National Minimum Wage

Thursday 6th November 2014 Lords Chamber

Question

11:18

Asked by

[Baroness Hollis of Heigham]

To ask Her Majesty’s Government, in the light of the fall in value in real terms of the National Minimum Wage since 2010, what assessment they have made of any additional cost to the Exchequer in tax credits and other benefits.

[Lord Newby (LD)]

My Lords, in the evidence that it submitted to the Low Pay Commission in January this year, the Treasury looked at the impact of increasing the national minimum wage to £7. It estimated that overall net borrowing would be reduced by between £30 million and £70 million. The figure is relatively low because there would be an increase in social security spending as a result of fewer jobs, higher prices and lower corporation tax receipts.

[Baroness Hollis of Heigham (Lab)]

My Lords, last year HMRC failed to collect more than £250 million as a result of the failure to keep pace with the minimum wage. Work is no longer the route out of poverty; the majority of those in poverty are now in work. This is living wage week and the living wage is, rightly, voluntary, but it would save HMRC more than £3 billion a year in reduced benefits and increased tax revenues and, above all, it would make work pay. DWP pays the living wage but HMRC, with 25,000 fewer staff, does not. Why not?

[Lord Newby]

My Lords, the Government support the living wage and encourage all employers who are able to do so to pay it. Her Majesty’s Treasury’s pay rates ensure that all its employees, including apprentices, are paid above the living wage and other departments are following suit, including DECC.

[Baroness Wheatcroft (Con)]

My Lords, the minimum wage is only a floor. Many companies are now choosing to pay the living wage and, indeed, ensuring that their suppliers pay it. Can my noble friend give us some numbers on that?

[Lord Newby]

My Lords, the number of companies that were accredited for paying the living wage in 2013 was 432. I believe that the number has more than doubled during the course of this year.

[Baroness Farrington of Ribbleton (Lab)]

My Lords, will the Minister identify those people in government departments who do not pay either the living wage or take into account what people need? Will he please comment on the large number of people working in the care sector who get the minimum wage but do not actually receive it because they are not paid for the time taken in travelling between clients? How on earth can the Government announce that the route out of poverty is work in these circumstances?

[Lord Newby]

My Lords, as I said, a number of departments already pay the living wage. It is fair to say that there is a move across the rest of government in that direction, which is not yet complete. It is for individual departments to take those decisions. As far as care workers are concerned, HMRC, which is responsible for enforcing the minimum wage, has done a significant amount of work on this and is increasing its enforcement activities in the care sector and elsewhere. I take the point that the noble Baroness makes. In 2012-13, HMRC identified £3.9 million in arrears of wages for 26,000 workers who were not getting their full whack on the minimum wage.

[Lord Stoneham of Droxford (LD)]

My Lords, there is a sensitive relationship between raising the minimum wage and employment levels. Does my noble friend agree that it is only now, with rising employment and economic growth, that we can afford to give priority to raising the real level of the minimum wage, together with simplifying benefits and raising tax thresholds as a way of helping the low paid?

[Lord Newby]

My Lords, I completely agree with my noble friend; the increase in the tax threshold has made a major impact on living standards. That is why real household disposable income, which is the key figure looking at living standards, increased by some 2.2% in quarter 2 2014, and why the OBR forecast that earnings will rise faster than inflation from the second half of this year for every year to 2018.

[Lord Campbell-Savours (Lab)]

My Lords, when the Labour Government introduced the national minimum wage in 1997, we were told that unemployment would go up. In fact employment went up. Why does the Minister think that employment went up when we introduced the national minimum wage?

[Lord Newby]

My Lords, there are a number of reasons. One was that it was introduced at a time when the economy was growing, which made it easier for people to pay higher wages. That is why I am so pleased that the economy is growing so strongly now, which means that wages are rising again.

[Lord Flight (Con)]

My Lords, have the Government looked at the possibility of varying the minimum wage to reflect the cost of living in different parts of the country?

[Lord Newby]

My Lords, this has been looked at on a number of occasions and has always been rejected.

[Lord Tunnicliffe (Lab)]

My Lords, the thing that always strikes me about this debate is the theoretical level that it is held at. Very few of us could contemplate living on the minimum wage—I feel almost ashamed of my personal affluence when comparing it with the idea of living on £6 an hour—yet more than 5 million workers do so. The minimum wage is a good thing; it brings affluence to individuals, it improves the economy and it has not had any significant impact on employment. Will the Government join the Labour Party in our pledge to set an ambitious target to significantly increase the minimum wage to 58% of median average earnings, putting it on course to reach £8 before the end of the next Parliament?

[Lord Newby]

My Lords, the minimum wage may well reach £8 by the end of the next Parliament just through being uprated by inflation, so that is not a very ambitious target. The minimum wage is a very important floor but, for example, when I recently visited a textile factory in Leicester where the entire workforce consisted of Asian women, the managing director said to me when I asked him what the Government should do to support him: “Do not significantly increase the minimum wage, because if you do I will have to import products from eastern Europe and lay off all my workers”. Is that something that the Labour Party wants?