National Minimum Wage

Tuesday 16th December 2014 Westminster Hall

16:30

[Sir Alan Meale (in the Chair)]

Before the start of the final debate, I point out that the vote that we had earlier added 11 minutes to the time scale. Because that time can be carried over to the next debate, hon. Members can finish at 5.11 pm, if there is not another vote in the meantime. You have a little extra time to play with, Mr Jarvis, if you want to take it; you can stick to your time scale if you so wish.

[Dan Jarvis (Barnsley Central) (Lab)]

Thank you, Sir Alan. It is a pleasure to serve under your chairmanship. I begin by thanking Mr Speaker for granting this debate. It should really have taken place a fortnight ago, on Friday 28 November, the date for the Second Reading of my private Member’s Bill—the Low Pay Commission (National Minimum Wage) Bill. That is a Bill to make work pay: to strengthen the national minimum wage, to give greater powers to the Low Pay Commission and to tackle the scourge of low wages, which blights the lives of too many people across Britain today. Regrettably, we did not have an opportunity to debate my Bill. Two hon. Members, both of whom are known throughout the House as long-standing campaigners to undermine the minimum wage—I believe that one of them even voted against it in 1997—spoke for more than two hours to sabotage the earlier debate on a Bill to tackle revenge evictions, blocking my Bill as a result. Given that we were deprived of a debate that day and given that this issue means so much to so many across our country, I have called this debate to say now what I would have said then and to give the House the opportunity to debate the important matter of low pay.

Choosing the subject of my Bill was a difficult decision. I had no shortage of helpful suggestions, but ultimately it was the story of one woman that made up my mind. I wanted to make a difference to people such as Catherine. Catherine is a cleaner and housekeeper in my constituency. She juggles six different jobs, working in six different locations across Barnsley. She works more than 50 hours a week on the minimum wage. Like many people, Catherine struggles to make ends meet. Her pay packet does not stretch as far as it used to, especially as the real-terms value of the minimum wage has declined since 2010. When I asked her how that had affected her life, she said that she had had to cut down on what she described as “luxuries”. Soon I realised that she meant that she could not afford essentials such as clothes. “I just work to exist,” she said, “I can’t afford nice stuff. I just work to keep my head above water.”

Catherine does not have time to take notice of polls or political pundits, but what happens in our politics, what goes on in this place and the Governments we choose to serve us here will shape her life more than most. It is easy now to take it for granted that Catherine earns a national minimum wage at all. Before 1997, many workers like her were expected to work for as little as £1 or £2 an hour. In its first months of existence, the Low Pay Commission found appalling cases of factory employees earning only £1.22 an hour, care home workers taking home just £1.66 an hour and even a chip shop worker from Birmingham forced to make do with 80p an hour.

It took a Labour Government to end that scandal. Their efforts were led by Sir Ian McCartney, the former Minister of State at the Department of Trade and Industry, who piloted the Bill that became the National Minimum Wage Act 1998 through the House, and by my right hon. Friend the Member for Derby South (Margaret Beckett), the former Secretary of State. The national minimum wage was one of Labour’s greatest achievements, but its path to becoming law included a record sitting in the House of 26 and a half hours as Members, mainly from the Conservative party, sat through the night, opposing the Bill line by line, to stand in the way of working people getting a decent wage for a hard day’s work. Today, their fears have failed to materialise. They were on the wrong side of history then, and the scourge of low pay explains why the Government’s plan to balance the nation’s books is failing now. A generation on from the national minimum wage becoming law, the low pay challenge for our country has changed. The national minimum wage did help to root out exploitation and extreme examples of poverty pay, but today we have huge numbers of people across Britain who do a hard day’s work and are still living on the breadline.

Catherine, whose story I shared earlier, is just one of more than 5 million people across Britain who are stuck on low pay. The number is up from 3.4 million in 2009 and is at an all-time record. Women and young people are being hit hardest. One third of all working women and nearly two fifths of 16 to 30-year-old employees do not earn a decent wage. Nearly two thirds of children living in poverty now live in families with someone in work. If we look at the proportion of our work force that is low paid, we see that Britain is towards the bottom of the pile, coming 25th out of 30 OECD countries.

