Delivered! Economic policies that worked: the Minimum Wage at 25
Low paid workers are, on average, £6,000 better off because of the Minimum Wage
By Tim Thorlby
5 min read
“It will never work.” This is how most proposals for change are met at first. But the critics can be wrong.
This blog is the first in a short series which will highlight some of the UK’s most effective economic policy interventions of the last 25 years. It is a blog about how big changes happen and how easy it is to forget that we can – sometimes – work together to do remarkable things. Reasons to be cheerful, perhaps.
This first blog takes a look at how Government introduced the UK’s first ever Minimum Wage in 1999 in the face of fierce opposition….and what happened next. A glamorous story? No. But it has delivered real change for millions of low paid workers. The blog also draws out lessons for how to deliver big shifts.
An Old Saying…
An old and wise saying in policy circles goes like this:
We tend to overestimate what we can achieve in one year and underestimate what we can achieve in ten years
In other words, consistently and patiently working towards long term goals can be a very effective strategy for delivering serious change, even if it feels slow going from year to year.
So, now that we are 25 years into the 21st Century (it was the future once), how are we doing? Have we made any progress? If 25 years is broadly a generation, is anything better for the new upcoming generation?
Well, yes.
It is very easy to focus on problems and we know that a lot of things in the UK need fixing right now. I am not shy about blogging about them either, as regular readers will know. But sometimes it is OK to pause and celebrate where things have….gone right.
So, I am dedicating this blog series to those patient visionaries who set long term goals, never gave up and changed the world.
I have selected a handful of intentional changes from the last 25 years which have impacted life in the UK in a substantial and measurable way and made our lives better as a result. I have focused on changes that involve business, industry or markets in some way, given the broad focus of this blog on how our economy works, rather than changes which are focused entirely on public service reform. It is not a comprehensive list, just evidence that policies and changes sometimes work.
Many challenges remain, but just for now, let’s celebrate what we can do when we work together. It’s really quite remarkable.
This blog will explore how the Minimum Wage was developed and launched and what impact it has had in the UK in the last 25 years.
Let’s go back to 1999…
The National Minimum Wage was brought in by a fresh-faced Prime Minister Tony Blair in 1999.
The Resolution Foundation have declared it to be[1]:
“the single most successful economic policy in a generation.”
In April 1999, over 25 years ago, the UK’s first ever National Minimum Wage was set for working adults over the age of 21 at £3.60 per hour. This meant that it was against the law to employ someone and pay them less than this. A lower rate was set for younger workers - £3 per hour was the minimum for workers aged 18-21. It only applied to employees, not the self-employed.
On the day it was introduced, it directly affected (and increased) the pay of nearly one million workers.
The Low Pay Commission was also established as a new statutory body to research and advise the Government on what the Minimum Wage should be every year and to evaluate its impact on the labour market.
The Minimum Wage has evolved over the years, with new lower rates set for Apprentices and those aged 16-17. It has been rising in value in real terms. It was also rebranded, somewhat confusingly, by George Osborne in 2016 as the National Living Wage, although it remains a Minimum Wage and is still below a real Living Wage (see other blogs to understand the difference).
The National Minimum Wage from April 2025 for workers aged 21 and over is £12.21.
We changed our minds
In the 1970s and 1980s when the subject of a ‘minimum wage’ came up for discussion, almost no-one thought it was a good idea. Business and the Conservative Party did not like the idea – they thought it would tie businesses down and destroy jobs. The unions did not like the idea either – they thought it undermined their role, as a time when their memberships were in rapid decline.
What changed, during the 1990s was a shift in opinion within the labour movement. The Low Pay Unit (originally led by the late Frank Field MP) campaigned hard, sharing the stories of low pay workers and highlighting the potential of a new Minimum Wage. The idea and the initial campaign came from the civic sector.
A growing body of rigorous academic work was also developing, disputing the idea that it would ‘cost many jobs’. This had always been one of the main objections, but the available evidence now addressed this.
New Labour then found a political narrative for the policy, to build public and business support, which was about supporting fairness for low pay workers as well as supporting responsible businesses by preventing ‘cowboy employers’ from undercutting them. The narrative appealed to both workers and (some) employers.
New Labour also found a pragmatic formula for bringing workers and employers together to make the policy work in a flexible way without too much public conflict. The Low Pay Commission was established as a formal venue for negotiation. As a way of managing risks and reassuring employers, the initial Minimum Wage was also set low.
In December 1997, during the debate on the Second Reading of the National Minimum Wage Bill in the House of Commons, the then Secretary of State for Trade and Industry, Margaret Beckett outlined the rationale for action:
The Low Pay Unit has examples of someone working in a chip shop in Birmingham and taking home 80p an hour, of a factory hand earning £1.22 an hour and a residential home worker earning £1.66 an hour—another example involves a sales clerk in Wrexham earning £1.12 an hour. The recently opened Trades Union Congress hotline has uncovered cases such as that of a waiter paid £12 for an eight-hour shift, during which any tips that he received were taken from him, and a cleaner working in an independent school, who was paid £40 for a 40-hour week.
The consequence of that policy, apart from insecurity and poverty among those in such low-paid work, is a massive cost to the public purse. More than £2 billion will be paid in 1997 in family credit alone to subsidise employers paying wages at those levels. The taxpayer is paying a heavy price for the previous Government's decision to remove any floor on earnings. Not only did that result in poverty wages, but a pay gap was created between rich and poor which has grown to its largest level since the 1880s; and there has been a growth in inequality which is faster than in any other industrialised country apart from New Zealand.[2]
The Bill was firmly opposed by the Conservative Party and the CBI, amongst others. The Conservative Party had claimed that it would cost up to 2 million jobs. After heated debate, the Bill became law and came into force on 1 April 1999.
