Draft National Minimum Wage (Amendment) (No. 2) Regulations 2016
(Limited Text - Ministerial Extracts only)
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The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Margot James)
I beg to move,
That the Committee has considered the draft National Minimum Wage (Amendment) (No. 2) Regulations 2016.
It is a pleasure to serve under your chairmanship, Mr Wilson. The purpose of the draft regulations is to increase the hourly rate of the national minimum wage for all workers, and to increase the maximum amount for living accommodation that counts towards minimum wage pay, in line with recommendations from the Low Pay Commission.
The national minimum wage is designed to protect low-income workers, and to provide an incentive to work by ensuring that all workers receive at least the hourly minimum rates set. The minimum wage also helps business by ensuring that competition is based on the quality of goods and services provided, and not on low prices based on low rates of pay.
Following advice from the Low Pay Commission, the Government are uprating the minimum wage from 1 October 2016, so that the main rate for 21 to 24-year-olds will be £6.95 per hour, which represents an increase of 3.7%. Young people aged between 18 and 20 years old will be entitled to a minimum of £5.55, which is a 4.7% increase on the rate now in force, and those aged between 16 and 17 years will have a minimum wage rate of £4.00 per hour. For apprentices aged 19, or those aged 19 and over in the first year of their apprenticeship, we are increasing the minimum wage by 3%, to £3.40.
Turning back to the rate for 21 to 24-year-olds, the increase is the largest cash increase in the main rate of the national minimum wage since 2008. As a result, people working full time—35 hours a week—on the national minimum wage will see their earnings increase by about £450 a year.
The new main rate of the national minimum wage is expected to be at its highest level ever when accounting for the general increases in prices, surpassing its pre-recession peak. In all, we estimate that about 500,000 workers will benefit from all the national minimum wage increases this year.
The accommodation offset was introduced in 1999 and provides a mechanism to offset the cost of providing accommodation for workers against the national minimum wage. Following advice from the Low Pay Commission, we are increasing the accommodation offset significantly, by 12%, to £6.00 per day from 1 October 2016.
Since the introduction of the national minimum wage in 1999, it has been a success in supporting the lowest-paid UK workers. On the whole, it has increased faster than average wages and inflation, without an adverse effect on employment. It continued to rise each year during the worst recession in living memory, and the new main rate is expected to be at its highest ever real value.
Jessica Morden (Newport East) (Lab)
May I raise with the Minister the issue of Marks and Spencer workers? There is a campaign to press M&S during its consultation on reducing premium pay for Sundays and bank holidays and on reducing pension contributions—changes that would hit some of the longest-serving staff hardest. Does she agree that it is unacceptable for companies to contemplate making such changes in light of the national living wage coming in?
Margot James
I thank the hon. Lady for her intervention. I propose meeting Marks and Spencer to discuss a range of matters, including some of the points that she makes. It is important to remember that, by law, as long as companies pay the national minimum wage and, in future, pay those over 25 the national living wage, there will be a limit to what the Government can do, apart from expressing a keen concern that employers should operate within the spirit, as well as the letter, of the law.
Chris Stephens (Glasgow South West) (SNP)
There is a real issue with enforcement. The National Audit Office said that, last year, 209,000 workers in the UK were not being paid the national minimum wage and that 56,000 were owed arrears. Will the Minister outline the Government’s plans to enforce the national minimum wage better throughout the UK?
Margot James
We are doing a great deal to improve enforcement. Sadly, there will always be cases of employers who have the very immoral intent of getting round this law, but the powers of investigation of Her Majesty’s Revenue and Customs are increasing, and we are increasing the expenditure on HMRC’s enforcement team. I will come on to make other points about enforcement; there are various other things that we are doing to increase it. Every single complaint made by an employee is automatically investigated by HMRC’s enforcement team. This year, we have increased the budget from between £13 million and £14 million to £20 million. We are serious about cracking down on employers that try to flout the law. I shall return to enforcement in due course, because I agree with the hon. Gentleman that it is crucial.
