National Minimum Wage (Amendment) Regulations 2023
(Limited Text - Ministerial Extracts only)
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Lord Johnson of Lainston
That the Grand Committee do consider the National Minimum Wage (Amendment) Regulations 2023.
The Minister of State, Department for Business and Trade (Lord Johnson of Lainston) (Con)
My Lords, the purpose of these regulations, which were laid before the House on 30 January 2023, is to raise the national living wage and the national minimum wage rates on 1 April 2023.
The strength of the UK labour market remains something to be proud of. Unemployment is low, the number of employees on payrolls is 1 million above pre-pandemic levels and demand for workers remains close to record levels. The Government’s overarching priority is to achieve sustained economic growth. Our commitment to a high-skilled, high-productivity, high-wage economy will further address cost of living pressures, as well as levelling up every part of the UK and hastening the transition to net zero.
However, we recognise the impact of inflation for people right across the country, which is why this Government have continued to take robust action. This year sees the largest cash increase in the history of the minimum wage, and, once these measures come into force, the national living wage will have risen more than twice as fast as inflation since its introduction in 2015. Furthermore, benefit payments and the state pension will increase by 10.1% in April, in line with September’s CPI inflation rate. We have also delivered a package of measures, including the energy price guarantee, which has saved a typical UK household around £900 across the winter, and hundreds of pounds-worth of support in the form of cost of living payments targeted towards the vulnerable households that need it most.
I turn to the detail of the national living wage and national minimum wage regulations, which will come into force on 1 April. Following a comprehensive impact assessment prepared and published by the Government, we estimate that 2.9 million workers will receive a pay rise across the United Kingdom. I am pleased to confirm that the Government have accepted all the rate recommendations made by the Low Pay Commission in October 2022. The Low Pay Commission is an independent body which conducts expert research and analysis and brings together input from representatives of business and workers. I thank it for its tireless efforts.
The Government remain committed to their ambitious target for the national living wage to equal two-thirds of median earnings by 2024, provided that economic conditions allow. This will have the effect of ending low pay in the UK in line with the OECD definition, and this year’s increases keep us on course to achieve that target. Under the new regulations, the national living wage, which applies to those aged 23 and over, will increase to £10.42 an hour. This is an increase of 9.7% or 92p. As a result, a full-time worker on the national living wage will see their annual pay before tax rise from £17,300 to over £18,900—an increase in excess of £1,600. This also ensures our national living wage rate remains one of the highest in the world. According to the Low Pay Commission, as of the start of 2022 the UK had the fourth highest minimum wage rate in Europe.
These regulations will also increase the national minimum wage rates for younger workers and apprentices, as well as the accommodation offset. Workers aged 21 and 22 will be entitled to a minimum hourly rate of £10.18, representing an increase of £1 or 10.9%. This narrows the gap with the 23 and over rate and keeps this group on course to receive the full entitlement to the full national living wage by 2024—another ambitious target set by this Government. Those aged between 18 and 20 will be entitled to a minimum rate of £7.49 an hour, an extra 66p, while those aged under 18 will be entitled to a minimum rate of £5.28 an hour, an extra 47p. Both these changes represent an increase of 9.7%. Apprentices under 19 or those in the first year of their apprenticeship will also receive an increase of 9.7%, as their rate rises from £4.81 to £5.28.
Finally, on the detail of the regulations, the accommodation offset will also be increasing. This is the maximum daily amount that an employer can charge a worker for accommodation without it affecting their pay for minimum wage purposes; it will be rising by 4.6% from £8.70 to £9.10. The Low Pay Commission has made recommendations about the future of the accommodation offset in its recent report. The Government are continuing to consider them carefully and will issue a full response in due course.
These regulations aim to reward the lowest paid workers in every sector and in every part of the country for their contribution to our economy. We are aware of cost of living pressures and will continue to closely monitor all the impacts of increases to the national living wage and national minimum wage rates. To that end, the Government will shortly publish this year’s remit to the Low Pay Commission and ask it to provide recommendations for the rates which will apply from April 2024.
Lord Palmer of Childs Hill (LD)
My Lords, I thank the Minister for the report on this statutory instrument. I note that, only a few minutes ago in the Chamber, the Minister answered an Oral Question and gave a lot of information related to what we are discussing here. I thank him for that information as well. He said that we do things in bits to get them through. In a sense, it is not very clear when you are doing it “in bits” what the whole picture is.
The increases in minimum wage must be welcomed; of course, we welcome them. But they are not that generous, as £10.42 per hour times, say, 35 hours over a seven-day week is only £364. I wonder if we really consider that anybody can manage on that sort of sum in our large conurbations—£364, if you manage to do 35 hours. It should be more.
