Financial Assistance to Industry
(9 months ago)
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The Chair
It may help if I clarify from the Chair that what we are debating in this Committee—for up to 90 minutes, as Members will be aware—is the content of the motion in the name of Ms Ghani, which is listed on the Future Business section of the Order Paper. The House itself will be asked to pass the motion without debate after the text has been reported from this Committee later today.
The Minister for Industry and Economic Security (Ms Nusrat Ghani)
I beg to move,
That the Committee has considered the motion, That this House authorises the Secretary of State to undertake to pay, and to pay by way of financial assistance under section 8 of the Industrial Development Act 1982, a grant or grants exceeding £30 million and up to a total of £75 million to BMW to support the production of electric Minis at Plant Oxford.
It is an honour and a privilege to do this under your chairmanship, Mr Pritchard.
The UK’s automotive sector is a global success story, contributing £14 billion to the UK economy annually, with some of the highest productivity levels among the major European automotive-producing nations. The sector currently employs 182,000 people in manufacturing, with an estimated 780,000 jobs supported by the sector in the wider economy. Major global companies such as Jaguar Land Rover, Nissan, Toyota and BMW have a significant manufacturing presence in the UK.
On 11 September 2023, BMW announced a £600 million investment in its Oxford plant for the production of two new electric Mini models, to start in 2026. BMW requested £75 million of funding from His Majesty’s Government via the exceptional regional growth fund to support that £600 million investment. It is that Government funding that we are debating now.
The exciting decision by BMW to invest in the future of the UK’s automotive sector is a prime example of how industry and Government are working together to meet new challenges. BMW’s investment in new tooling and machinery, and in re-training and upskilling of employees, will create and safeguard jobs in its Oxford and Swindon facilities and in the wider supply chain.
This support to BMW builds on our existing winning formula, which has delivered significant investment success. I am confident that BMW’s decision is among the first of many such investments that will drive the future of the sector in the UK. This Government will continue to work towards maintaining the competitive environment necessary to stimulate growth and productivity in the sector and ensure that the UK continues to be one of the most competitive locations in the world for automotive manufacturing. I commend the motion to the Committee.
Sarah Jones (Croydon Central) (Lab)
It is a pleasure to serve under your chairmanship, Mr Pritchard.
The Minister has laid out the case for this legislation clearly, for which I thank her. As she says, Britain boasts a world-leading automotive sector, which supports hundreds of thousands of jobs across the country and contributes billions to the economy. We are proud to host a whole ecosystem of major international players: JLR, Nissan, Toyota and of course BMW, whose manufacture of BMW Minis in Oxford has become an iconic institution, supporting thousands of highly skilled, highly paid jobs, with more than 100 years of history in the area.
It is vital to communities, to our economy and to our global leadership position in the green transition that the UK retains and develops our automotive manufacturing capabilities. For those reasons, while Labour has major concerns about the Government’s overall approach to this issue, we will not reject the measure under consideration today.
The motion would, as the Minister has mentioned, authorise the Secretary of State to pay a grant of up to £75 million to BMW to support the transition of its Oxford plant to the manufacture of electric Minis. The grant would be paid under section 8 of the Industrial Development Act 1982, which provides for financial assistance to be given to businesses outside the assisted areas, of which Oxford is not one.
We accept that significant changes are needed to adapt the plant to EV production, such as capital investment, as the Minister says, in new tooling, new machinery and new skills for workers at the plant. The case has been reviewed by the Industrial Development Advisory Board, which has supported the proposal, and the report by the Competition and Markets Authority’s subsidy advice unit accepts that the Government have made an adequate case that the project would not have been undertaken in a similar form, manner and timeframe without the subsidy.
As such, and given the strategic importance of supporting electric vehicle manufacturing in the UK, Labour is not opposing the motion. We do have some concerns that it would be helpful for the Minister to address, not least because this is a substantial amount of money that we are handing over. First, while we are pleased that the Industrial Development Advisory Board has reviewed and supported the proposal, it is slightly unclear what that body’s role and function is. If we look on the Government website, the only documentation this body has published in the last three years has been a statement on its membership, as far as we can see.
Can the Government explain what the IDAB is doing, and will they republish its report on this grant or the minutes of the decision it came to? There is advice on the website that people can make a freedom of information request to get information, but perhaps the Minister can save us having to do that and see whether we can get the information from that body.
