National Minimum Wage (Amendment) Regulations 2021
(3 years, 9 months ago)
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Lord Callanan
That the draft Regulations laid before the House on 1 February be approved.
The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Callanan) (Con)
My Lords, the purpose of these regulations is to raise the national living wage and the national minimum wage rates on 1 April 2021. We are determined to make the UK the best place in the world to work. This has been an extraordinary year presenting extraordinary circumstances. Our approach is to balance the needs of workers and employers.
The impact of coronavirus on the economy has been significant. The UK economy contracted by 9.9% in 2020. This recession has been much more severe in magnitude than previous ones. The effects on the labour market, however, have so far been more muted. The latest ONS headline estimate of unemployment was 5.1% from October to December 2020. This is in part due to government intervention, including the Coronavirus Job Retention Scheme. With the number of employees supported by the scheme peaking at 8.9 million in May 2020, workers were able to retain some form of attachment to a job. At the end of December, there were around 4 million jobs on the scheme.
Turning to these regulations, which will increase the rates of the national minimum wage and the national living wage from 1 April, we estimate this will provide a pay rise to approximately 2 million workers. I am pleased to say that this Government accepted all the recommendations made by the Low Pay Commission in October 2020. This independent body brings together the views of businesses and workers, informed by expert research and analysis, to reach a consensus on its advice. I would like to place on the record my sincere gratitude for its work.
Many low-paid workers have supported the country through these challenging times, but this Government recognise that many businesses are also struggling in the current crisis. In its recommendations, the Low Pay Commission sought to balance these needs against the wider economic conditions. Therefore, 2021’s increase is smaller than in previous years. The Low Pay Commission concluded that these rates would give low-paid workers a real-terms pay rise, recognising their contributions during this pandemic, without presenting a significant risk to employment prospects. The LPC makes its recommendations on the basis of significant stakeholder evidence from business, worker and academic representatives. Business representatives broadly supported a cautious increase to minimum wages.
These regulations will increase the national living wage for those aged 23 and over by 19p to £8.91, an increase of 2.2%. A full-time worker on the rate will be more than £345 better off over the course of the year. The national living wage currently applies to workers aged 25 and over. However, from April 2021 it will be extended to those aged 23 and over. This gives 23 and 24 year-olds an extra 71p an hour, the largest increase for these individuals ever.
The regulations also increase the rates for younger workers and apprentices. Workers aged 21 and 22 will be entitled to a minimum hourly rate of £8.36, a 16p increase. Workers aged between 18 and 20 will receive an extra 11p an hour, taking their rate to £6.56. Under-18s will earn at least £4.62 an hour, a 7p increase. Apprentices aged under 19, or those in the first year of their apprenticeship, will receive an increase of 3.6%—an hourly rate of £4.30, 15p more. The regulations also change the amount that employers can charge workers for accommodation without it affecting their pay for national minimum wage purposes. From April, that will increase to £8.36 per day.
I turn to record-keeping. This year, the Government will make a further legislative change to the minimum wage regulations. This pertains to the records that employers must keep to ensure compliance with the minimum wage. These records currently have to be held for three years. We are extending that to six years. This change will align the period for which an employer must keep records with the period of liability under the National Minimum Wage Act 1998, which is six years, and it follows a recommendation in the Director of Labour Market Enforcement’s UK Labour Market Enforcement Strategy 2019/20. Amending the length of time for which records must be kept will give employers clarity, remove an inconsistency that will aid HMRC investigations into underpayment and ultimately enable underpaid workers to receive the money that they are legally owed as soon as possible.
Looking ahead, the Government have pledged to continue raising the minimum wage rates. As set out in our manifesto, we have set a target for the national living wage to reach two-thirds of median earnings by 2024. To improve fairness for younger workers, beyond the age threshold change this year we will apply the national living wage to those aged 21 and over by 2024. These targets continue to be dependent on economic conditions, and we will of course carefully monitor the labour market.
In conclusion, these regulations ensure that the lowest-paid workers are fairly rewarded for their valuable contributions to the economy. The Government will continue to monitor the impact of the minimum wage as we navigate our way out of this economic crisis. We will shortly publish the remit to the Low Pay Commission for 2021 asking it to make recommendations for new minimum wage rates to apply from April 2022. I commend the regulations to the House.