The Minister kindly gave us the detail that in October 2022, five months ago, these were considered to be the increases that ought to happen. The question I ask him to consider, because we are doing this five months later, is how up to date those figures are. Should they be more generous? As a start, perhaps we should consider an independent review to consult on how to set a genuine living wage across all sectors. For instance, we could pay the living wage in all central government departments and their agencies and encourage other public sector bodies to do likewise. It is important to set minimum wages at appropriate levels, including setting a 20% higher minimum wage for those on zero-hours contracts at a time of normal demand to compensate for the fluctuations in their hours of work. This statutory instrument takes no account of that.
Lord Lennie (Lab)
My thanks are due to the Minister for setting out the upratings on the national minimum wage, the living wage and associated allowances, and the noble Lord, Lord Palmer, for setting out his views on how things should improve in future. These changes are welcomed by the Opposition. Not surprisingly, it was us who set up the national minimum wage in 1999. We had a minimum wage, below which earnings must not fall, in the teeth of fierce opposition from the then Conservative Opposition Benches. I am glad that that situation has now been ameliorated, and they now support the minimum wage; all converts are welcome.
I think the number of jobs covered in all these figures is 2.9 million. The number affected by the national minimum wage is approximately 1.5 million, which compares with 700,000 at the time of its introduction. Does the Minister have any explanation for this increase in the numbers covered by the national minimum wage? Retail, hospitality and cleaning and maintenance are overrepresented in the minimum wage sector, and women are approximately two-thirds of those currently on the national minimum wage. Some explanation for that would be helpful.
The Labour Party would ensure that the national minimum wage was a real living wage. The noble Lord, Lord Palmer, asked how to do so. We would do it by changing the Low Pay Commission’s remit so that, in addition to other factors, it reflected the need for working people’s pay to at least cover the cost of living. The national living wage would finally live up to its name. We would ensure that the national minimum wage applied to every adult worker and was properly enforced. It is unfair to pay adult workers below the national minimum wage, and by adult worker we mean everyone aged 18—the age at which you are treated as an adult in the UK—or over.
Many employers already pay the national minimum wage, and that is to be commended, but compliance is a big and continuing problem. Can the Minister tell us how many prosecutions or enforcements took place last year for failure to pay the national minimum wage? We welcome these upratings, as I have said, and look forward to having the opportunity to progress this legislation further by extending the protection that the national minimum wage provides for all adult workers sometime in the near future.
Lord Johnson of Lainston (Con)
I thank noble Lords for their valuable contributions in today’s debate. I particularly appreciated the comments of the noble Lord, Lord Palmer, about my responses on the OQ earlier. I like to think that we will have a slightly more mature exchange over this issue than we experienced then—but such is the nature of the important scrutiny of the parliamentary system.
If noble Lords do not mind, I will go through and try to answer some of the points raised by noble Lords. The noble Lord, Lord Palmer, asked about the relationship between the October date and the bringing into practice date of 1 April. In normal periods, that would be a perfectly reasonable time lag; in fact, it is relatively fast for Governments to move with only a six-month or so period. I am very sensitive to the fact that we live in an inflationary environment, and inflation is taken into account by the Low Pay Commission. A number of factors are taken into account, as noble Lords may imagine. It would be difficult to make sudden changes, however, given the fact that we need to make sure that employers have a suitable timeframe to bring into practice the pay increases. Although the public sector is also paying the minimum wage and the national living wage, we must not forget that it is on the whole employers who are paying these additional wages, and we should be thankful to them for the support of this overall concept.
Given that this is appraised every year, I hope we will still be in a position to make sure that these wages reflect our ambition, which is to make them represent two-thirds of median earnings. In preparation for this debate, I did some work with the officials from the department, who can bear witness to this. I wanted to see where we were in relation to other European countries on median earnings and absolute amounts, given the currency fluctuations. It is not my place to celebrate or feel triumphant about minimum wage levels, because we want people on maximum wage levels—but it is important to see where we stand, so at least we can benchmark. We compare very strongly. If you look at where we are on the European averages, you can see that we are one of the highest, out of the whole of Europe, and we compare extremely favourably with countries such as Germany.
The noble Lord, Lord Lennie, made a very good point, and I have thought about the philosophy of minimum wages, which were brought in in 1999 by a Labour Government and not supported by the Conservative Opposition at the time. I personally was unsure of what the effects would be on business; I was concerned that it would drive up costs for business and cause a negative or opposite effect to giving people security—that it would lead to greater insecurity and lower levels of employment. Actually, it has made sure that people are guaranteed a level of income, and it is an extremely powerful way for us to manage our economy. I am very pleased that we have converted—and, like all converts, we have probably ended up being more passionate about the cause than the original proponent. We have introduced the national living wage, which is a very effective way to ensure that the overall pay rates are raised.
On the noble Lord’s comment about the age at which these rates should apply—in other words, that the national minimum wage and the national living wage should be synchronous—I have some sympathy. At the same time, it has been believed, and I think there is evidence, that an element of flexibility for 18 to 22 year-olds, or those in their early 20s, is necessary, particularly as that is where there is greater vulnerability for employment volatility. We have plans for the pay scales of those over the age of 21 to eventually come into line with the national living wage, but we would still be keen to retain some flexibility for employees below that level.
