National Minimum Wage (Amendment) Regulations 2011
Lord De Mauley
That the Grand Committee do report to the House that it has considered the National Minimum Wage (Amendment) Regulations 2011.
Relevant documents: 24th Report from the Joint Committee on Statutory Instruments.
Lord De Mauley
My Lords, I am pleased to present the regulations and to speak to the National Minimum Wage (Amendment) (No. 2) Regulations 2011.
Before discussing these regulations it is important that I confirm the coalition Government’s commitment to the national minimum wage. There has been a certain amount of controversy following the recent debate in the other place on the Private Member’s Employment Opportunities Bill, in which it was suggested that people with disabilities should be able to offer themselves for work at below the minimum wage. As noble Lords know, the aim of the national minimum wage is to establish fairness in the workplace and one of its key principles is to protect the most vulnerable workers. The Government support the minimum wage, and we reject any suggestion that disabled people should be able to opt out of it.
I turn now to the two sets of regulations before us. The first regulations—the National Minimum Wage (Amendment) Regulations—do three things. First, they increase the hourly rate of the minimum wage for adults, younger workers and apprentices and increase the maximum amount for living accommodation that is allowed to count towards pay for minimum wage purposes. Secondly, they clarify the circumstances in which individuals taking part in certain government employment programmes are exempt from the minimum wage. Thirdly, they reflect the changes that have been made to the names of certain pre-apprenticeship programmes in Wales. The second set of regulations— the National Minimum Wage (Amendment) (No. 2) Regulations—exempts higher and further education institutions from the accommodation offset rules for full-time students who are employed by that institution.
I shall start with the provisions in the National Minimum Wage (Amendment) Regulations. In April, the Government announced that we had accepted the recommendations of the Low Pay Commission in its 2011 report on the minimum wage rates to come into force on 1 October 2011. These regulations implement that decision. They increase the adult minimum wage rate by 2.5 per cent from £5.93 to £6.08. We believe that this increase is appropriate in the light of the continuing economic uncertainty, while at the same time protecting the lowest-paid workers from falling further behind the average. Both the Government and the Low Pay Commission are concerned about the position of young workers in the labour market. I am sure noble Lords share that concern.
Young people are more vulnerable than they have been previously as they have been hit harder by the recession. That is why the Low Pay Commission’s remit last year specifically referred to the need to consider the position of young people in the labour market. Their position has continued to be difficult and there is evidence that in difficult economic circumstances the minimum wage level may have an impact on their ability to find employment. The commission therefore recommended lower increases for the youth rates than for the adult rate. This is because the youth minimum wage rates have increased faster than young people’s earnings generally since 2007. As a result, the minimum wage as a percentage of median earnings for young workers has increased while the adult rate has remained stable. The commission concluded that it would be imprudent for this to continue and therefore recommended lower increases than for the adult rate. We accept that conclusion. We believe that the increases in the youth minimum wage regulations are sensible and appropriate to protect the labour market position of young people.
The Low Pay Commission has also reviewed the new apprentice minimum wage that we introduced in October last year. It has found that the initial rate was cautious and recommended a higher increase in the apprentice minimum wage of 4 per cent. This will apply only to employed apprentices who are either aged under 19 or who are over 19 and in the first year of their apprenticeship. Other apprentices are eligible for the minimum wage rate according to their age.
There is currently an exemption from the national minimum wage for workers participating in certain government schemes to provide training, work experience or temporary work. At present, workers participating in government schemes provided under the Employment and Training Act 1973 are exempt from the minimum wage. However, there is no such exemption for workers participating in government schemes provided under the Jobseekers Act 1995, such as the Work Programme. Regulation 2 corrects this anomaly so that the exemption applies to all such workers.
I turn now to the third element of the regulations which is in Regulation 4. There is an exemption from the national minimum wage for a small proportion of apprentices on specified schemes who are not employed but who usually receive an allowance paid by the state instead of a wage. On 1 August, the Welsh Assembly Government will be starting two successor programmes to the Skill Build scheme that is currently specified in the regulations. We are therefore making consequential changes to reflect this.
The second set of regulations before us concerns the application of minimum wage rules on accommodation in relation to educational institutions. It is a general principle of the minimum wage that workers should be remunerated in money and not in benefits in kind. The only exception to this general principle is accommodation. However, as a safeguard to protect workers from unreasonable charges, the regulations set a maximum daily amount that an employer can deduct for the cost of accommodation, which is known as the accommodation offset.