Secondly, the report by the Competition and Markets Authority’s subsidy advice unit concluded that, while it is absolutely right that overall the positives outweigh the negatives,
“in our view the Assessment would be strengthened if it followed the Statutory Guidance more closely in explaining the relevant market failures and providing supporting evidence. The Assessment has not clearly demonstrated the existence of positive and negative externalities constituting market failures that require government intervention.”
The unit does accept that the subsidy will not be used to finance something that would have been financed anyway if the subsidy had not been there, but it asks some questions and it would be helpful if the Minister could perhaps answer them.
Thirdly, the Government have said that the grant will be subject to performance on employment key performance indicators. Will the Government make public the details of those KPIs, or at least explain a bit more about what they are and against what timeframe BMW’s success or failure will be judged? More specifics on those three areas would be very helpful.
It is important to note briefly the wider context of this discussion. The reality is that this deal was a near miss. The money from Government came after BMW had publicly announced its plans to relocate production to China, bringing us to the brink of what would have been an historic loss for British manufacturing capacity. We on the Opposition side think that getting ahead of those kinds of crisis situation, by having a strategic industrial strategy to help businesses to invest in this county and deliver the economic growth we all want to see, would be a more stable and longer-lasting approach and, in the end, would help the automotive industry much more.
Ms Ghani
I thank the hon. Lady for her contribution to this debate. As she says, we are discussing a large sum of money—although of course the larger sum is the £600 million overall investment, which is key to ensuring those supply chains continue and that we remain the most stellar place to come in and invest in the auto sector.
Beyond that £600 million, the largest sum is the settlement we received from the Treasury in the last Budget but one for the advanced manufacturing plan, under which £2 billion will be allocated to the automotive sector. We have a fantastic automotive sector here in the UK, and the commitment made by this particular company, like so many others, speaks of their huge confidence not only in their workers, but in the supply chain.
This investment comes on the back of some fantastic successes to date, including the Tata Group’s £4 billion investment in a new gigafactory, which will be one of the largest in Europe, Nissan and Envision delivering up to £2 billion of new investment in Sunderland, with two new electric models, and Ford’s £380 million investment to manufacture electric drive units. I am pleased that the hon. Lady has made clear that the Opposition are not objecting to, but welcoming, the support being provided.
I turn now to a couple of points the hon. Lady raised, starting with the Competition and Markets Authority’s report. Those reports are published and we respond to them. We submitted our assessment to the CMA, as is our legal obligation, and the CMA did not recommend any adjustment to the grant award. We have reviewed its recommendations thoroughly and updated our internal documentation accordingly. We are satisfied that the award meets the subsidy control principles, and that is supported by the evidence.
On the issue of support for the company, the grant was assessed and tested in accordance with the Government’s Green Book appraisal guidance, which provides a framework for ensuring that due diligence is done. That included a rigorous assessment of the minimum Government intervention needed to swing the investment decision in favour of the UK and scrutiny by the Industrial Development Advisory Board. Those initiatives and frameworks are independent, to ensure that decisions receive due diligence. On top of that, there was third party due diligence by KPMG.
This Committee is meeting today because we are providing substantial support of up to £75 million, but we must not forget that the overall package is £600 million. I confirm that the Government will continue to support the automotive sector by giving businesses the confidence to invest and innovate in the UK. This grant is just another example of that.
Question put and agreed to.
Draft Reporting on Payment Practices and Performance (Amendment) Regulations 2024
(9 months ago)
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The Minister for Industry and Economic Security (Ms Nusrat Ghani)
I beg to move,
That the Committee has considered the draft Reporting on Payment Practices and Performance (Amendment) Regulations 2024.
It is a pleasure to serve under your chairmanship, Mr Stringer.
The draft regulations were laid before the House on 10 January. The Government have declared 2024 to be the year of small businesses. Small and medium-sized enterprises are the backbone of our economy, making up to 99.9% of UK businesses, employing millions of people and enriching our everyday lives. So far this year, we have further improved our Help to Grow campaign and established a Small Business Council, and today we are here to extend the Reporting on Payment Practices and Performance Regulations 2017.
Tackling late payment is critical to the UK economy’s growth and productivity; 56 million hours are wasted each year by businesses chasing late payments, and small businesses are being let down. Late and long payments contribute to an estimated 50,000 UK business closures each year. The Reporting on Payment Practices and Performance Regulations and the Limited Liability Partnerships (Reporting on Payment Practices and Performance) Regulations 2017 were introduced to bring transparency to the payment practices of large businesses. The regulations require businesses above a certain size threshold to publish information twice yearly on their average payment times, how frequently they pay suppliers late, and their standard payment terms. Those regulations and the transparency they have brought mean that payment times across the UK have gone down. That is good news. We want to continue that trend by extending the requirement to report and to improve transparency through the introduction of new metrics.