Moreover, the real-terms value of the minimum wage is losing ground. The Low Pay Commission has acknowledged that its relative value has dropped significantly since 2004, and job creation in the lowest-paid sectors has exploded at double the rate of the rest of the economy since 2010. That partly explains why the Government now spend more on tax credits and social security for families in work than they do for the unemployed. It is why the Government have been forced to spend an extra £900 million on tax credits to top up low wages, and it is part of the reason why Ministers have had to spend £1.4 billion more than planned on housing benefit for people who cannot afford a roof over their head.

John Maynard Keynes famously once said:

“When the facts change, I change my mind.”

My central argument today is that as the challenge has changed, our approach to tackling low pay needs to evolve with it. Many of our country’s leading business voices have already called for the minimum wage to increase faster than it has done in the recent past. They include Sir Ian Cheshire, chief executive of Kingfisher, and Steve Marshall, executive chairman of Balfour Beatty. Professor Sir George Bain, the first chair of the Low Pay Commission, has described the organisation as a “child of its time” and has called for an ambitious target to bring the minimum wage closer to average earnings. We need the Government to put that into action.

Labour’s plan to tackle low pay—a plan mirrored in my Bill—preserves everything that has helped to make the Low Pay Commission such a success. I am referring to decision making based on strong research; a balance between the need for wage growth and concerns about the impact on employment; and a partnership approach between the employers who create the jobs and the employees who work the shifts. Let me run through the key points.

First, we need to give a mandate to the Secretary of State to set a target for the national minimum wage to increase over a Parliament at a rate higher than that for median earnings. I did not include a specific target in the Bill. Different people will have their own views on that. We as the Opposition have already expressed our ambition for a minimum wage closer to 58% of median earnings. The important point is that the act of setting a target alone would deliver a more ambitious approach to tackling low pay and a greater focus on what progress we are making. A clear long-term target such as that would give firms certainty and time to adapt their business models to boost productivity and support higher wages. It would also bring us closer to other countries such as Australia and European economies such as Belgium and Germany, where all the evidence shows that it is possible to support a higher minimum wage without any negative impact on employment.

The Low Pay Commission would keep its leadership role in delivering on the target and would set out a plan for how it could be achieved; and flexibility could be retained in the system. We know that the success of the minimum wage has been built on an approach that works hand in hand with industry and takes into account the state of our economy, so in the event of significant economic shocks, the Low Pay Commission could be required to present compelling evidence to the Government and to Parliament, setting out why it is not possible to meet the target during the proposed time frame. The Low Pay Commission could then make further recommendations to get progress towards the target back on track.

[Steve Rotheram (Liverpool, Walton) (Lab)]

I am grateful to my hon. Friend for bringing this vital issue to the attention of the House. The rate of the national minimum wage is important, especially to those who receive it. Does he agree that it is a shocking indictment of the Government that unscrupulous employers who are paying less than the national minimum wage are getting away with it because such a small number have been prosecuted?

[Dan Jarvis]

My hon. Friend makes an important point, and the figures bear out what he has said. I would be interested to hear what the Minister has to say on that point, but I agree that the tiny number of rogue employers who have been prosecuted for paying people less than the national minimum wage is a disgrace. That reflects poorly on the Government’s record.

I believe that the proposal I have just outlined regarding the Low Pay Commission is straightforward and reasonable, and that it is the right thing to do. I would be grateful if the Minister would respond directly to that point.

[Jim Shannon (Strangford) (DUP)]

I congratulate the hon. Gentleman on securing this important debate. The problem is not simply the minimum wage; many workers have had their hours reduced just to stay in employment. Some workers have not had a wage increase in three years. Some people do not even have the minimum wage let alone a living wage. Does he feel as well that the Government need to address the issue of the living wage so that people can survive?

[Dan Jarvis]

That is a helpful and constructive contribution. If the hon. Gentleman will bear with me, I will talk about the living wage later in my speech. It would be useful to hear what plans the Minister has. The hon. Gentleman makes an important point that we currently have record numbers of people in this country who are underemployed. Record numbers of people want to work full time but cannot get full-time work, so they are stuck in part-time employment and struggling to meet their costs. That is a good point, and I look forward to the Minister responding to it.