Last year, the Government became aware that there was a potential problem with the accommodation offset where a higher education institution provides accommodation to a student who it employs, for example, as a student mentor. The problem arises because the relationship between an educational institution and its students is primarily educational, and accommodation is provided on that basis. Where an institution employs a student part-time, this does not change the basis on which the accommodation is provided. It is not analogous to the circumstances which the accommodation offset was designed to cover; namely, the protection of vulnerable workers whose employers might have sought to avoid paying the minimum wage by levying excessive rent for their accommodation.
We conducted a full public consultation on this issue earlier this year. We received 38 responses from universities, their representative groups and student representatives. There was an overwhelming consensus supporting the principle that we should address this issue. The regulations therefore exempt higher and further education institutions from the accommodation offset rules where the accommodation is provided to a worker who is enrolled on a full-time course with that institution. The overall, consistent response to our consultation was that the test for exemption should be based on the educational relationship that a student has with an institution. We have therefore based the test on whether a worker is undertaking a course with the institution. We have limited the exemption to full-time students as we consider that this approach is in line with the principle behind the exemption.
In summary, the Low Pay Commission’s minimum wage rate recommendations reflect the continued volatility of the economy, the state of the youth labour market and the uncertain prospects for the forthcoming year. I believe that the increases in the minimum wage in the first set of regulations before us balance the needs of low-paid workers against the challenges that remain for businesses. They reflect our commitment to the fair treatment of low-paid workers as well as to business. I believe it is important for the integrity of the minimum wage that the detailed rules are appropriate and, where this is not the case, that we take action to remedy the situation.
The second set of regulations addresses the unintended consequences of the accommodation offset rules as they apply to higher and further education institutions. I ask your Lordships to consider these regulations.
Lord Teverson
My Lords, I thank the Minister for his explanation of these regulations. The reason why I was eventually very much in favour of the minimum wage was not that given in the background papers to this. It was the fact that where we have quite a strong safety net in terms of the welfare state, it seemed to me that we were getting into a situation where companies were able to pay low wages and the state effectively subsidised the corporate sector in terms of its pay. Bringing in the minimum wage allowed us to stop that, at least to a degree. When I looked at the uprating in these areas in relation to inflation, which clearly they are well under, they probably reflect wages in the economy fairly accurately, so perhaps that is fine. I was particularly interested in some of the background notes. I learnt that almost 1 per cent of apprentices are 61 to 70 years old. I thought that was quite an interesting statistic. In fact, only 70 per cent—seven out of 10— apprentices are in the 16 to 20 year-old age group, so we learn something from the notes.
Lord Young of Norwood Green
My Lords, I am pleased to support this important piece of legislation which makes the necessary amendments to ensure that the annual rises are made to the national minimum wage and that they will come into force on 1 October 2011, raising the wages of something like 900,000 workers.
The national minimum wage was introduced by the Labour Government in 1999 in spite of all manner of scaremongering, particularly from some sections of the right-wing press and, as I recall, it was opposed by the Conservative Party at the time. When it was introduced, it raised pay for more than 2 million people, and thereafter the Labour Government ensured that there were regular, above-inflation increases, so that in the first 10 years of its existence, the national minimum wage rose by 59 per cent. There is no doubt that those increases have raised the living standards of the lowest paid and have helped to close the gap between men and women's pay.
I agree with the noble Lord, Lord Teverson, that it did away with what was in effect a state subsidy for those parts of the corporate sector that paid significantly less than the minimum wage. As we know, when those investigations took place, a wage of £1 an hour was not uncommon in certain parts of industry. In 2004, some 50,000 low-paid teenagers received a boost in income when a minimum wage for 16 and 17-year-olds was introduced. When the Conservative Party was opposing the introduction of the minimum wage before 1999, there were claims that it would cost some 2 million jobs. In practice, 3 million extra jobs were created in the following 10 years.
Despite the initial and determined opposition to the national minimum wage, it appears that it is now accepted by the main political parties. I was pleased to hear the Minister state that the Government disagree very strongly with the remarks made by the honourable Member for Shipley two weeks ago when he suggested that disabled people should be required to work for less than the national minimum wage. I welcome that assurance.