The Low Pay Commission has proved that a rising minimum wage can go hand in hand with rising employment. However, the carefully considered independent advice from the commission is central to this. The Government’s 2016 remit for the commission asked it to make recommendations for the new rates, based on maximising the wages of the low-paid without damaging their employment opportunities. The commission has made its recommendations following thorough consultation with business, workers, and their representatives, and extensive research and analysis.
The Low Pay Commission’s remit is clear: when considering the pace of increases to minimum wage rates, it should take into account the state of the economy. The commission has stated:
“the labour market had continued to perform well, with robust employment growth in low-paying sectors”.
Although the referendum result may have cast some uncertainty over forecasts and assessments made before June this year, we should remember that the labour market performed robustly during the worst recession in living memory.
The increases to the minimum wage rates are, of course, in addition to the national living wage for those aged over 25, which we implemented in April. It is the Government’s ambition for a national living wage to reach 60% of median earnings by 2020. In addition, the national minimum wage cycle will be aligned with the national living wage cycle from April 2017. That will reduce the burden on businesses of having to update their workforce’s pay more than once a year and will mean that the statutory pay floor for all ages is uprated simultaneously.
Michael Fabricant (Lichfield) (Con)
Is my hon. Friend aware that in the US, which had a minimum wage before we did, the rate is currently $7.25 an hour? That is only £5.50 at the current rate of exchange. Does that not put into context how good our minimum wage is, let alone the living wage?
Margot James
I thank my hon. Friend for his informative intervention. The fact that it is more or less dollar for pound indicates that we in Britain are doing as much as we possibly can to protect the interests of low-paid workers, and to pay them the maximum that the economy can afford without damaging their employment prospects.
Chris Stephens
Since the Government announced their version of a living wage for those over 25, there has been no explanation of why the age of 25 was chosen. Will the Minister outline why that age was set for a living wage, rather than 21?
Margot James
The wages of young adults between the ages of 21 and 25 are protected by the minimum wage regulations, which will continue to apply. It is felt that prior to the age of 25, people in employment are gaining experience, and that the most important thing for them is to be in work and looking at their prospects in the workplace. I am sure that is felt by the Low Pay Commission, which advises the Government on such matters, while having a remit of having regard to the state of the economy as a whole and a mission to not damage people’s employment prospects. Those factors informed the Government’s decision to pick the age of 25 for the national living wage.
I point out to the hon. Gentleman that a lot of employers—particularly in the retail sector, for which I am responsible—are finding the prospect of a national living wage a huge challenge. If we lowered the age or dramatically increased the rate, there would be a grave danger to young people’s employment prospects, which it is the Government’s duty absolutely to protect.
If I may make some progress, I will come on to the issue of enforcement, which I know is of interest to the hon. Gentleman. We are absolutely clear that anyone entitled to the national minimum wage or the national living wage should receive it. The enforcement of the minimum wage is essential to its success, and we are committed to cracking down on employers who break minimum wage law in all sectors across the economy. That is why we have increased HMRC’s enforcement budget, as I was saying earlier, to £20 million from £13 million last year. This will bolster HMRC’s resources and ensure that it continues to respond to every worker complaint.
The Government will continue to take a tough approach to employers that break minimum wage law, and will continue to name eligible employers in the vast majority of cases. From April this year, the Government have also significantly increased the national minimum wage penalty, taking it from 100% to 200% of the arrears owed to the worker, up to a maximum of £20,000 per worker. HMRC will continue to refer the most serious cases of wilful non-compliance for criminal investigation.
In conclusion, the Government believe that the rate set out in the regulations will increase the wages of the lowest-paid while being affordable for business.
Bill Esterson (Sefton Central) (Lab)
It is a pleasure to serve under your chairmanship, Mr Wilson. The Minister set out the good news about the 3.7% rise in the national minimum wage that is before us. She acknowledged that it has been some time since there have been significant rises; the regulations start to rectify the fact that rates have fallen behind over many years. This good news for young workers is tempered by the fact that if someone is under 25, they do not get the national living wage. The Scottish National party spokesman asked why; I am afraid that I do not find the Minister’s answer at all convincing, any more than we did when the national living wage first came through.