Baroness Chakrabarti (Lab) [V]
My Lords, I am grateful to the Minister for his introduction to these regulations, which of course must pass this evening. Some will no doubt welcome in particular the 19p rise to the national living wage and its extension to those aged 23 rather than 25, but I suggest that many more people will feel, as I do, that neither measure is enough in practice or in principle, especially in a pandemic that has so amplified poverty in our nations, including in-work poverty, and inequality, sometimes with quite deadly consequences.
Surely it is time to move more quickly towards breaking the £10-an-hour threshold for those in the lowest-paid work. I could not agree with the Minister’s suggestion that the current rates are fair in relation to low-paid workers, many of whom are literally saving our lives in this pandemic.
Surely it is time to end this age discrimination. Even the move from 25 years old to 23 for the national living wage is inexplicable in discrimination and human rights terms. I do not believe that a 23 year-old’s rent will be cheaper or that they will need less expensive food or fuel every week.
Surely it is time to ensure that no one has to risk their own health or that of the community by leaving home to go to work—often insecure work—when they are symptomatic. Surely we have learned during this pandemic that financial insecurity breeds health insecurity, not just for individuals but for society as a whole. Surely it is time to explore a minimum guaranteed income for everyone in our nations.
I was particularly interested in the Minister’s discussion of compliance and record-keeping but I wonder whether, in his summation of the debate, he might say a little more about enforcement. How are these national minima enforced and how much enforcement action have we really seen, not least over the last year?
Finally, given the levels of food poverty and insecurity in our nations in recent times—again exaggerated during the pandemic—can the Minister set out the proportions of the national minimum wage and living wage that have been calculated for adequate food? I believe that the time is right for a legally enforceable right to adequate food in our nations, one of the wealthiest nations on earth.
Lord Bradshaw (LD) [V]
My Lords, I will not follow up the approach of the noble Baroness, Lady Chakrabarti, because I do not think that this is probably the Bill in which to discuss the question of minimum wages being raised by large amounts. What I am concerned about is whether over the last five years the number of inspectors employed to enforce these rules has increased or decreased and what sort of attitude the courts take when people are brought before them. I hope the Minister will reply to me on that and if he cannot do so immediately then in writing. More importantly, a large army of people are being cheated out of the minimum wage by various methods and I certainly agree that if we have a minimum wage it should be something that people can look forward to enjoying. It should be at least a minimum reward for a decent day’s work. Otherwise, I am quite content with the regulations as they are.
Lord Harries of Pentregarth (CB) [V]
My Lords, I thank the Minister for his statement and I welcome the rise of the national living wage from £8.72 to £8.91 an hour, a rise of 2.2%, with commensurate rises for those aged under 22 and apprentices. The rise of 3.6% for apprentices is particularly welcome, taking their pay to £4.30 an hour.
This is little enough but 139 companies were fined last year for failing to pay even this minimum, amounting to £6.7 million in withheld payments. If the Minister is in a position to do so, perhaps he will say something about the steps the Government are taking this year to ensure that the minimum wage is paid by all companies. I particularly look forward to the Minister’s answer to the question posed by the noble Lord, Lord Bradshaw.
I do not know about other noble Lords but speaking for myself I find it very difficult to see how anyone can possibly live on that sum. Even an eight-hour day brings in scarcely £70. I know we have to realistic and that there is a limit to what so many employers are able to pay if they are going to remain solvent, especially in these difficult times; however, wherever possible, we should set our sights higher.
In that connection I commend the work of the Living Wage Foundation in trying to raise the level to a sum that does at least make it a little easier for people to actually live on. It was exactly 20 years ago when London Citizens, a community-based organisation in London, started a campaign for a real living wage. Two priests—one Anglican and one Roman Catholic—were the seminal figures behind this. London Citizens quickly became Citizens UK, a national organisation campaigning for companies and public authorities to voluntarily commit themselves to paying a real living wage. This campaign established the Living Wage Foundation, founded 10 years ago in 2011, which now spearheads the campaign.
In the 20 years since London Citizens started a campaign, and the 10 years since it established the Living Wage Foundation, there have been real successes. Among the companies that have signed up to it are IKEA, Aviva, Nationwide and Everton Football Club. In all, something like 7,000 employers have committed to paying a real living wage, including two-thirds of those companies listed in the FTSE 100 index. The 2021 living wage has not yet been announced but in 2020 it was £9.50 an hour and, in London, £10.75 an hour.
In 2014, a commission chaired by Dr John Sentamu, soon to be the noble and right reverend Lord, recommended that the Government should pay their own employees the living wage, though it should still be voluntary for private companies. I would be very grateful to know the Minister’s response to this recommendation that all public authorities should pay not just the state-based national or living wage but the real living wage as calculated by the Living Wage Foundation.
