it being referred to as a ‘minimum’ level which is seen as negative by some employees.

Last reviewed: 20 Sep 2013