Last year, my colleague the Under-Secretary of State for Business and Trade, my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake), who is the Minister for small business, launched a consultation seeking views from the public about the existing regulations and how we can improve them. Trade associations and businesses across the economy endorsed our proposals to extend the regulations and to introduce new reporting requirements. I will now briefly outline the draft statutory instrument.
The first objective of this draft instrument is to extend the 2017 regulations beyond the expiry date of 6 April this year until 6 April 2031. The extended 2017 regulations will be subject to a further statutory review in April 2029, before their new expiry date. In 2017, the regulations were to sunset without extension, which would remove payment time transparency entirely. Without these reporting requirements, we would deprive small businesses of crucial information that helps them to decide who to enter into business with, and arms them in renegotiation of payment terms that suit.
The second objective of the draft regulations is to require large companies and limited liability partnerships in the scope of the 2017 regulations to disclose additional information and report to new payment performance metrics. One of the new metrics is that businesses are to be asked to state the value of the invoices paid during the reporting period. Small businesses told us that they wanted even more clarity about how large businesses act. The other new metric is a requirement for businesses to report on the percentage of invoices that they dispute. Small businesses are concerned that the practice of raising frivolous disputes to avoid making payments on time is becoming more common, so we are taking action to address that.
The third objective of the draft regulations is to clarify the reporting requirements when supply chain finance is used by large businesses. This amendment will change reporting to make sure that the use of supply chain finance by businesses is more accurately reflected in the reporting data.
I thank the 137 respondents to last year’s consultation on the draft regulations. They included small and large businesses, as well as representatives of trade bodies, who provided us with the support that we need to extend and improve the reporting requirements. I hope that the Committee can see the benefits that the regulations will provide.
Nigel Mills (Amber Valley) (Con)
I support the idea of disclosure of invoices that are disputed. Businesses in Amber Valley commonly tell me about that pretty naughty trick to avoid paying—people just pay late because they dispute the bill. What will the data published show? Will it literally show, for example, that this person disputed 10% of their invoices? Will it show how many of the disputes were resolved with full payment being made, showing it was a scam? Or will it just show that straight percentage, which might be quite meaningless?
Ms Ghani
My hon. Friend makes a very good point, which reflects the strain that can be put on small businesses when payments are delayed, although the issue of scams may be a little bit outside the scope of the draft instrument. This is fundamentally about ensuring that we have the right framework in place, are encouraging good practice, and doing what we can to bring down payment times. Already, payment times have been brought down to, I believe, 35.6 days. This affirmative instrument will drive that good effect even further. I commend the draft regulations to the Committee.
Rushanara Ali (Bethnal Green and Bow) (Lab)
It is a pleasure to serve under your chairmanship, Mr Stringer.
Late payments are a scourge on small businesses. At any time, UK small businesses are waiting for over £20 billion worth of overdue invoices. As the Minister has pointed out, that is a huge challenge. Research by Smart Data Foundry using Sage accounting data found that in 2021 a typical small business was owed approximately £22,000 in late payments. Larger firms failing to pay on time denies businesses in their supply chains the valuable cash that they need to pay staff, buy materials and deliver on future orders. As the Minister said, 50,000 businesses go under every year in the UK because of hold-ups in their cash flow.
The eye-watering increases in rent, energy bills and suppliers’ costs make the need to take strong action on late payments more urgent than ever. Late payments are crippling businesses and therefore limiting crucial growth in our economy. They impact on businesses of all sizes, but particularly on small businesses and microbusinesses; such businesses are especially exposed to liquidity problems when they do not receive payments on time, which then limits their ability to invest in future growth. Research from Barclays shows that businesses in the UK are more concerned about the impact of late payments on their business growth than businesses in any other economy in Europe. Two in every five SME owners say that their mental wellbeing has suffered as a result of late payments, and over a third have had sleepless nights.
I welcome these amendments to the 2017 regulations, as they are a positive step in the right direction. We will not stand in the way of measures that will help businesses to grow, scale up and invest. However, it has taken a very long time for the Government to tackle this deep-seated problem, so I hope this is the beginning of the rapid action that is needed to ensure that we prevent small and medium-sized businesses from suffering from the scourge of late payment.