Even the living wage is little enough, but those in a position to pay it should do so, and statutory bodies in particular should make it a firm policy, not just an aspiration. We should encourage businesses, wherever possible, to sign up for it.
Lord Empey (UUP) [V]
My Lords, as a number of speakers have said, it is clear that this year is obviously not the year in which decisive steps can be taken on the issues that we are discussing today. So many people are still struggling, particularly with food and accommodation costs. The LPC recognised the necessity of ensuring a balanced decision between the needs of individuals and the ability of the many struggling businesses that employ them to deal with the situation today.
However, there is one aspect of this that I would like the Minister to address in his summing up. Here in Northern Ireland, we had experience of an abuse by a number of employers regarding the accommodation being provided to workers. A practice developed where companies were buying houses in various conditions and cramming a large number of individuals, primarily migrant workers, into those dwellings, and deducting sums from their wages at the end of the week. It became an abuse. Can the Minister tell us what steps are being taken to ensure that the allowance that is provided to cover accommodation costs reflects value for money, and that the employees are not also required to purchase goods from their employer? That is another practice that effectively forced people to shop with their own employer, which can lead to all sorts of abuses.
Other speakers have mentioned enforcement. I would be particularly interested to know whether the enforcement to ensure that there is decent accommodation provided at reasonable rates is happening. Regulation 2(4) increases the offset amount, but that does not indicate the level of quality or value for money. Employers can and have required their employees to live in garages and outhouses that have been converted into accommodation units where large numbers of people are accommodated in appalling conditions; we have seen examples on television.
While this is clearly not the year when we can address the matters in the minds of many Members, that does not prevent us preparing the ground for trying to address the inability of many working people even to feed themselves properly. That is another debate, but can the Minister address the issue of accommodation? Who looks at this issue and, if they find there is inadequate accommodation, what steps are taken to ensure that the employer provides value for money?
Baroness Clark of Kilwinning (Lab) [V]
This pandemic has highlighted the very real link between low income and health inequality in a very dramatic way. It is appropriate as part of this debate to put on record the huge concern about the low level of the minimum wage in this country.
The National Minimum Wage Act 1998 was brought in by the 1997 Labour Government. I was a Labour candidate in that general election, in a seat where there were a lot of strong views about the national minimum wage. It was a large rural seat in the south west of Scotland, the seat of Galloway and Upper Nithsdale. Many people were on very low incomes there, particularly rural workers, who were earning perhaps 50p or 75p per hour. That was a very low income even at that time, and definitely not the kind that could lead to people having a living wage if they worked long hours.
In that election, it was repeatedly argued that if we introduced a national minimum wage there would be high unemployment, people would lose their jobs and businesses would go bust. The reality, of course, was very different and that did not happen. That is something we need to be aware of every time we have this debate, because the reality and the backdrop is that people are suffering.
We are seeing big campaigns in the United States at the moment, such as the Fight for $15 campaign, which is trying to get the minimum wage increased to a level people can live on. In this country we have had the McDonald’s campaigns, whereby McDonald’s workers —represented by the Bakers, Food and Allied Workers’ Union—are trying to get £10 per hour and other improvements to their terms and conditions. In Scotland, the GMB trade union is campaigning to get care workers a minimum wage of £15 per hour and is putting pressure on the Scottish Government to deliver that in the upcoming Budget.
I say to the House that this is an issue about justice and economic sense. Frankly, it does not make economic sense to have people on the kinds of poverty wages being discussed this evening. It is also an issue of dignity. It is simply not acceptable if people working full-time are having to rely on state benefits, which they may or may not claim. They simply cannot provide for themselves and their families if the living wage is based on a minimum income of the levels outlined in these regulations. Companies like McDonald’s pay very different rates in different countries, depending on the legal minimums in those countries. In countries such as Denmark, the rates of pay are far higher than in the United States, for example, or indeed the United Kingdom.
What this House needs to be saying is that this is simply not an acceptable level of minimum wage. We need to say this on every occasion when we discuss these issues, because that message needs to get through. Of course, these regulations must go through this evening because £8.91 per hour for someone aged 23 or over is better than the current rate of £8.72, but we should say clearly to the Government that this level of minimum wage does not make economic sense. We know that if you put money into the pockets of the poorest in society, they go out and spend it. We are arguing about issues that have been debated for decades. When we have substantially improved the incomes of the lowest paid, it has been a policy initiative that has made a lot of sense and delivered justice for people who need it.
