Simon Bond, partner at regional law firm Challinors, looks at the effects of the most recent rise in the minimum wage.
On October 1, the national minimum wage increased by 17p to £5.52 for workers over 22 and £4.60 for workers aged 18-21.
Full-time workers will also benefit from extra annual leave, as the holiday entitlement increased from 20 to 24 days a year. But a little over a month later reports suggest the rise has caused controversy with trade unions, and that local businesses and consumers are now likely to be hit in turn as businesses struggle to foot the bill.
October's minimum wage rise represented an increase of 17p, or around three-and-a-half per cent, which is the first time in seven years that the rise is in line with inflation, rather than above inflation. Therefore, while some parties believe that the increase is too substantial, others believe that it does not go far enough to protect the lowest paid workers.
Altogether, the situation raises the controversial issue of how to balance the need for a living wage in a fair society and the need for enterprises to thrive in a tax-heavy business environment From the point of view of many local businesses, the increase comes after seven consecutive years of substantial minimum wage rises, including last year's bumper increase of 25p.
It also acts as yet another pressure alongside rising taxes, increasing energy costs and the threat of new levies from local councils. Some parties are warning that unless expectations for future rises are managed then there will be damage not only to local businesses, but also to local employment prospects.
Indeed, the Low Pay Commission reported that for the first time since the national minimum wage was introduced in 1999, this year has seen a small drop in the number of jobs in the lowest paid sectors as employers try to reduce their workforce to offset the increase in costs.
According to the British Retail Consortium, last year's rise in the minimum wage cost retailers £1.7 billion and ultimately it is likely that these costs will be passed on to the consumer, as businesses struggle to foot the bill. With most people already feeling the pinch of a reduced disposable income, this could have a severe impact on a range of markets.
On the other hand, trade unions do not feel that this year's rise is sufficient to address the plight of low paid workers, who do essential and often under-appreciated work such as cleaning, hospitality and food production.
With rising interest and mortgage rates, these workers are still struggling to get by, and will need substantial future rises in wage and holiday entitlement to ensure that they receive a living wage and decent quality of life.
Settling the right level will not only give workers more time with their families and communities, but arguably produce a more productive workforce.
Whatever the controversies of the minimum wage, it is encouraging to note that people no longer debate the concept, only the amount. When legislation was first being prepared in 1999 it received opposition from both Conservative party members and certain businesses, but seeing the real benefits for workers, the majority of critics now support the concept and acknowledge it to be a part of their social responsibility. It is too early to predict all the effects of October's rises, but it is already clear that going forward it will be more vital than ever to carefully balance the needs of employers and employees.
Businesses will certainly need to plan for further increases to both wage and holiday, with the latter already set to rise to 28 days per year by 2009.
Until then it is essential that businesses understand their responsibilities not only to adhere to the minimum wage, but to keep clear records that can be accessed on demand at any time by either the Inland Revenue or the employee.
Whatever the controversy over the minimum wage, enforcement is becoming tougher and it is essential that small and start up businesses in particular understand their responsibilities from the start, or they face far larger costs in the long term.