Today, a quarter of a century later, the Minimum Wage enjoys wide public support. Surveys show that the general public, employers, the Conservative Party and even the CBI now firmly support the Minimum Wage and the process used to set it each year. Interestingly, surveys suggest that the public would happily tolerate higher rates than are currently set.
How times change, eh?
And did it work?
The introduction of the National Minimum Wage has successfully raised the floor of low hourly pay in this country. The Resolution Foundation estimated in 2024 that a low paid worker was some £6,000 per year better off than if the policy had never been brought in.
It has also significantly reduced the inequality of wage rates between the high paid and low paid. During the 1980s and 1990s, high wage rates were rising faster than low wage rates, so inequality was accelerating. The Minimum Wage has reversed this trend, bringing the two rates closer together instead.
And it has done so with a negligible impact on employment. In other words, employers have coped with the rising wages each year, even in recent years as the wage has been rising faster in real terms value.
This has also been achieved at very little cost to the taxpayer. By setting a wages floor, the onus is on employers to pay more – mostly in the private sector – rather than expecting the taxpayer to subsidise low incomes with welfare payments.
Given that minimum wage jobs are more likely to be held by women, those with disabilities and those from Black, Asian and Minority Ethnic backgrounds, these groups are amongst those that have benefited the most from the policy of setting and raising the Minimum Wage.[3]
The UK now has one of the highest minimum wages in Europe. As it has increased in value, it has gradually reached more workers, with 1.6 million workers now paid at that level in the UK, almost double the number when the policy began.
There is also limited evidence to suggest that in some low productivity sectors, cranking up the lowest pay over the last few years may also have helped to increase productivity – a significant challenge for the UK more generally.
All in all, a successful policy, delivering benefits to millions of low paid workers, at a low cost to the taxpayer. Not bad.
The future
Many commentators believe that the Minimum Wage still has some distance to go in real-terms uprating, so the story continues.
The broader issue of low pay, poverty-in-work and the need for fair and dignified work still presents many challenges in the UK. Although hourly rates have been rising at the bottom of the labour market, as we have seen, the Minimum Wage has only fixed part of the problem. Too many people are still working less hours than they would like, so total weekly income has not always been rising as fast.
With the rise of the gig economy and precarious work, as well as very low provision for sick pay, the wider conditions for the low paid therefore remain challenging. The enforcement of the Minimum Wage is also weak, allowing some cowboy employers to continue to underpay. There is still much to do to beef up enforcement, fix the loopholes in the gig economy and improve sick pay. This would strengthen the ‘floor’ for low paid workers and probably give productivity a modest kick up the pants.
Nevertheless, the introduction of the National Minimum Wage in 1999 shows that it is possible to construct major interventions in our economy which deliver substantial benefits to millions of low paid workers, in a way which is sustainable and also broadly supported by unions, employers and the public. This is not only worth celebrating, there is much to learn from it too.
Lessons to learn?
What can we learn from this successful policy intervention? I found six lessons.
1. Big changes follow big bold visions. There is a degree of audacity and courage required at the outset of any process of change, usually fired by a passion to fix a real social problem.
2. All change is contested. Every significant intervention is contested at the start and born out of some degree of political conflict. This is almost inevitable.
3. All sectors contributed to building momentum for change. The civic sector came up with the idea, the academic sector gave it credibility, the political sector built momentum and public support for it (something called ‘leadership’) and the business sector engaged with the discussion, with some (never all) supporting it.
4. Significant change does not arrive fully formed. The Minimum Wage took years to bed down, become accepted and to develop its approach and its current value. It did not arrive fully formed, it has evolved.
5. The best markets need the best regulation. Discussions about business often polarise into a highly simplistic ‘private is good, public is bad’ argument, which is rarely true. In reality, markets work best – are at their most innovative, creative and competitive – when they are intelligently and well regulated. The Minimum Wage is a good example of intelligent regulation, making it harder for irresponsible employers to undermine decent standards whilst still giving employers plenty of freedom to set wages.
6. We forget our successes very quickly. We have a tendency to ‘bank’ successes and move on surprisingly quickly. Pausing to celebrate ‘wins’ is an important way of encouraging further change – it reminds us that constructive politics and change is indeed possible.
Conclusions
In an age of cynicism about politics, it is important to remember that democratic government has delivered sizeable wins for us in recent years. Some of those policies actually work, and they work for the many, not just the few. And those policies were built and delivered by coalitions of people, charities, political parties, universities and employers working together.
Is something bothering you today? Organise!
This blog was written by Tim Thorlby. Please sign up for the email alert if you’d like to know about future blogs, usually published once a month.
Notes
[1] Press Release 27 March 2024, Resolution Foundation | Access: https://www.resolutionfoundation.org/press-releases/the-minimum-wage-is-the-single-most-successful-economic-policy-in-a-generation-and-has-boosted-the-wages-of-millions-of-britains-lowest-earners-by-6000-a-year/
[2] 16 December 1997, Hansard | Access: https://api.parliament.uk/historic-hansard/commons/1997/dec/16/national-minimum-wage-bill
[3] Drawing on evidence from the Low Pay Commission | Access: https://minimumwage.blog.gov.uk/2023/05/26/the-nlw-and-protected-characteristics-differences-in-employment-and-minimum-wage-coverage-by-ethnicity-disability-and-gender/