Baroness Blower (Lab) [V]
My Lords, I welcome the opportunity to speak on this issue, which is of huge concern to the 2 million or so workers paid at or— shamefully and illegally—below the minimum wage. These are workers in sectors such as retail, cleaning, maintenance, social care and hospitality. A rise of 2.2% may not, at first glance, appear too bad at this time, but 2.2% of not very much is very little. At the rate for those aged over 25, which is due to become the rate for those aged over 23, 2.2% amounts, as the Minister said, to just 19 pence per hour. Small wonder, then, that 3,000 care workers in Hillingdon, in the constituency of the Prime Minister, cannot afford £112 a week—what Loughborough University assesses is necessary to feed a family of four—even with two adults in a four-person household working at that level. I am really not sure how the Minister thinks that is a fair reward, as my noble friend Lady Chakrabarti said earlier. The level of the minimum wage is simply too low, and appallingly so in the fifth—or is it the sixth?—richest country globally.
The national minimum wage is not a minimum wage; it is simply an hourly rate, and one that is all too low at that. Even with a much more significant and, in my view, highly justified, increase, the situation for a worker on a zero-hours contract, with no guarantees of how many hours will be available shift to shift, let alone week to week, is not an acceptable state of affairs. It provides no income security at all. For the minimum wage to be an acceptable arrangement, the level should be increased significantly beyond what is envisaged today. But that increase should be part of a collectively bargained contract that encompasses pay and conditions, including hours to be worked and wages to be paid at a level that affords income security and a life free from the fear of the next bill arriving.
In short, fairness and social justice, as well as the Government’s much-vaunted levelling up agenda for all workers, requires the introduction of wages determined through sectoral collective bargaining, not the imposition of poverty pay levels. To quote the OECD:
“Collective bargaining and workers' voice are key labour rights, as well as potentially strong enablers of inclusive labour market.”
Surely that is advice to be heeded.
Baroness Jones of Moulsecoomb (GP)
My Lords, I do not welcome these regulations. I accept that they are necessary, but I do not welcome this pathetic rise. I do not see how the Government can feel justified in bringing forward such a pathetic rise when people are struggling through this pandemic. The last 12 months have exemplified the harsh reality for low-paid workers. We all know that the Government’s national living wage is no such thing—it is a complete misnomer. The Government misappropriated that phrase from some people who had done their homework and we are left with a so-called national living wage that is absolutely pathetic. People find it extremely difficult to live on.
I support everything that the noble Baronesses, Lady Chakrabarti, Lady Clark of Kilwinning and Lady Blower, have said. They have laid out clearly that this is simply wrong. The noble Baroness, Lady Chakrabarti, said that reducing the age limit for the living wage from 25 to 23 shows how arbitrary it is—she called it inexplicable. I hope that the Minister will explain the rationale for that to us, as it seem very strange.
During this pandemic, many of us with higher-paying jobs have been able rapidly to shift to remote working and not face too many struggles. We have been able to wait out the virus at home. But underpaid key workers have had to keep going in and face the pandemic, exposing themselves and their families to the risks of the virus. Then there are those underpaid jobs that have been shut down during the pandemic, such as in hospitality and the arts. These people face huge uncertainty over the future, along with the 20% furlough cut taken out of their already low wages. The Low Pay Commission reported that the lower paid someone was the more likely they were to be furloughed and lose pay as a result. Of people who were furloughed, those who were higher paid were more likely to have their employer top up their furlough to 100% of normal pay. It is just another example of the huge inequalities in the system exposed by this virus. It is no longer the great leveller that our Prime Minister—I say, “our Prime Minister”; I suppose he is our Prime Minister—once described it as.
Overworked and underpaid, every worker should be entitled to take home a real living wage that, no matter what their age, is enough to get by on and leave a little bit over to save for the future. As the noble Baroness, Lady Blower, said, when low-paid people are given more money, they spend it, because they need more food and they need shoes for their children. They spend the money, so it is economically illiterate to underpay people in the way the Government are saying.
The issue of enforcement is interesting as well. This Government are so keen on enforcement for everything. What are they doing about that?