[Liz McInnes (Heywood and Middleton) (Lab)]

In his deliberations, has my hon. Friend given any thought to the practice of many employers of paying the extremely low minimum rate for apprenticeships? Some employers set up bogus apprenticeships that last for only a few months so that they can get away with paying the absolutely paltry rate for apprentices, which I believe is less than £3 an hour. Has he looked at that aspect of the minimum wage and at the age-related minimum wage for under-18s?

[Dan Jarvis]

Completely by coincidence, my hon. Friend has made a timely contribution that neatly introduces the point that I was about to make. If we want to win the fight against poverty wages, the remit of the Low Pay Commission must be expanded. It should not be simply a national minimum wage commission that sets the level of wages; I believe that it should lead our national effort to tackle the problem of low pay. We need to give new powers to the Low Pay Commission to investigate the causes and consequences of low pay in different areas of our economy.

We know that some sectors have particular, systemic problems of low wages. More than half of cleaners, 48% of hospitality workers and more than 40% of hairdressers are paid less than £7 an hour. At the same time, other sectors—the banking sector, for instance—could pay a higher minimum wage. I would be grateful if the Minister could tell us today whether the Government would consider giving new powers to the Low Pay Commission to bring together task forces to tackle such issues. Those task forces could include all the key stakeholders and recommend a strategy to the Secretary of State on the best way forward.

[Jim Shannon]

To that list of bodies that the hon. Gentleman referred to, would he add the catering industry? Many workers in the catering industry receive a wage that they cannot live on, which is below the minimum.

[Dan Jarvis]

I absolutely would. There are number of different sectors of the economy to which that could be applied.

[Alex Cunningham (Stockton North) (Lab)]

rose—

[Dan Jarvis]

I know that my hon. Friend has a specific concern about care workers, and I am happy to give way to him.

[Alex Cunningham]

I am sure that my hon. Friend will agree that no matter at what level the minimum wage is set, it must be complied with. Would he be surprised to learn that although the Government claimed to include a minimum wage requirement in their social care commitment, such a requirement was not included? Following my intervention, the Minister who is responding to the debate added a paragraph to the commitment. Does my hon. Friend agree that a paragraph on a piece of paper is one thing, but we need much more robust action by Government to ensure that no one in the care industry or anywhere else is short-changed by unscrupulous employers?

[Dan Jarvis]

I absolutely agree with that point, and I am grateful for the work that my hon. Friend has done in that area. Robust action by the Government is required to ensure that no one in the care industry is short-changed by unscrupulous employers.

I conclude by putting on record the fact that if there is a Labour Government after 7 May next year, we will set a national goal of halving the number of people on low pay over the next 10 years. We will introduce a target for a minimum wage of at least £8 by 2020. We will use tax incentives to encourage more firms to pay a living wage, and we will make a world of difference to working people such as Catherine in my constituency. When I asked her what difference a higher wage would make to her life, she could not quite imagine it. She said:

“I could cut down my hours, couldn’t I? I would have some time to do other things.”

That is the important difference that I am arguing for today.

I would like to end with the words spoken in this place by my right hon. Friend the. Member for Derby South during the debate on the introduction of the national minimum wage 17 years ago. These words were true of the case for introducing the national minimum wage then, and they are true of the case for strengthening it now:

“That policy is right, it is fair, it is just and it is sensible. It is a clear example of how a Labour Government can and will make a real difference to the lives of people across Britain, contributing to fairness and prosperity for the many, not the few. I commend the Bill to the House.”—[Official Report, 16 December 1997; Vol. 303, c. 173.]

16:47

[The Parliamentary Under-Secretary of State for Business, Innovation and Skills (Jo Swinson)]

It is a great pleasure to serve under your chairmanship, Sir Alan. I congratulate the hon. Member for Barnsley Central (Dan Jarvis) on securing the debate, particularly after his less happy experience on Friday 28 November. I appreciate his frustration about Fridays. I have a vivid memory, from fairly early in my time as an MP, of spending an annoying Friday supporting a Bill promoted by the hon. Member for Edinburgh North and Leith (Mark Lazarowicz) on climate change and having the same experience of a couple of Members talking it out. The hon. Member for Barnsley Central mentioned the excellent Bill promoted by my hon. Friend the Member for Brent Central (Sarah Teather), which would have helped very vulnerable people, and I still hope that we will be able to find a way to take action on those issues. Of course, the opportunity to debate the Bill promoted by the hon. Gentleman was also a casualty of that experience. The procedure for dealing with private Members’ Bills on Fridays is something that I would be keen to see changed.