During the first 10 years of the national minimum wage, the level of the annual increases in the national minimum wage meant that overall it rose above the level of inflation. In the past couple of years, it has risen more or less in line with average earnings. However, it worries me that we are now seeing some very rapid rises in the price of basic foodstuffs, domestic fuel bills and vehicle fuel, which has a knock-on effect on public transport and many other products. If you are on a low income, food and fuel make up a higher percentage of your expenditure, and therefore you are particularly hard hit by these rises. We have seen some very steep rises in food prices and fuel prices in the past few months, and we may well see further increases in the next few months between now and 1 October 2011, the date when the increases in the national minimum wage that we are discussing today will be implemented. If these trends continue, the additional 15p per hour on the adult minimum wage, bringing it up to £6.08 an hour, which amounts to a 2.5 per cent increase, will soon be eliminated by price rises.
Put another way, this increase of 15p per hour amounts to an increase of £6 per week for a 40-hour week, while we are seeing price rises which will soon invalidate that. If these trends continue, clearly the Low Pay Commission will be taking into account these additional costs as it does its complex analysis and consultation before making its next recommendation. Once it has made its recommendation, it will of course be up to the Government of the day to decide whether to accept it. I urge the Government to accept that proportionately high increases in the national minimum wage may well be needed to ensure that it keeps pace with inflation, given the costs faced by low-income families. If we are to make work pay, which I know is an objective of this Government, it is particularly important that the national minimum wage reflects the reality of price increases that people are encountering.
I very much hope that the coalition Government will continue the policy we had in government of increasing the national minimum wage at or above the level of inflation and that there is no intention on their part to allow its real purchasing value to be eroded by a failure to increase it in line with the actual prices people have to pay to meet their basic needs. I express those fears because we have already seen the coalition Government decide to use the consumer prices index instead of the RPI to calculate rises in pensions and benefits. I note the increase in the apprentice rate from £2.50 to £2.60. I also note the valid points the Minister made about the accommodation offset and the consultation that took place.
The success of the national minimum wage depends in part on the ability to ensure successful enforcement as a deterrent to those employers who attempt to flout the legislation. Can the Minister give us the latest statistics from the Revenue on enforcement and the number of national minimum wage enquiries raised on the employee rights helpline? I understand that since I did not give notice of those questions, the Minister or his team may not have those statistics to hand. I would be happy if he would let me have those answers in writing. They are important to give us an understanding of where we are going on the national minimum wage. That said, the work of today's Committee is to pass the statutory instruments before us, and I am pleased to support them.
Lord De Mauley
My Lords, this has been an interesting short debate and I thank noble Lords for their contributions. The regulations concern important issues that support the Government’s commitment to delivering fairness and supporting business. I believe that the provisions are fair and appropriate.
A number of points have been raised, so let me attempt to address them. My noble friend Lord Teverson commented on the use of the national minimum wage to ensure in the past that employers did not use the welfare state to subsidise their business, and I accept that. He also asked about interns and the Government recognise concerns about the risks of their exploitation. We are working to improve our guidance to clarify when individuals performing work experience, including interns, are entitled to the minimum wage. We will ensure that enforcement of the national minimum wage continues to be effective and that resources are focused where they will have maximum impact. HM Revenue & Customs will conduct a targeted enforcement campaign this year in sectors where internships are commonplace. Work experience as an intern, paid or unpaid, can be a valuable way for young people to gain the experience, skills and confidence that they need to get started in a career, thus improving their prospects. We want as many internship opportunities as possible to be made available to talented young people from all backgrounds, but we are clear that those who are entitled to the national minimum wage should receive it.
The noble Lord, Lord Young of Norwood Green, enjoyed pointing out that the Conservative Party originally opposed the minimum wage. While that is true, the implementation of the minimum wage has shown that it provides a valuable safety net for low-paid employees but that it has not had an adverse effect on their employment. The Conservative Party has therefore supported the minimum wage in recent years. I have sat in the chair opposite, where the noble Lord sits today, and supported the national minimum wage from that Dispatch Box. This support is continued in the coalition commitment I referred to in my opening speech.
The noble Lord also referred to inflation. The aim of the minimum wage is to help as many low-paid workers as possible without having any significant adverse impact on their employment prospects. It is for the Low Pay Commission to consider this in the first instance, as it makes recommendations to Government on the appropriate rate. It would be rash to speculate now on future recommendations. The Low Pay Commission considers a number of issues, including RPI, CPI, average earnings growth, GDP growth, employment and unemployment, and details its findings and the rationale for its recommendations in the reports that it makes to us. We also take these issues into account when deciding whether to agree with the commission’s judgment.
The noble Lord kindly said that he would accept a letter on his final question, and I will write to him.
I commend these regulations to the Committee.