I now have a suggestion, because I do not want just to be negative; I want to give a good idea from the Green Party manifesto. If a Green was put on the Low Pay Commission, it would pay benefits in all sorts of ways. What we should not do is tinker around the edges, which is what is happening at the moment. We need a fundamental shift in the way that our society and our economy approach work. The Government have missed an opportunity to trial a universal basic income scheme in response to the pandemic. It should not matter whether someone is on furlough, unemployed, retired or in work. Everyone should have enough to meet their basic needs in the 21st century. For this reason, I want to ask the Minister to commit to asking the Low Pay Commission to assess the case for a universal basic income. In the same way as it deploys its expertise and resources to assess increases in the minimum wage, it should carefully consider how we could make a universal basic income work to transform our economy into one that is actually fair for everyone.
Lord Davies of Brixton (Lab) [V]
My Lords, there is always a pensions angle. The minimum wage is now a settled part of the employment landscape, but so is auto-enrolment into a qualifying pension scheme. So far, they have been developed in isolation from each other, which is a pity. There is nothing material in the most recent report from the Low Pay Commission about pension provision. This must be wrong. Surely we can all agree, first, that pension provision is essential for all workers and, secondly, that pensions are part of pay, so the provision of a decent pension should be part of the minimum wage. If someone works all their life on the minimum wage but ends up with an inadequate pension, they have not really received what I think should be the minimum wage.
Let us make a rough estimate of what a minimum wage earner might get from auto-enrolment. The annual wage of someone on the proposed standard rate, making a reasonable assumption about their weekly hours, would be about £15,000. They would therefore qualify for auto-enrolment, as the threshold is more than £10,000. The contribution that would go into their pension pot would be 8% of their pay that is in excess of the lower earnings limit, which next year is £6,240. That works out at almost exactly £700.
It should be noted at this point that this is not a contribution of 8%, because the offset is only 4.7% of pay. There is unanimous agreement among those who know anything about pensions that this simply is not enough, even with the new state pension. It means that with a 45-year working lifetime, the contributions put into a member’s pot will total less than £32,000. They will, of course, have the money invested, but current risk-free interest rates are zero, and someone with this level of income should not really be putting their money into risky investments, even if it sometimes offers the chance of higher benefits. With a fund of £32,000 you would get a pension of only some £1,600 per year. It is simply not enough. I ask that in future, the Low Pay Commission and the Government have pensions in mind as future pay, as well as pay in the pocket.
Lord Hendy (Lab) [V]
My Lords, an increase in the national minimum wage must be supported. But for the reasons given by my noble friends Lady Chakrabarti, Lady Clark of Kilwinning, and Lady Blower, there is nothing to celebrate in an increase of a meagre 19p per hour.
The thesis that the national minimum wage should be as low as possible, otherwise it will be too expensive and employers will cease to hire, has been wholly debunked by experience and economists both here and in Europe. In fact, as the noble Baroness, Lady Jones, explained a moment ago, higher wages create more demand in the economy which leads to more goods and services and more jobs. It increases the tax take and diminishes the need for benefits to subsidise low pay. That is why the European Commission is proposing a minimum wage directive across the EU, one provision of which is to require the promotion of collective bargaining. Collective bargaining, particularly at sectoral level, is the most effective way of increasing wages. As my noble friend Lady Blower pointed out, the OECD and the ILO have strongly commended it to Governments in recent years.
In contrast, Government policy in this country has been to diminish the extent of collective bargaining year after year; 82% coverage of British workers in 1979 has sunk to less than 25% today. That is one reason why 9 million people living in poverty are in working families, with the consequences that Sir Michael Marmot has noted.
Yet in the EU-UK Trade and Cooperation Agreement, Article 8.3(7), the Government undertook to
“promote social dialogue on labour matters among workers and employers, and their respective organisations, and with relevant government authorities.”
The Low Pay Commission, although it contains nominees from various bodies, is not a negotiating body and does not fulfil the need for social dialogue; and miserable as the minimum wage rate is, some employers still strive to get away with paying less, as the noble and right Reverend Lord Harries of Pentregarth pointed out. In December 2020, HMRC named 139 companies which had failed to pay £6.7 million to more than 95,000 workers, and we know this is merely the tip of the iceberg. I hope the Minister can agree that the national minimum wage needs to be substantially increased, seriously enforced and subject to collective bargaining.
Lord Balfe (Con)
My Lords, the Opposition are struggling to find something to say. The Government have accepted all the recommendations of the Low Pay Commission and are putting them into force, at a difficult time for the economy and when MPs’ and senior civil servants’ pay is frozen. To my mind, they are doing quite well. I look forward to the Minister’s reflections on enforcement because that has proved to be a problem, and certainly the points made by the noble Lord, Lord Empey, are well worth addressing.
