Low Pay

Wednesday 30th October 2013 Westminster Hall

16:15

[Mr William Bain (Glasgow North East) (Lab)]

It is a pleasure to serve under your chairmanship, Mr Hood.

Growth may be making an overdue return to the UK economy, but the continuing slump in real wages is forecast by the Office for Budget Responsibility to extend into 2014, and the UK currently has the highest inflation rate in the European Union, both of which contribute to the cost of living crisis. The Office for National Statistics confirmed this morning in its November economic brief that real disposable household incomes have not risen in a sustained way under the Government’s policies.

Despite employees working more hours than before the economic crisis began, the recovery is not making its way into the pockets of ordinary workers. Workers in the lower half of the income scale, particularly low-paid workers, are falling even further behind the top 1% of earners in our society. There has never been a more important time for this House to discuss the issue of low pay and how together, as a Parliament and a society, we can tackle what is now a crisis.

As the report of the Social Mobility and Child Poverty Commission recently made clear, poverty pay blights the outcomes in life of millions of men, women and children across our country. Every week, those of us with the honour of representing our great cities such as Glasgow meet those who suffer the effects of being trapped in low pay for long periods. According to the Poverty Alliance, 870,000, or 17%, of the population in Scotland live in poverty. A fifth of all children in Scotland are below the breadline.

This afternoon I will show that low pay is a problem not only in urban parts of the UK; there are pockets of truly shocking poverty in rural parts of Britain, too. If we are to come up with the right answers on low pay, we must first acknowledge how serious and widespread a social evil this now is across our country.

[Guy Opperman (Hexham) (Con)]

I congratulate the hon. Gentleman on securing this debate, and I endorse his comment that low pay affects rural areas such as mine as much as urban Glasgow. However, does he accept that the decision to raise tax thresholds provides the best possible support to low-paid workers?

[Mr Bain]

I am grateful for that intervention; I will be considering that point later in my speech. However, I must point out to the hon. Gentleman that those on the lowest earnings will not gain a penny from further increases in the personal allowance. I can direct him to the research that the Resolution Foundation has produced on the subject. It has looked at the matter in detail.

There are also issues—I shall also come to this point later—about the effects that universal credit will have, particularly in relation to any future increases in the personal allowance. Sadly, given how the Government are designing the credit, what they give with one hand, they may be taking away with another, and that is an important consideration.

The hon. Gentleman has a good record on the subject. I am sure that is borne out of his own experience in his constituency, where 47% of part-time workers are earning less than a living wage. He is absolutely right to campaign on the subject—more power to him for doing so from the Conservative Benches.

As I grew up in Glasgow, the real life experiences of people paid less than £1 an hour for security work were a scar on my conscience and a powerful spur to action on poverty pay. The success of the minimum wage in raising pay rates for the most disadvantaged working poor households is shown by the fact that the Conservatives who opposed it, and the Liberal Democrats and members of the Scottish National party who did not vote for the legislation, now would not dare abolish it.

Indeed, several Ministers in the Department for Business, Innovation and Skills, including the Secretary of State and the Minister for Skills and Enterprise, who I am pleased to see in his place, claim that they want to build on the success of the national minimum wage. It is important that today we see precisely how the Government anticipate changing the remit of the Low Pay Commission to that end.

According to the latest data from the Office for National Statistics in response to a parliamentary question I recently submitted, the average gross median wage in Britain in 2012 was £405 a week, which is almost 7% down in real terms from 2010. For the low paid, the situation is even more desperate, given that higher energy, housing and food costs affect them with even greater severity.

More worryingly, the argument that having a job is enough on its own to lift a family out of poverty has lost much of its potency, because two thirds of the 3 million children living in poverty in this country today live in households in which at least one adult is in work. October’s rise in the main rate of the national minimum wage to £6.31 an hour was the fourth successive uprating below the rise in prices. The minimum wage has lost a fifth of its value in real terms over the past decade, and we must begin to reverse that.

Under-employment and the low-skilled, low-paid work that has been created in an increasingly hourglass-shaped labour market in the past few years have made the cost of living crisis worse for millions of the working poor. The Resolution Foundation has established that 4.8 million people, or one in five across the UK, earn less than the living wage rate set by the Joseph Rowntree Foundation. That figure is up by 1.4 million in the past four years alone.