The hon. Gentleman started by talking about his constituent, Catherine. That is absolutely appropriate, because in discussions about the minimum wage it is easy to get caught up in the numbers of pounds and pence per hour. That is, of course, important, but it is also vital that we remember the individuals at the end of each payslip, who are working on a low wage that represents a minimum or floor.

The hon. Gentleman was right to set out the history of the minimum wage. He highlighted the difficulties that existed before 1997, and the fact that some factory workers earned £1.22 an hour. In 1996, I was 16, and in my first job in McDonald’s, I was paid £2.70 an hour. One of my good friends from school worked in a greengrocer on Saturdays, and she earned £1.90 an hour for lugging around sacks of potatoes.

The introduction of the national minimum wage was absolutely necessary, and the hon. Gentleman is right that it is an historic achievement that should be celebrated. Neither of us was in the House at the time, but my Liberal Democrat colleagues supported the national minimum wage. There perhaps was not agreement from everyone in the House, but the positive thing is that times have moved on and there is now wide acceptance of the national minimum wage’s importance. The Government are strong in our belief and commitment that the national minimum wage is a vital part of the employment protections and basic minimum standards in the labour market. Many business organisations are also strong supporters of the national minimum wage. Recent reports by organisations such as the CBI talk about the importance of supporting household budgets from a wider economic perspective.

The minimum wage level is always likely to be the subject of much discussion and interest, and we clearly need to find the right rate that helps as many low-paid workers as possible, but we must ensure that we do not damage employment prospects by setting the level too high. This year the Government accepted an above-inflation rise in the national minimum wage. In October, workers saw the biggest cash increase in their pay packets since 2008, which helps more than 1 million workers on the national minimum wage and means that anyone working full time on the national minimum wage gets an extra £355 a year in their pay packet. Of course, those workers are also helped by the increase in the tax threshold, which has taken more than 3 million low-paid individuals out of paying income tax and helped ensure that people’s money goes further because they keep more of what they earn.

[John McDonnell (Hayes and Harlington) (Lab)]

I apologise to my hon. Friend the Member for Barnsley Central (Dan Jarvis) for being late. I was in the main Chamber. We seem to miss out young people in these debates. I am not sure whether he referred to the figures: for an 18 to 20-year-old the national minimum wage is £5.31; for a 16 to 17-year-old it is £3.79; and for apprentices it is £2.73. That must be a disgrace.

[Jo Swinson]

The hon. Gentleman addresses both the youth rates and the apprentice rate, and the hon. Member for Heywood and Middleton (Liz McInnes) also raised that issue. I share those concerns, particularly on the apprentice rate. We want to encourage people to take up apprenticeships, and under this Government there has been a great increase in their number. Two million apprenticeships have started since the general election, but both hon. Members are right that £2.73 an hour is a very low rate. It is worth bearing in mind that the average pay for apprentices is upwards of £6 an hour and that most employers of apprentices pay well above the minimum rate, but there is also a concerning level of non-compliance with the apprentice minimum wage. Of course, there never used to be an apprentice minimum wage at all—it was introduced by the Government because apprentices were previously not covered by the national minimum wage. Although that was a step forward, there is still a real issue here.

Earlier this year, my right hon. Friend the Business Secretary stated that he is minded to seek a significant increase in the apprentice rate. He suggested that it might be combined with the £3.79 rate for 16 and 17-year-olds, which would provide a boost of more than £1 an hour. We have asked the Low Pay Commission to consider that carefully, and we look forward to hearing its views on the proposal as part of its overall report in February 2015.