I am proud that, when the London living wage came in, at the time I was the chair of the finance committee of the Reform Club and we were the first London club to implement the London living wage. That was in 2012 and we have stuck to it ever since, as have many others. The London living wage is now far more of an institution in London. The underpinning of the Low Pay Commission, which I should point out, has a number of TUC representatives who have played a significant part. At the end of last week, I asked the TUC whether it had any observations that it wished me to make in this debate. It had none. The Trades Union Congress has no observations to make, presumably because it is happy that its representatives on the Low Pay Commission have done a good job and that the Government have done a good job in accepting that.
When we come to sectoral collective bargaining, it sounds fine, apart from the fact that over 75% of workers do not have a trade union to do any bargaining for them. Who is going to be the sectoral bit that does the collective bargaining? All I would say here is: get real. I was interested in the contribution of the noble Lord, Lord Davies, which will be very welcome in two weeks’ time when the TUC holds its annual pensions conference. I envisage that both he and I will be present and we will contribute to the section about desirable developments in state pension provision. Everything he has said should come up in that discussion because there are things that need to be addressed with reference to the state pension and how auto-enrolment hits the very low paid.
Finally, some of the points that have been made are undoubtedly fair. It is extraordinarily difficult to live on the national minimum wage, but we do now have a national minimum wage. I take no credit for it, but I was present at some of the discussions that the Conservative Party had. We should remember that the Conservative Party originally opposed it, but it is now a strong supporter because it has seen that it works. One of the good things about the Conservative Party, in the words of the late Lord Butler, is that we do not necessarily embrace change speedily, but we watch it, and when it is relevant, we take it on board. The Conservative Party is fully behind the minimum wage and will continue to make it prosper.
Lord Liddle (Lab) [V]
My Lords, I will associate myself with the comments of the noble Lords, Lord Empey, Lord Bradshaw, and my noble friend Lord Hendy, who have all emphasised the need to stop abuse of the national minimum wage and to have better enforcement. However, I welcome the fact that the Government have decided to accept the recommendations of the Low Pay Commission. This is a tribute to the success of the arrangements that Labour put in place when the national minimum wage was introduced. The commission is an example of tripartism and independence, and that is something that we would cast aside at our peril.
When the minimum wage was introduced over 20 years ago, the Government then recognised that it was not in itself a solution to the problem of poverty. What it did was to try to provide a safeguard against exploitation by unscrupulous employers. The approach of the Labour Government in the early 2000s was that, in order to tackle poverty, one had to have effective social support on top of the statutory minimum, essentially through very generous tax credits. We have seen how in the past decade the problem of in-work poverty has grown. One of the reasons for that is the cuts that have been made in tax credits because you will never eliminate family poverty simply by pushing up the minimum wage.
On approaches to reform, I read a very interesting paper by the Learning and Work Institute on The Future of the Minimum Wage, financed by the Carnegie UK Trust, and I hope that the noble Lord, Lord Callanan, and his civil servant colleagues will look at it. It recommends moving to a sectoral approach to tackle where low pay is a very serious problem—sectors such as social care, hospitality and retail. There cannot be collective bargaining in these sectors at the moment, despite what my noble friend Lord Hendy says, because the trade unions have been abysmally unsuccessful in recruiting low-paid workers, particularly in the private sector. Therefore, there needs to be some statutory intervention—some public intervention—if those workers are to have dignity and respect.
I am glad that the Government do not intend to abandon the objective of raising the living wage to two-thirds of the median. However, on top of that, we need a mix of something like the old wage councils and training boards, sector by sector, to try to raise pay in those sectors by raising skills. Fundamentally, it is through improving the productivity of the workforce and its skills that employers will be able to afford to pay higher wages.
It may be that we have to give incentives to employers through national insurance and other means to get them to upgrade and upskill their workforce. This is a sensible approach, which the Government should examine. I understand the horror of what we have been through and how dreadful it is, particularly the lack of respect that low pay brings—I very much agree with my noble friend Lady Clark on that. However, we need new, innovative ways of tackling the problem.
Lord Lennie (Lab) [V]
My Lords, I will make some brief comments and have some questions to follow. When I reread last year’s debate on this statutory instrument, it was interesting to note that the coronavirus pandemic was not mentioned once. A year later, we are in our third lockdown and Covid-19 has exacerbated existing inequalities and injustices in the labour market, in part brought about by some employers paying below the national minimum wage, as the noble and right reverend Lord, Lord Harries, said.
