National Minimum Wage (Amendment) Regulations 2021
(Limited Text - Ministerial Extracts only)
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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.
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.