[Nia Griffith (Llanelli) (Lab)]

Will my hon. Friend ask the Minister whether, to help all those on the national minimum wage across the UK—including 7% of the Welsh population, some 95,000 people, which is higher than the UK average of 5%—he will seriously consider why the cost of living has eroded the rises in the national minimum wage so quickly in the past two or three years and what he can do about that?

[Mr Bain]

My hon. Friend is right, and she speaks with great passion on behalf of her constituents. Some 57% of her constituents in part-time work earn less than the living wage, so she will be seeing on a weekly basis the real effects of poverty on the living standards of people in Llanelli.

Other analysis that I recently received from the ONS shows that in parts of the north-east of England between a half and two thirds of part-time workers are earning less than the living wage. In parts of Northern Ireland and the south and south-west of England, poverty pay among part-time employees is equally endemic. Even in the constituency of the Secretary of State for Work and Pensions, more than two in every five part-time workers take home less than the living wage. With women more likely to be in part-time work than men, extreme low pay, particularly in the social care sector, represents not only economic injustice but gender inequality.

[Guy Opperman]

I am grateful to the hon. Gentleman for giving way to me for a second time. I know he is a passionate advocate of the living wage in Glasgow, where there has been some success. Does he agree that, for the living wage to gain greater traction and to have the take-up that we all want without the statutory empowerment that nobody wants, the key issue is trying to find ways to incentivise businesses, particularly in low-wage economies—the hospitality sector being an obvious example? Does he accept that, and does he have any ideas about how that should be done?

[Mr Bain]

That is a very good idea. We should be considering what is available in fiscal terms and what we can do through procurement. As I will describe, local authorities and other parts of the public and voluntary sectors have a good record of addressing low pay, but that needs to be extended to the private sector. Procurement is one means by which we can do that.

My hon. Friend the Member for Glasgow Central (Anas Sarwar) is here today. He will know that the Procurement Reform (Scotland) Bill, presented by the Scottish Government, is particularly disappointing and simply does not meet the test of ending low pay in Scotland.

As many as 220,000 direct care workers may be paid less than their legal entitlement to the national minimum wage. That is a national scandal, and the Government must act to end it. Worse, poverty pay is creating an even larger burden on the state because it is one of the biggest drivers of the increasing costs of housing benefit and tax credits. The recent report of the Social Mobility and Child Poverty Commission found that 84% of the public agree that employers should do more to pay wages that better reflect the cost of living.

It is becoming increasingly clear that, if there is to be a wage-led recovery that reaches all the people of the United Kingdom, further action on the national minimum wage is needed now. According to the 2012 labour force survey, low pay is more prevalent in the private sector, with sole traders, partnerships and companies reporting rates of low pay at 47%, 35%, and 26% respectively. That compares with a low pay rate of only 15% in local government.

Although the tax credit system cushioned living standards between 2003 and 2008, and remains an important means of improving work incentives now, the case for building on the success of the national minimum wage has never been stronger. We should support councils and other parts of the public sector that pay or use procurement rules with the voluntary and private sectors to extend a living wage to more and more people. The Government should at last support the recognised living wage accreditation scheme, which would be a splendid way to mark national living wage week next week, but we also need to understand that a rise in the national minimum wage will help substantially more workers than even a voluntary expansion of the living wage by employers.

We also need better enforcement of the minimum wage to stop the exploitation of unpaid interns for months on end and should back the superb campaign led by Intern Aware. Equity highlights the ongoing issue with performers and arts organisations in relation to the exemption in section 44 of the National Minimum Wage Act 1998.

It is particularly shameful that the maximum penalty for fly-tipping is 10 times the penalty for not paying a worker the legal minimum rate for an hour’s work and that the average fine per breach of the minimum wage rules was just over £1,000 in the last financial year. There were just two successful prosecutions of employers last year for failing to pay the minimum wage rate, according to information provided to me by the Treasury. The Government can do a great deal more on enforcement, and I hope the Minister will outline the next steps.

As I said to the hon. Member for Hexham (Guy Opperman), increasing the personal tax allowance does not in itself end the crisis of low pay. Many low-paid workers do not earn enough to pay income tax and so would not benefit from further rises in the personal allowance. For lone or couple households with children, the interaction between a rising minimum wage and the help provided by the tax credit system will do the most to raise living standards.

We also need to be mindful that the introduction of universal credit will mean that what low-income taxpayers may gain from a higher personal allowance will be lost through the new tax credit system, which is assessed on after-tax income. New research by Gingerbread published this morning shows that the Government’s current plans for universal credit will make it far harder for low-income lone parents to make work pay beyond 20 hours a week, as the incentives rapidly taper away.