In this discussion my thanks are due to my noble friends Lady Chakrabarti, Lady Clark and Lady Blower and Lord Hendy. None of them is saying that this should be rejected—of course they are not; they are all saying that it should be welcomed. The debate they want to have is about the future and how the minimum wage will rise, as my noble friend Lord Liddle outlined in his interesting sectoral approach in the absence of unions and collective bargaining. We shall see what the Government make of that.
The Low Pay Commission, whose recommendations today’s welcome increases are based on, said that the impact of recent economic upheaval has affected low pay sectors more than others. We know that too many workers are still not paid the national minimum wage. The ONS said that there are over 2 million jobs where employees aged 16 and over were paid below the minimum wage in April 2020—more than four times the number a year earlier. Workers paid less than the national minimum wage are often those who are relied upon during this pandemic. They are our key workers—our essential workers. According to a recent LSE report, just under one in three independent sector care workers was paid the minimum wage in 2019, compared to around one in 14 of all UK workers.
I have some questions. As the economy begins to open up, how will the Government make sure that employers are paying the national minimum wage? Many comments have been made about enforcement, especially for those workers who we have relied on in the past year. As the labour market changes rapidly, we need confirmation of where the national minimum wage fits within the gig economy. With reference to the recent Supreme Court ruling, does the Minister want Uber drivers, and many others in the gig economy, to be entitled to be paid the national minimum wage? Should those drivers have it backdated, having not received the national minimum wage previously?
The Low Pay Commission has said that the pandemic and upheaval in the economy have disrupted many of the usual data sources on which the national minimum wage is calculated. What additional measures have the Government taken to support the commission to overcome this lack of data from its usual sources?
Finally, as the Minister said, this statutory instrument increases the period of time for which employers are required to maintain records from three years to six. How is this being communicated to businesses, especially those that may currently be closed? Are there any additional costs to businesses associated with this change?
Lord Callanan (Con)
I thank all noble Lords who contributed to this important debate. There were a number of valuable contributions, and the points raised show the importance that many noble Lords attach to the issue of providing an appropriate pay rise to lower-paid workers. As my noble friend Lord Balfe pointed out, the national minimum wage and national living wage make a real difference to the lives of millions of workers in this country, particularly during the current crisis. I am glad that there seems to be some agreement across the House that the lowest-paid workers who have contributed during this pandemic deserve an inflation-beating pay rise to protect their standard of living, which these regulations will provide.
The national minimum wage and national living wage have increased every year since their introduction. These regulations mean that, on 1 April, workers on the national living wage will be around £4,030 better off over the year compared to when it was announced in 2015. All noble Lords will be aware that, once again, the Government’s impact assessment has received a green fit-for-purpose rating from the Regulatory Policy Committee. The impact assessment estimates that around 2 million low-paid workers will benefit from these minimum wage increases. We estimate that there will be a total benefit to workers of £419 million. The total cost to employers for implementing the LPC’s recommended rates is estimated at £428 million. This marks a 24% increase in the national living wage since 2016 when the policy was introduced. For the first time, these increases to the national living wage will benefit workers aged 23 and 24. Younger workers will also get more money through the increases to the national minimum wage rates.
We know that most businesses support increases in the minimum wage rates. Through these regulations we are reducing burdens on employers in meeting minimum wage obligations, while maintaining worker protections. Though these increases are more moderate than in recent years, we remain committed to the target for the national living wage to reach two-thirds of median earnings by 2024, provided that the economic conditions allow. We will continue to monitor the labour market closely over coming months.
The changes to record-keeping requirements for employers will improve enforcement of the national minimum wage and ensure that underpaid workers receive the arrears owed as quickly as possible. In response to the noble Baroness, Lady Chakrabarti, I can say that we will continue to prioritise this through HMRC’s ongoing enforcement work, and through the naming scheme which relaunched on 31 December, naming and shaming 139 employers who had underpaid their staff.
The issue of enforcement was also raised by the noble Lords, Lord Lennie, Lord Bradshaw and Lord Empey, the noble and right reverend Lord, Lord Harries, and the noble Baroness, Lady Jones. They all made the important point that enforcement is key to this. The Government take robust enforcement action against employers who do not pay their staff correctly. HMRC’s enforcement and compliance budget has been increased to £27.5 million in 2021, up from £13 million in 2015-16. In 2019-20, HMRC identified over £20 million in arrears for over 263,000 workers and issued just under 1,000 penalties, totalling £18.5 million, to non-compliant employers.