The hon. Member for Heywood and Middleton mentioned bogus apprenticeships, under which people were taken on but not given the training that should go alongside an apprenticeship. The reason for the lower apprentice rate is because employers rightly have to support the development and upskilling of apprentices with training and qualifications. Where that is not happening, national minimum wage law is being broken, even if the apprentice rate is being paid. I encourage anyone who is concerned that they are not being paid the right amount to contact the pay and work rights helpline on 0800 917 2368. I will never tire of saying that number because I want people who are not properly paid the national minimum wage to get in touch and make a complaint. Her Majesty’s Revenue and Customs will investigate every complaint, and we have increased the resources available for enforcement. I am determined that people who do not properly pay the national minimum wage are brought to book and that those who have been underpaid are given the arrears that they are due. That would discourage employers who might be tempted not to pay properly.

The hon. Member for Liverpool, Walton (Steve Rotheram) mentioned prosecutions. I understand his point, but prosecution is not the only way to address non-compliance. The number of prosecutions is not high. We are talking single figures every year since 2007, and there are sometimes no prosecutions in a given year, but the number of prosecutions was in single figures when his party was in government, too. The reason for that is pretty compelling: the most important thing is that people who have not been paid the national minimum wage get the arrears that they are due. If they go through the civil process through which HMRC takes employers, people will get their arrears paid and a penalty will be paid to HMRC—there is effectively a fine for the employer—which delivers a better result for the employee. Of course, prosecution is appropriate in the most extreme circumstances where employers have been wilfully and continually not paying the national minimum wage, but given the costs of bringing a prosecution and the interest of ensuring that people get their arrears, the civil process is the right way to go about it.

[Steve Rotheram]

The Minister is absolutely right about trying to get the best deal for the person who has been short-changed. There is no argument about that, but the message needs to be sent out to unscrupulous employers who continue to underpay that they will be prosecuted. That is the only way that we will stop them, not by good will, nor by appealing to their better nature, but by saying, “If you continue to underpay your employees, we will prosecute.”

[Jo Swinson]

We may have a difference of opinion. I agree that there should be very tough consequences for employers who do not get it right. We have ensured that the fines are in place, increased the maximum penalty to £20,000 per worker—that is currently going through Parliament in the Small Business, Enterprise and Employment Bill—and introduced a naming and shaming scheme that is far more comprehensive than the previous scheme, the criteria of which were almost impossible to meet. We now regularly list employers that have not properly paid the national minimum wage, and we name them publicly so that in their local area people can be aware that those companies are not paying the national minimum wage, which affects the reputation of those businesses.

In response to the hon. Gentleman’s plea for more prosecutions, I would say that, in the cases that are named, in most circumstances the underpayment is not necessarily a malicious act by the employer. That does not make it right, and it does not make it okay, but very often someone has put the wrong digits into a computer program so somebody is not been paid the right pence per hour. There may be mistakes on the accommodation offset allowances or mistakes on the apprentice rate. Of course, if we increased the apprentice rate to the lower age rate, we would simplify the system and make it easier for employers to get it right. That is not an excuse, as employers have a responsibility to get it right, but I would not necessarily contend that those circumstances should also result in a criminal prosecution. Our tough penalty regime, increased fines and the reputational consequence of naming and shaming are the right way to address underpayment. We are increasing the resources available to HMRC to address this issue.

[Jim Shannon]

There might be an individual working for a firm who is getting less than the minimum wage. They might be concerned but there is a fear factor in pursuing the issue. That goes back to what the hon. Member for Liverpool, Walton (Steve Rotheram) said in his intervention. Is that part of the reason why we have a low prosecution rate? People fear losing their job for making a complaint. Would it be better for complaints to be tied to the company, not the individual?

[Jo Swinson]

I hope I can provide a lot of reassurance on those points. The hon. Gentleman is right that there is a fear factor, which is why it is important for people to recognise that they can make complaints in confidence. It will not necessarily be clear which member of staff has made a complaint. The HMRC investigator will not just go along to a company and say, “Can you show me the records for this particular member of staff?” The investigator can ask to see the records for all members of staff. That has two benefits. The first is confidentiality, but secondly, of course, if one member of staff is not being paid the minimum wage properly, it is possible—indeed, likely—that other members of staff are also not being paid properly.