This is all about making sure that the employment market functions properly and that we can employ as many people as possible at the right rates. This is certainly a matter for debate—we are trying to ensure, not that people are paid less, but that there is flexibility in the market so that new workers in the workforce can get the jobs they need.
It is important to cover the noble Lord’s point about there now being 1.5 million, from 700,000 when this came into practice. I am happy to do some more analysis of that, but my surface suspicion is that there are 3.75 million new people in the workforce since 2010. It would be interesting to see an analysis of what those jobs are. I would like to inquire into this, as I appreciate that the noble Lord has raised a very relevant point. In some respects, I would like to think that it is a good thing that we have people coming into the workforce, but clearly we do not want to see a derogation of wages. We want to see people being paid more. I stress that these are minimum-wage levels—they are not the set wage levels—to ensure that no one is paid less than that rate.
The noble Lord, Lord Palmer, mentioned issues around fixed-hours contracts and the flexible economy. We are doing an awful lot in that area to make sure that people have an element of certainty. He was generous enough to remember my response to the Oral Question earlier today. There is quite a long list of different types of specific protections that we are bringing in. I draw his attention to the Employment Relations (Flexible Working) Bill, which effectively allows employees to demand flexible working from day one, rather than week 26, and to the Workers (Predictable Terms and Conditions) Bill, which is probably more relevant to what he was talking about. It gives more strength to employees’ requirements for predictability in terms of numbers of hours if they are on temporary work contracts. Once you have worked for an employer on a part-time basis for a certain length of time, you will be given a greater opportunity to ask for predictability in how you are paid and your hours.
We have to strike a balance—and I think we do—in giving employers flexibility, which is at the core of what has been an incredibly dynamic and successful labour market over the last 20 years or longer, and making sure that workers feel protected. Importantly, flexible working hours are very much appreciated by a number of workers who want flexibility. It would be a mistake to throw the baby out with the bath water and get rid of zero-hours contracts or highly flexible working. People appreciate them, as they give a great deal of flexibility. A lot of students and part-time workers who could not do full-time work and would not want predictable work will use these contracts. They constitute about 3% of the workforce. There are mechanisms and there is analysis of how we can improve the rights of workers, but we do not want to dilute the flexibility that these structures give to our workforce and economy.
The question from the noble Lord, Lord Lennie, about the factors that the Low Pay Commission takes into account is well made. It takes a great number of factors into account when assessing pay. I believe that the Government have accepted all the recommendations of the Low Pay Commission; this is a very important partnership that we have. My assumption is that the factors in decision-making are continually reviewed, which is absolutely right. Ultimately, our ambition is to ensure that the national living wage effectively reaches two-thirds of median earnings by next year. I am very pleased to say that we are on track to achieve that. As a nation and a society—let alone a sense of triumph for the Government; this is about people’s hard work and being rewarded properly—it would be a great thing if the United Kingdom could achieve that, and we are on track and very close to doing so.
I believe I have covered all the issues, except for the question raised by the noble Lord, Lord Palmer, on tips. I am afraid I do not recall seeing the noble Lord in his usual place on Friday for the debate on tips. The legislation is very specific and will be brought to bear specifically so that all tips go to the workforce, with no deductions, not even for credit card charges. I hope that is clear, because that is the whole purpose. They will be paid monthly, so they cannot be accumulated, and, importantly, they cannot be used as so-called “pay bonuses” or “top-ups”.
Lord Lennie (Lab)
Before the noble Lord sits down, could he comment—or write to me if he cannot—on enforcement actions in the past 12 months? What are the numbers and so on?
Lord Johnson of Lainston (Con)
I apologise to the noble Lord, Lord Lennie. I try to answer all the questions, but there is always one that I miss. Enforcement is very important and all businesses are responsible for paying the correct minimum wage to their staff. HMRC follows up on every worker complaint it receives, even those that are anonymous. This includes complaints made to the ACAS helpline. In 2021-22, HMRC identified pay arrears in excess of £16.3 million for more than 120,000 workers. I am very happy to go through this now, but it might be more useful to write to the noble Lord if he is happy with that.
I will address one point that has been raised. To some extent I am embarrassed by it, but not embarrassed to be open and transparent about it. The question was why the listing of companies that have not paid their staff the minimum wage had not happened. The list is supposed to be published every quarter. I am afraid that there has been some turnover of Ministers. I spoke to the Minister responsible today and he is determined to make sure that it happens in the very near future. I cannot give a specific time, but we are very aware of it. We want to make sure these companies are named; it is a powerful incentive for employers to behave properly. We are entirely of one mind here and I will be delighted to put the information in the House of Lords Library relating to enforcement. The good news is that I can reassure the Committee that HMRC in particular has been focusing on tackling wilful non-compliance and that significant progress has been made.