The noble Baroness, Lady Chakrabarti, also raised the issue of age discrimination. The national living wage has historically been limited to workers aged 25 and over, to protect the employment prospects of younger workers. However, the Low Pay Commission’s advice noted that generally employment trends for workers aged 23 and 24 tend to be similar to those of workers aged 25 and over, which is why the Government are accepting the commission’s recommendation to reduce the age threshold for the national living wage from 25 to 23. Evidence shows that younger workers are more vulnerable in the labour market. For example, from October to December 2020 the unemployment rate for people aged 16 to 17 was 25% and for people aged 18 to 24 it was 13%. By comparison, the rate for those aged 25 to 34 was only 4%.
A number of noble Lords, including the noble Baronesses, Lady Chakrabarti and Lady Clark, and the noble Lord, Lord Lennie, raised the crucial point of key workers. The Government value the outstanding work that key workers are doing during these challenging times, which is why we are proceeding with this increase in the national living wage from April. The Government need to balance the needs of businesses and the low paid, including key workers, to ensure that any future increase does not harm their employment prospects. The Government remain committed to helping hard-working individuals earn more while we level up this country. We are delighted to be giving key workers on the national living wage this increase. Public sector workers on the national living wage threshold will benefit from the increase to the rate in line with the rest of the country. In addition, the 2.1 million public sector workers who earn less than median earnings of £24,000 will receive an increase of at least £250.
A point was raised by the noble and right reverend Lord, Lord Harries, and the noble Baronesses, Lady Blower and Lady Jones, about the real living wage and the Living Wage Foundation. The Government consider the expert and independent advice of the Low Pay Commission when setting the rates. The key distinction between the Low Pay Commission’s rates and other rates, such as the Living Wage Foundation’s voluntary living wage is that the Low Pay Commission considers the impact on businesses and the economy as well as the impact on individuals.
The noble Lord, Lord Bradshaw, asked about the number of enforcement staff. There are now more than 400 staff involved in HMRC’s enforcement of the minimum wage. As I said earlier, we have doubled the budget since 2015.
A number of noble Lords, including the noble Baronesses, Lady Jones, Lady Clark and Lady Blower, asked an understandable question about why the national living wage is not higher. The new national living wage rate of £8.91 is a 2.2% increase and will be the highest ever UK minimum wage. I accept the ambition of the noble Baronesses to go even higher, but this increase balances the Government’s commitment to supporting the low paid with the need also to support businesses and employment. Although it reflects a significant adjustment in response to current economic circumstances, this increase still allows the Government to make progress towards their long-term ambition for the national living wage to reach two-thirds of median earnings by 2024. I hope the noble Baroness will be here to welcome that happy step when we finally arrive at it.
The Government are still committed to their goal of ending low pay and reaching the 2024 target, provided that economic conditions allow. We will continue carefully to monitor wider economic interests.
The noble Lord, Lord Empey, asked me about the accommodation offset. This is the daily amount which can count towards minimum wage pay when a worker is charged for accommodation provided for them by their employer. Where a worker is charged for accommodation, either by making a payment to the employer or by a deduction being made in the worker’s pay, and the charge is more than the accommodation offset, it will reduce the worker’s pay for minimum wage purposes. Following these regulations, the accommodation offset will increase on 1 April from £8.20 per day to £8.36 per day, which is a 2% increase. Anyone concerned that they are not getting the national minimum wage should complain to HMRC, which follows up every complaint it receives.
The noble Baroness, Lady Jones, also asked me about the rationale for 23-plus as an age group, and I addressed that question earlier.
The noble Lord, Lord Hendy, made a number of points about his so-called social dialogue. The Low Pay Commission is an independent and expert body which makes annual recommendations on the appropriate rate for the national minimum wage. As my noble friend Lord Balfe pointed out, its commissioners are balanced between employer and worker representatives and independent commissioners. It is also responsible for carrying out extensive research and consultation and for commissioning research projects. It draws on economic, labour market and pay analysis, independent research and stakeholder evidence to produce the best possible recommendations, which we are delighted to accept in this case.
I thank the Low Pay Commission again for its extensive evidence-gathering and for providing its well-reasoned recommendations. The Government will shortly publish the Low Pay Commission’s remit for 2021. With that, I think I have addressed all the questions that were put to me. I commend these draft regulations to the House.
Motion agreed.