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Last Updated: Monday, 25 September 2006, 06:56 GMT 07:56 UK
CBI urges caution on minimum wage
Shop worker filling fridge shelves
Business and unions disagree over minimum wage affordability
Business group the CBI has called on the government to slow the rate of minimum wage increases.

The legal wage minimum rises by 25p to 5.35 an hour on 1 October but a big hike in 2007 would hurt business and boost the black economy, the CBI said.

However the TUC, which represents many workers, says that businesses can afford more wage rises.

The positive economic outlook means a minimum wage of 6 by 2008 should be "easily affordable", it said.

Energy drain

In a submission made to the government's Low Pay Commission, the CBI said the minimum wage would have risen by 27% since 2002 - faster than average wage growth of 18%.

Rising energy costs, lower 2007 growth forecasts and the cost of employment regulation meant firms could not cope with further heavy minimum wage rises, it added.

Continuing heavy annual increases are simply not sustainable
Susan Anderson
Director of HR Policy, CBI

And it said that some sectors, including hospitality and food producers, had been forced to cut staff and reduce benefits in order to afford the wages while remaining competitive.

Others were being under-cut by employers paying cash-in-hand on the black market, circumventing the law.

"The minimum wage has improved living standards for many workers, but continuing heavy annual increases are simply not sustainable," CBI director of HR policy Susan Anderson said.

"We hope that [in 2007] the rise will be more modest so that employers can consolidate costs to date and restore the vital differentials in pay that have been flattened by the minimum wage which encourage people to train and take on extra responsibilities in the workplace."

'Tougher enforcement'

The TUC said it wanted the CBI to back its calls for the minimum wage to be more rigorously enforced by HM Revenues and Customs.

It also wants a crackdown on firms that victimise staff who claim the minimum wage, and for more regulation of agencies that abuse workers rights.

Paul Sellers, from the TUC, told the BBC he did not believe an increased minimum wage would cause problems.

"We actually think that the kind of increases we've had in recent years are pretty sensible, so our target is that the minimum wage for adults should increase to at least 6 by 2008 - and that's only an increase of about 30p to 35p a year.

"I can't believe that business can't cope with that."

He said the minimum wage should keep pace with average earnings "otherwise the pay of the lowest paid will fall behind the rest of us".

"The minimum wage hasn't had detrimental side effects, so I can't quite see why the CBI should be crying wolf at the moment."

But earlier this month the British Retail Consortium (BRC) claimed that the introduction of the minimum wage had led to 78,000 job losses on the High Street.

It predicted more would result from October's the increase in the wage

In its submission to the Low Pay Commission, the BRC urged the government to delay the latest rise.

The minimum wage increase is higher than the rate of inflation

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