There are stark power imbalances between small and big businesses. These reforms and the increased transparency will go some way to tackling that gap, but as the impact assessment shows, the risk remains that power imbalances will continue to limit suppliers’ capacity to negotiate fairer terms. Transparency is only one element of the negotiation, and wider issues will remain in certain sectors. I would be grateful if the Minister clarified what steps will be taken to protect and empower small businesses in the negotiation of fairer terms with big businesses. I know that the Minister for small business is looking into those issues.
Ministers are still waiting for the outcome of the ongoing Financial Reporting Council review on non-financial reporting to see if payment performance data should be a requirement in businesses’ annual reports. I urge the Government to ensure that that requirement is included to increase transparency in the business community, to ensure that businesses prioritise prompt payments and consistently focus on good performance, and to achieve a culture change in the business community to tackle late payment. I would be grateful if the Minister clarified the timeline for that report and when we can expect an announcement on the requirement to include payment performance data in annual reports.
Richard Thomson (Gordon) (SNP)
It is a pleasure to serve under your chairship this afternoon, Mr Stringer. I will be brief.
Cash flow is quite clearly the lifeblood of any business, but especially of small and medium-sized enterprises, which tend to be more vulnerable to late payment. The requirement to report in this manner is clearly proportionate, seems to be having the desired effect, and is popular. It also helps to tilt the balance of power back towards those SMEs and away from companies that, through their scale and importance, are in a position to delay payment unduly for their own advantage and at the expense of other smaller players in the marketplace. These regulations will help to make the economy more creative and competitive, by giving everybody a better chance of being treated fairly when they engage in it. On that basis, we are also happy to give our support to this instrument.
Ms Ghani
I am grateful for the contributions made by colleagues across the Committee, and of course for their support. We are all incredibly keen to do everything we can to support small and medium-sized enterprises. Some very good questions have been raised.
Both I and my hon. Friend the Minister for small business consistently champion small businesses, and we believe that this legislation is critical in applying pressure and encouraging large businesses to improve their payment culture. Likewise, the draft regulations will arm small businesses with even more information than before about the behaviours of their customers, thereby equipping them to decide who they do business with and helping them to negotiate better terms with their customers.
I will quickly address some of the questions raised by the Opposition spokesperson, the hon. Member for Bethnal Green and Bow, and my hon. Friend the Member for Amber Valley. On giving small businesses more authority, we have established a Small Business Commissioner, and in our prompt payment and cash flow review we have committed to giving them increased powers to tackle businesses that persistently pay late; however, that will require primary legislation and depends on the legislative timetable. We have chosen to prioritise the extension of the existing reporting requirements to ensure that they do not expire, but we remain committed to fulfilling the actions to improve payment practices across the UK that we set out as part of our review.
Another point was raised about providing more authority, especially how we empower small businesses beyond the regulations. Of course, we have the prompt payment code, and this instrument will increase its effectiveness and provide more information for small businesses that will help them better manage their cash flow and negotiate payment terms; it also strengthens the powers of the Small Business Commissioner and equips them better to deal with businesses that pay late.
This instrument is really good news. The 2017 regulations would have sunsetted without this extension, and that is why we are here today. It is our aim to end the practice of late and long payments. We want to make the UK the best place in the world for both large and small businesses to operate. I commend the regulations to the Committee.
Question put and agreed to.
Draft National Minimum Wage (Amendment) (No. 2) Regulations 2024
(9 months ago)
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The Parliamentary Under-Secretary of State for Business and Trade (Kevin Hollinrake)
I beg to move,
That the Committee has considered the draft National Minimum Wage (Amendment) (No. 2) Regulations 2024.
It is a pleasure to serve with you in the Chair, Mr Hosie. The purpose of these regulations is to raise the national living wage and national minimum wage rates on 1 April 2024. They were laid on 13 January and approved by the House of Lords on 12 March.
We are delighted to say that this uplift will see the achievement of one of our core pledges: for the national living wage to reach two thirds of median earnings by 2024. The target was set with the intention of ending low hourly pay, in line with the OECD definition, for those eligible. Now, on the 25th anniversary of the minimum wage, that target will be met—a genuinely historic moment.
We have achieved that on time, in spite of the difficult global conditions of the past few years—the huge economic impact of the pandemic, the shockwaves of the war in Ukraine and recent cost of living challenges. That is something that the Government, and every parliamentarian, should be proud of. Indeed, we should also be very proud of the contribution from businesses, who have obviously borne the greatest burden of paying it.