[Anas Sarwar (Glasgow Central) (Lab)]

I congratulate my hon. Friend on securing this important debate. He rightly says that having a job is not an automatic route out of poverty. For example, 50% of people who use a food bank in my constituency are in work. Does that not demonstrate that we need to create not only employment but a quality level of income so that people can lift themselves out of poverty and give opportunities to their children?

[Mr Bain]

My hon. Friend is entirely correct. He represents a constituency in which nearly half—44%—of male part-time workers are earning less than the living wage and in which nearly a third of all part-time workers are in the same predicament. We both see, therefore, the costs that that has on society, with people unable to make their salary or wages last the week or the month, so that they are forced in increasing numbers into using food banks, just to feed their families. That is wrong and shameful, and we can collectively do something about it.

The Resolution Foundation has shown recently that once workers, women in particular, are trapped in jobs paying the minimum wage, they find it hard to progress out of them. The Government need to do a lot more on skills in the workplace, to help progression and allow people to advance within a job and have the potential to earn a larger salary as a result. The truth is that the low rate of the national minimum wage is acting as a ceiling, rather than as a springboard, to higher living standards. The Government must do more on workplace skills to ensure that people can progress in their jobs.

I have some specific points, which I hope the Minister can deal with. In what ways might the Government change the remit of the Low Pay Commission? Are they looking to what Gavin Kelly of the Resolution Foundation has termed “forward guidance” on future rises in the national minimum wage as the economy, we hope, continues to grow?

What particular issues has the Minister asked the Low Pay Commission to examine in looking at how, sector by sector, national minimum pay rates might be increased? In sectors such as finance and banking, it has been established that higher pay rates might be affordable now, at no or relatively little cost to those employers, whereas for hotels and restaurants a more phased approach to raising wage rates might work best, to maximise employment.

The prize for employers is real: higher productivity, higher job satisfaction and reduced staff turnover. For workers, the Government and society, tackling chronic low wages could restore the principles that work will pay and that low-income Britain should share more fairly in the wealth that it generates for this country. Such a policy should commend itself not only to Opposition Members, but to every shade of political opinion in the House. It is time for this Government to do the right thing for once, and to support giving low-wage Britain a much-needed pay rise.

16:29

[The Minister for Skills and Enterprise (Matthew Hancock)]

It is a pleasure to serve under your chairmanship, Mr Hood. I thank the hon. Member for Glasgow North East (Mr Bain) for securing the debate and giving us the opportunity for discussion. I have listened carefully to his arguments, which were passionately put. As he said, there is a strong cross-party consensus behind the minimum wage and the institution of the Low Pay Commission, which advises the Government on the appropriate rate. Interestingly, more Government Members than Opposition Members are in the Chamber, which demonstrates the cross-party support for the minimum wage and a commitment not only to it, but to its effective enforcement. We are absolutely clear that anyone entitled to be paid the minimum wage should receive it.

Before I answer some of the points made and set out what the Government are planning to do, I want to give some statistics in response to the hon. Gentleman. Times are undoubtedly tough following the great recession of 2008 to 2009, but since then the bottom quintile or fifth of the population have become around 6% better off, in part because of measures taken by the Government. Overall, household disposable incomes have risen in the past year and in the past quarter.

Specific actions taken by the coalition Government include freezing council tax; freezing and then cutting fuel duty; introducing the apprenticeship minimum wage, which did not exist before, in 2010; cutting beer duty; and of course raising the tax threshold, which was mentioned by my hon. Friend the Member for Hexham (Guy Opperman). The tax bill of people working full time on the minimum wage has been cut in half.

Government Members would argue that the best route out of poverty is work, with benefit and education reform and, as the hon. Member for Glasgow North East mentioned, an enhancement of skills. That is vital in the long term, but we have been able to take some shorter-term fiscal measures to support people’s disposable incomes—after tax—even in difficult times.

The hon. Gentleman also discussed universal credit and tax credits. Tax credits have the disadvantage of the withdrawal rate and the increase in marginal effective taxes. However, universal credit will ensure that work always pays, so it and a consistent withdrawal rate will be part of the solution to poverty. We want to ensure that incentives are right to support people who get on and work hard.