Margot James
I am sorry to interrupt the hon. Gentleman so soon in his speech, but will he acknowledge that young people aged between 21 and 24 will be paid, through this increase in the minimum wage, £6.95 per hour? Would he not agree that the difference between that and the national living wage is fairly small?
Bill Esterson
Perhaps the Minister has just told us that she has no intention of putting up the so-called national living wage by very much. I remind her that the Living Wage Foundation says that a living wage in this country is £8.25, or £9.40 in London—not the lower smoke-and-mirrors figure of £7.20 that the former Chancellor introduced.
Michael Fabricant
I thank the hon. Gentleman for that question. The analysis done by the Low Pay Commission and others suggests that unless we have different wage rates by age, people under the age of 24 or 25 will be unemployable. That is the problem. For example, if we set the rate too high, it would be a disincentive for companies to engage people in apprenticeships.
Michael Fabricant
Of course I give way to my honourable and very real Friend the Minister.
Margot James
I thank my hon. Friend for his enlightening comments and for giving way. To amplify his point about the difference between those under and over 25, he might be interested to know that unemployment among those 25-plus is just 3.7%, but it is still 13.6% for 16 to 24-year-olds. I agree with the Low Pay Commission that increasing those rates further for under-25s would put their employment prospects in serious doubt.
Michael Fabricant
Yes. Also, people pay a premium for experience, and the younger people are, the less experienced they are. Although 13%—was it 13%?
Margot James
I thank hon. Members for the interesting points they have made. I will take the issues turn by turn, starting with the valid points raised by the hon. Member for Sefton Central about the national living wage. He quoted the other organisation for a real living wage, whose deliberations I follow. However, the Government follow the recommendations of the Low Pay Commission, rather than those of the other organisation. The Low Pay Commission is independent of the Government and, as I said, it makes its recommendations on the basis of what the economy can afford without damage to the employment prospects of young people.
I also mentioned the increase represented by the national living wage, which will rise over the next few years, as we all know. We on this side of the House think that is a very good thing. A lot of employers, particularly in the retail sector, are seriously concerned about their future viability with this new cost; for example, we have already identified that people in the social care sector, which several hon. Members mentioned, are very concerned. The Government are right to follow the recommendations of the Low Pay Commission, for those good reasons.
Margot James
I am going to make some progress, but if I do not cover the point the hon. Gentleman wants to make, he can intervene later.
I will say a little about enforcement, which was mentioned by the hon. Member for Llanelli; I very much agree with where she is coming from, and I thank her for her comments. As I said earlier, the Government are absolutely committed to cracking down on employers who break the national minimum wage law. I mentioned the budget increase for HMRC’s enforcement team; we have also increased the minimum wage underpayment penalties from 100% to 200% of the arrears owing to workers.
Employers who have underpaid their workers by more than £100 are eligible to be named. We name the vast majority of those employers: 700 have been named to date. I will make sure that that operation continues and is put on an expected footing of quarterly naming and shaming. I assure hon. Members that naming impacts on firms’ reputations, especially locally, because the local media always pick these stories up. It is a serious deterrent.
We are also creating a statutory director of labour market enforcement—I hope to have the individual in place by the end of the year—who will establish a single set of priorities for all enforcement bodies, and will back up the work of the HMRC enforcement team. The increased budget for HMRC will enable it not just to continue to investigate every single employee complaint, but to carry out more targeted inspections that do not depend on employee complaints.
I recognise that some employees, particularly in small firms, are worried about their future employment security if they make a complaint. There is the facility to make confidential complaints—people can complain directly to HMRC or they can call the free helpline that ACAS operates—but there is still that worry and fear at the back of people’s minds. I had someone come to my constituency surgery about it; they were so worried, and I took the matter up on their behalf. To ensure that that worry is not a barrier to enforcement, HMRC will carry out targeted inspections across various sectors of the economy.