I will turn shortly to the detail of the regulations, but I will first thank the Low Pay Commission. We have once again accepted all of its recommendations for the national living wage and national minimum wage rates. Its diligent approach to conducting detailed analysis and carrying out a range of stakeholder engagement has continued to pay dividends, enabling the Government to strike the right balance in giving millions of workers a well-earned pay rise, without harming businesses—the lifeblood of our economy—or adversely impacting the balance of the UK’s labour market. I extend my thanks to all of the commissioners, including Bryan Sanderson, whose term as chair ended around the turn of the year. I look forward to continuing to work closely with the Low Pay Commission, including the newly appointed chair, Baroness Stroud.
Turning to the rates themselves, once these regulations have secured parliamentary passage, the national living wage will increase on 1 April to £11.44 an hour—a record 9.8% cash increase of £1.02. As well as hitting our goal of seeing the national living wage reach two thirds of median earnings, we are also delivering on our pledge to extend eligibility from workers aged 23 and over to those aged 21 and over. By including 21 and 22-year-olds in the national living wage, these regulations will put more money into the pockets of more workers.
Given that younger workers remain more susceptible to economic shocks, the national minimum wage rates for those under 21 years old will remain in place. However, in making its recommendations, the LPC noted that employment among workers aged between 16 and 20 has been strong in recent months, and that the previous large increases to the national living wage have widened the gap to those younger workers entitled to the national minimum wage at lower rates. We are therefore pleased to deliver a significant uplift to the other national minimum wage rates.
These regulations will increase the rate for 18 to 20-year-olds to £8.60 an hour—a rise of 14.8%, or £1.11. The minimum wage for workers above school leaving age, but under 18 years old, will increase to £6.40 an hour—up by £1.12, or 21.2%. The same applies to the apprentice national minimum wage rate, which applies to apprentices aged 19 and under or in the first year of their apprenticeship. The accommodation offset, meanwhile, which is a daily rate, will increase by 9.8%, or 89p, to £9.99.
The Government published a comprehensive impact assessment when these regulations were laid, including an equalities assessment. Hon. Members will note that this impact assessment has once again received a green, fit-for-purpose rating from the Regulatory Policy Committee. I also note that the net cost to business is £217 million per annum.
Chris Stephens (Glasgow South West) (SNP)
I am very grateful to the Minister for showing his customary politeness in giving way. In the impact assessment, I do not see any reference to UK Government employees. Does the Minister know how many UK Government employees will benefit from the provisions he is laying out today?
Kevin Hollinrake
I do not know that figure, but the hon. Gentleman raises an interesting point. He is not just talking about the overall number of Government employees—I do not know that number either—but the ones that are on national living wage. I am very happy to look at that, and I will be interested to hear his reflections later. Perhaps he will enlighten us on what he believes that number to be.
We estimate that three million workers will receive a direct pay rise as a result of this uprating. The increase to the national living wage will represent a boost of more than £1,800 to the gross annual earnings of every full-time worker on the national living wage compared with this year, and a boost of £8,600 compared with 2015, when the policy was first announced. To put that in context, when this year’s uprating comes into effect in April, the national living wage will be approximately 70% higher than in 2015. Meanwhile, the consumer price index has increased about 30%, so it has increased at over twice the rate of inflation.
Finally, I remind hon. and right hon. Members of one further important change we have introduced to the minimum wage regulations. The Low Pay Commission recommended that minimum wage exemption for live-in domestic workers, which the Employment Appeal Tribunal had found amounted to indirect discrimination against women, should be removed. Due to legislation we passed earlier this year, it will be removed from the statute book from 1 April, protecting more of the UK’s vulnerable workers from exploitation.
We recognise that businesses and workers alike remain keen to hear about the future of the minimum wage. I can therefore confirm that we will be publishing the 2024 remit to the LPC shortly. The remit will ask it to provide recommendations for the national living wage and national minimum wage rates to apply from April 2025. The Government and the LPC will continue to monitor closely the impacts of these increases on the economy, and carefully consider our future ambitions.
Justin Madders (Ellesmere Port and Neston) (Lab)
It is a pleasure to see you in the Chair this afternoon, Mr Hosie. I thank the Minister for outlining the changes these regulations make to implement the new rates of minimum wage, as recommended by the Low Pay Commission, to which I also pay tribute for its sterling work. I will refer to some of the findings from its annual report during my contribution.