[Mr Bain]

How do the Government respond to the research produced today by Gingerbread? Given the new way in which universal credit will work—assessed on after-tax income—what lone parents get through the tax system they will in effect lose through universal credit. Frankly, will that not make it difficult for the Government to make good the pledge of the Secretary of State for Work and Pensions, that work will pay for every hour that people work?

[Matthew Hancock]

Absolutely; it is vital that work always pays for every hour, and that is why having a consistent withdrawal rate in universal credit matters. It is valuable that this debate is not particularly partisan, but I draw the hon. Gentleman’s attention to the fact that, with tax credits as they were, withdrawal rates were sometimes more than 100%, so in some cases—not in large numbers—people were taking home less when they worked harder. Universal credit will put an end to that, which should be welcomed in all parts of the House.

[Guy Opperman]

Does the Minister accept that the true way to engineer people out of low pay is to provide them with the skills to do a better job and to make progress? Last week, I opened an engineering academy in Hexham, and shortly we hope to welcome to the north-east the skills funding pilot of the Department for Business, Innovation and Skills. Does he accept that skills are the real secret for the future of the low-paid?

[Matthew Hancock]

Yes, of course. As the Skills and Enterprise Minister, everyone would be amazed—I would not be doing my job—if I did not support that argument, which I do.

[Nia Griffith]

As has been rightly pointed out, whether with tax credits or universal credit, there is an issue about tapering. More importantly, there is also an issue about the public purse. Whatever the history—which, in my opinion, shows that when the national minimum wage was introduced, it was opposed by certain parties, so it had to be brought in at a compromise level—the issue remains that, unless we look seriously at raising the minimum wage at a faster rate, we will continually have to top up from the public purse.

[Matthew Hancock]

I was about to answer that point. To consider what best to do to ensure that everyone gains from the economic recovery as it comes, we have to understand all the factors affecting low wages and low pay in our economy. I imagine that there is a common desire to see wages rising without damaging employment.

The Low Pay Commission was set up to get that balance right. We have now asked it to look at what economic conditions might be needed to allow the national minimum wage to rise more in future than current conditions allow without having an adverse impact on jobs. Improving incentives to work by having a higher minimum wage has a positive impact on employment, but we must get the balance right. Employment is growing strongly in this country, which is good because unemployment is worse than being in a job on the minimum wage. We must get that balance right.

We are doing what we can to protect the incomes of working households that have been squeezed, hence we have cut income tax by raising the tax threshold and taking almost 3 million people out of tax. The rises in the personal allowance are worth up to £700 in cash and more than £500 in real terms from April 2014, which is a significant improvement.

We are also taking important action on enforcement of the national minimum wage. Anyone who is entitled to it should receive it. Since 1 October, employers who fail to pay it will be publicly named, and revamped criteria were announced in August to make it easier to clamp down on rogue businesses. In 2012-13, more than 700 employers received penalties totalling more than £775,000 for failing to comply with minimum wage law. From the start of this month, I am writing personally to every new apprentice to ensure that they are aware of their rights under the legislation. Under the original scheme, we named only one employer because the benchmark was set high. It was introduced only in 2011 and did not exist in that form under the previous Government. We have strengthened it from 1 October.

All that is part of an effort to toughen up enforcement of the national minimum wage, not least because it is fair that scrupulous employers who pay the national minimum wage are not undercut by unscrupulous employers who do not pay it. We are taking a multi-faceted approach, including improved new targeted communications, to raise awareness in addition to letters from me, which I am sure every apprentice enjoys receiving. This work is starting to produce results. In 2012-13, Her Majesty’s Revenue and Customs identified £3.9 million arrears of wages for 26,500 workers.

Action has been taken, but we must get the balance right. We have asked the Low Pay Commission to take further action, but we must do that in a way that supports the rising number of jobs in this country. Overall, it is valuable not only to debate the issues, but to continue to try to get the balance right between ensuring that work always pays and that the minimum wage is at a level that supports people in work as consistently as possible with ensuring that it does not harm the employment prospects of those who are seeking work.

Doing that at the same time as trying to remove some of the fiscal costs—the taxes on jobs—asking the Low Pay Commission to take a forward-looking view of what economic conditions would be necessary to allow a faster increase in future and the stronger naming scheme demonstrate that we are working hard to ensure that the national minimum wage is effective, fairly enforced and supports people who do the right thing, work hard and are trying to provide for their families in tough times. That shows that the coalition Government are on their side.

[Mr Jim Hood (in the Chair)]

I confirm that the next debate must be concluded by 5.15.