That point leads me on to the care sector, which several hon. Members mentioned and which is a priority for the Government. HMRC is already undertaking targeted inspections: so far, it has made inquiries into almost 500 social care companies operating in the sector. It is worth pointing out that many of those inquiries result from targeted inspections; they are not dependent on employees making complaints. We have also enabled local authorities to charge a precept of up to 2.5% on council tax to provide considerably more funding for the social care sector, because we are concerned by what we have heard from companies operating in that space.
Hon. Members mentioned prosecutions—an issue that causes me concern. So far, HMRC has brought just 12 successful criminal prosecutions. I think we would all agree that that is a small number, but there is a good reason why HMRC prefers the civil remedy. It is far quicker; it is also cheaper, and we must have an eye on cost. Each criminal prosecution costs, on average, £50,000, and some cost considerably more. We need to make sure that criminal prosecution is in the armamentarium of HMRC, for the serious repeat offenders and employers who go out of their way to break the law. They should be the subject of criminal prosecution, but there is much more we can do, and hon. Members should not forget that when a civil remedy is pursued, the employees get their arrears immediately, whereas with a criminal prosecution they have to wait—and, of course, if it is not successful, they receive nothing.
I think I have dealt with most of the matters that the hon. Member for Sefton Central raised, including the Low Pay Commission. On the point about the disparity between people aged under 25 and those aged over 25, I listened attentively to the hon. Member for Llanelli, who obviously has expertise on the issue, and I accept that there is a difficulty in terms of strict equality between someone aged 18 and someone aged 37. I do not accept that they necessarily have the same costs, but there is an issue.
Let us not forget that the figure is a floor—a minimum. A lot of good employers who can afford it pay younger and older workers equally, and I think we would all like that to happen; but we must accept that the position of younger people in the labour market is different, and among the differences is the fact that sometimes they are training, or they need experience. I have already pointed out the significant difference in the unemployment rate.
I do not think that the provisions are a licence for exploitation. I think it is a realistic acknowledgement of the different position of different age groups, and the need to incentivise employers to employ younger people who do not have experience. Employers must have some kind of benefit from doing that. If they are in highly competitive and low-paid sectors that are under threat, such as the retail sector, which as I have mentioned is under severe threat for all sorts of reasons, they need that cushion, and that is what the Low Pay Commission recommends.
Chris Stephens
Some of those companies in the retail sector are multinationals making millions of pounds of profits. Is the Minister also looking at some of the companies that are changing contracts and taking away other premium payments to enforce the living wage? In debates in the House, evidence has been given of companies taking away other payments and changing hours and shifts to try to get round the living wage. Is the Minister looking at that issue?
Margot James
I am looking at that. I mentioned earlier that I was meeting one of the major retailers to discuss it. I will restate the Government’s position, which is that we expect companies to follow the spirit of the national minimum wage and the national living wage, and not just the letter of the law.
I accept that some large multinationals—and I do not suppose that this is confined, by the way, to multinationals—try to get round the minimum wage in the way described. It is a difficult matter, because it is a minimum wage, and although personally I think it is mean-minded of an employer to choose to reduce someone’s hours, or affect their privileges in some way, and I do not advocate it, using the law to intervene would be a challenge. However, we will keep the situation under review, and if we find there is wide abuse of the spirit of the law, I hope we will do more than just look into it.
I thank hon. Members for their valuable contributions to a crucial debate. The regulations will, as I have said, increase the national minimum wage for about 500,000 people from 1 October, and will ensure that low-paid people share in the benefits of economic growth without, importantly, damaging their employment prospects. The independent Low Pay Commission plays a crucial role in advising the Government about the minimum wage, and I thank it very much for its detailed report and recommendations. Various points were made in the debate, and I feel I have responded to them.
Question put and agreed to.
Resolved,
That the Committee has considered the draft National Minimum Wage (Amendment) (No. 2) Regulations 2016.