I agree that £5 an hour is possibly exploitative, but a lot depends on what you can afford, and what he is happy to accept. He won't be paying rent or food bills at his age.
If £20 an hour is too much, is there anything you could offer to do for him on top of the fiver? Bake a cake, or knit him a hat? Teach him a skill of some kind?
I like the idea of local barter instead of some jobs attracting higher rates than others, but at the same time, 12 year olds often want cold hard cash, and they don't have many opportunities to earn it.