How low can a minimum wage be set?

A senior businessmen offered the chairmanship of the Low Pay Commission has told Labour politicians privately that he wants a minimum wage of little more than pounds 3.

Peter Jarvis, retiring chief executive of brewing group Whitbread, favours a figure which would include bonuses and benefits-in-kind and would amount to around pounds 3.20.

Mr Jarvis also wants to see a minimum wage fixed to reflect regional trends, something Labour has ruled out.

The news will enrage many of the largest unions, which have called for a rate matching half male median earnings, calculated at pounds 4.42.

While many welcomed the establishment of the commission, announced in the Queen's Speech, they were unaware of the figure Mr Jarvis had in mind.

Only a recent convert to the idea of a statutory pay limit, Mr Jarvis, is also keen to promote the idea of regional variation - in direct contradiction to the views of Ian McCartney, the sponsoring minister in the Department of Trade and Industry.

Mr Jarvis was contacted by the Labour Party in the last week of the election campaign and asked if he would chair the commission. The 55-year-old Bolton mill workers' son and Cambridge graduate, however, had received no further approach since the election, according to an aide.

While intrigued by the possibility of leading the commission, he is keen to see the terms of reference before committing himself. He wants sufficient leeway so that the minimum could apply flexibly.

Announcing Whitbread's profits last November however, Mr Jarvis said that the principle of a "floor" for wages was a good one and that it would not disturb responsible companies.

Mr Jarvis's private views, however, emerged in a confidential memorandum sent by Whitbread to the Labour Party in September 1995. The document opposed the establishment of a minimum based on half male median earnings - then pounds 4.15 - on the grounds that it would cost the leisure industry pounds 167m and lead to substantial job losses. It would cost Whitbread pounds 27m.

The memo also pointed out that basic hourly rates were "anachronistic" because employees were paid through a mixture of profit-related pay, incentive bonuses, free share ownership, staff discounts and company pension schemes.

A spokesman for Whitbread yesterday refused to say what its lowest basic pay was because it was a "starter rate".The paper sent to the Labour Party said that a minimum of pounds 3 would have a "negligible impact" on Whitbread. Up-rated, that would give a figure of pounds 3.20.