To put the issue in context, the hon. Member for Strangford (Jim Shannon) suggested that the reason why there are not as many prosecutions as he might like is that people are not coming forward. Actually, since HMRC began enforcement back in 1999, more than 229,000 workers have received arrears worth more than £54 million. In the last year alone, £4.6 million in arrears was delivered to 22,600 workers, a significant 17% increase in the number of workers helped compared with 2009-10. The amount of arrears per case is also rising. HMRC is learning how to ensure that it does not just look at one person in the business; now it routinely looks much more widely at lots of workers within the same business. That is important to ensure that enforcement works.

We are the fastest-growing G7 economy at the moment, and that strong growth is reflected in our employment statistics, with more people in employment than ever before. That is good news, but hon. Members have raised issues about the type of employment and whether it is just insecure part-time employment. It is worth recognising that our figures from the Office for National Statistics show that full-time work made up three-quarters of the growth in employment since the election and 85% over the last year. The growth in the labour market is significantly of full-time work, but of course there are issues around the insecurity of work, which the Government are taking steps to address. We understand those issues too.

We will return to this matter, rightly, many times in this House. I pay tribute to the Members present today, who in their different elements have been campaigning on the issue. The hon. Member for Stockton North (Alex Cunningham) is particularly assiduous in the care sector, where HMRC has done a significant investigation and is seeking to follow up. That is an area where HMRC found a lot of non-compliance. We need to stay on the case of industries where there are greater problems, because lack of compliance is much less widespread in other industries.

[Dan Jarvis]

I am slightly concerned that the Minister might not address the fundamental issue that I raised in my speech, which is that the low pay challenge for the country has changed. Record numbers of people in low-paid work are struggling to make ends meet. I would be grateful if she critiqued the model that I proposed; I am thinking specifically of the five-year target and more powers for the Low Pay Commission. Will she respond on those two points?

[Jo Swinson]

Certainly; I am happy to. I understand where the hon. Gentleman and his Opposition colleagues are coming from when they call for a five-year target, but there are significant problems with that approach. Announcing an ambitious-sounding minimum wage level would not necessarily take into account future economic conditions, which could be a problem in two ways. If the economy did not perform as strongly as expected, job cuts could be the consequence of an ambitious target. Equally, if the economy did much better than anticipated, we might find that the target ended up holding back wage growth. We need to get the balance right.

My right hon. Friend the Business Secretary has said clearly that it would be helpful for the Low Pay Commission to be able to provide more forward guidance, so that it is no longer the case that once a year, business suddenly learns what the next rates will be without any idea of how things will go forward. It is worth bearing in mind what the Low Pay Commission has said about the period that we are entering now and whether we should be expecting further rises above inflation in the national minimum wage. That will be of great comfort to the many people who, like the constituent of the hon. Member for Barnsley Central, work for the national minimum wage.

On the taskforce suggestion that the hon. Gentleman made, a sectoral approach can be helpful, but there is a danger of distracting the Low Pay Commission from setting the basic rate of minimum wage. It is already considering the impact of the national minimum wage on pay, employment and competitiveness in the low-paying sectors, and it sets that out in its annual report. Members of the commission go out personally to visit lots of different organisations and employers across the UK in a range of sectors. In its recommendations, the commission manages to reflect back what it has considered after examining all the evidence.

However, there is an issue with the Government and others encouraging higher pay. The national minimum wage is not just what people are paid. It is just that: a minimum, a floor. It is right that we should set a basic level. Some employers will not be able to afford to pay more than the minimum wage. If somebody wants to come to any of our constituencies and set up a business, and they cannot afford to pay more than the minimum wage but they will provide jobs, we would probably welcome that. However, there are many businesses that probably can afford to pay more than the national minimum wage and currently choose not to. That is where we would like to encourage behavioural change.

I am heartened to see many employers making a virtue of the fact that they are living wage employers, for example, or making commitments about pay levels. We should encourage employers to compete with each other on such issues—with falling unemployment, that will be more possible in the months and years to come—because we should not just accept a situation in which it is expected that someone on the national minimum wage will stay there. We want basic jobs to be created with that wage floor, but we also want people to be able to progress from a national minimum wage job through the ranks. As their skills and the length of time with their employer increase, their wage should also. We will continue to encourage employers to pay more than the minimum wage where they can.

I know that hon. Members here will continue to campaign on the issue, and I thank everybody for such a constructive debate. I am, thankfully, not talked out.

Question put and agreed to.

17:06

Sitting adjourned.