The National Minimum Wage turns fifteen this April. While today it is a pillar of the UK labour market, even its short-term survival looked in doubt prior to its introduction. With warnings of up to two million job losses and soaring inflation, it is no surprise that Professor Sir George Bain, the chair of the Low Pay Commission which set the first rate, wasn’t sure whether the minimum wage would last. But its success in eliminating extreme low pay without hitting employment has won it backing from across the spectrum. A new report from a panel chaired by Professor Bain and hosted by the Resolution Foundation argues though that the cautious approach which helped the policy bed in now looks too narrow, short-sighted and passive to tackle the wider problem of low pay.

To get an idea of the strengths and weaknesses of the minimum wage, first it is important to understand the architecture behind it. Each year, the rate is recommended to the Secretary of State for BIS by the Low Pay Commission (LPC). The LPC is made up of nine members: three drawn from a trade union background; three from an employers’ perspective; and three independent members consisting of two academics and the Chair. Placing this social partnership approach at the heart of the minimum wage has been vital to the minimum wage’s acceptance, ensuring buy-in from unions and business. Particularly impressive has been the LPC’s ability to reach a unanimous view in every report it has produced, including throughout the difficult economic environment since 2008.

The rate that the LPC initially agreed on was cautiously low. This allowed the policy to find its feet, showing that a wage-floor would not lead to skyrocketing unemployment. But now that a large and rigorous body of evidence has demonstrated it has had no detrimental impact on employment, the current settlement looks too narrow, short-sighted and passive to dent the wider problem of low pay, with a fifth of UK employees low paid. Although a single national wage-floor will always be an ill-fitting garment - it pinches hard in some parts of the economy while many other employers could afford to pay more - there are fears that in some sectors it has become a ‘going-rate’. The LPC has no powers to encourage employers to pay more when they could afford to. And if employers were keen to reduce their reliance on low pay, the lack of a sense of where the minimum wage is heading or what it is trying to achieve, only being announced six months in advance, appears an obstacle.

The report identifies three ways in which the minimum wage and the Low Pay Commission (LPC) should be strengthened:

First, by broadening the LPC into a watchdog on low pay, driving the government’s work on low pay in the same way the OBR drives progress on fiscal policy. This would mean the LPC going well beyond the narrow role of setting the minimum wage to support a new long-term government ambition to lift 1 million workers out of low pay.

Second, by making the minimum wage more far-sighted. The review recommends that the government set out its ambitions for the minimum wage over the medium-term, noting that a minimum wage worth 60 per cent of median hourly earnings would be a challenging but realistic goal. The review also argues that to offer more certainty for employers, the LPC should make a preliminary recommendation for two years’ time. But the social partnership process through which the annual rate is agreed should remain at its core.

Third, by giving the LPC tools to push employers to go beyond the minimum wage, in particular by publishing analysis that shows whether certain sectors could afford to pay more. For sectors which have a relatively small number of low paid workers, a significantly higher minimum wage would result in only a small rise in their overall wage bill. But in industries which are more dependent upon low paid staff, for example social care, even small increases can be difficult for some firms to manage. The LPC should assess what would be affordable in sectors and release these figures to inform wage negotiators, campaigners and public debate, but also flag up the barriers that prevent higher pay within problematic sectors e.g. local authority funding of social care.

These recommendations alone will not solve the problem of low pay. A serious attempt to tackle low pay will require efforts to raise the productivity of low paid workers and low-paying parts of the economy. But a more ambitious minimum wage, complemented by additional tools and overseen by a more powerful LPC, would be a meaningful step forward.

Conor D’Arcy is a researcher at Resolution Foundation