I also—he should really steel himself, because I do not do this often—congratulate the Minister on delivering the promise to match the minimum hourly rate to two-thirds of median wages. I think that has been eight years in the offing, but we have got there. In achieving this figure, the Low Pay Commission recommended a rise that represents the largest increase in cash terms since the introduction of the minimum wage. That is clearly welcome news for those working in minimum wage jobs, as is the extension of the entitlement to all those over the age of 21. It represents a 9.8% increase for those older than 21, with the hourly rate of the main rate—the so-called national living wage—now at £11.44 an hour. That equates to an annual increase of just over £1,800 for someone working a 35-hour week, and clearly we in the Opposition welcome that.
While I understand the Government are keen to celebrate this year’s levels, I would caution them not to be too overconfident, because anyone who has taken the time to study the Low Pay Commission’s report will see that much more needs to be done before work in this country pays in the way that it should. There are clear warning signs in the report about the persistence of insecure work and in-work poverty.
No one here will need reminding that the rates of inflation we have had to endure in recent years have thrown workers—and, indeed, everyone in this country—into a cost of living crisis. Inflation rates peaked at 11.1% in October 2022 and have been hovering around 4% and 5% even now. Between April 2021 and April 2022, household bills doubled, and the price of essential goods and services increased at a magnitude not experienced since the 1970s and 1980s. The Low Pay Commission report notes that energy, food and transport costs were at the “highest rates recorded” since the CPI series began, way back in 1989. Even in September last year, when inflation was beginning to come down, energy prices were still increasing by 5% and food inflation was 12.2%.
Last year I raised concerns that, in the face of such high levels of inflation, the minimum wage uplifts were not large enough to prevent a real-terms cut to the rate. That has been confirmed by the Low Pay Commission report, which states that the past two years’ increases in the minimum wage have in fact represented a cut in real terms due to inflation. I am pleased that the commission is confident that today’s increases will restore the value of the minimum wage in real terms, but I am also aware that the increases do not undo the previous two years, when pay did not keep up with the cost of living and hardship has endured as a result.
Kevin Hollinrake
As I said, the national living wage has outstripped inflation twofold during the period since its implementation. At one point in time, the Opposition talked about a national living wage of £15 an hour. Is that still the hon. Gentleman’s policy? Is that his personal policy or the Opposition’s policy?
Justin Madders
That very interesting question is some way outside the remit of the regulations. Of course, if the Minister wants to talk about what our policies will be, he should advise the Prime Minister to call a general election—but perhaps we are not quite there.
My question for the Minister is about the inflationary spikes of the last couple of years. What mechanisms are being looked at to ensure that the minimum wage increases at a rate that reflects those in real time? The evidence gathered by the Low Pay Commission on how workers have been affected is truly sobering. In Belfast, the commission found that supermarkets had introduced payday pantries, which provide food for workers in the run-up to payday. A care worker in Manchester told the commission,
“Most of my colleagues are using food banks.”,
and stated that that was not a new, post-pandemic problem. Such examples chime with responses in trade union surveys. In autumn 2022, Unison found that 17% of respondents had skipped meals and that 20% had asked for a loan from family or friends. In May 2023, USDAW found that 46% of its members surveyed were worried about food bills, 15% had turned to food banks and 42% had missed meals in the last year to pay for bills. If anything, the situation has been getting worse. The Joseph Rowntree Foundation’s yearly poverty report states that the proportion of households in poverty with at least one working adult increased from 61% in 2021 to 64% in 2022. The poverty rate across the country as a whole is now more than one in five, and poverty has not fallen for 20 years.
It is worth saying a few words about why, despite the Minister’s comments, minimum wage increase have not eradicated in-work poverty, which is what we would like to see. Of course, I commend the Government for reaching their 2016 pledge to increase the minimum wage to 60% of median wages by 2020 and to two thirds of median wages by this year. Indeed, the impact has been that the number of employees on low hourly pay has fallen consistently; the fall since 2015 is estimated to have been about 20%.
However, the graph on page 62 of the Low Pay Commission report reveals that on two issues we still have an awful long way to go. It is hard not to be struck by the large disparity between men and women in terms of low pay—a point I shall return to—and the persistence of low weekly pay as opposed to low hourly pay. That instructive graph shows that increasing the minimum wage floor is only one of the tools needed to tackle problems in the labour market, and that it has largely left unaffected the issue of low pay for those on weekly earnings. There is clearly an issue about the number of hours people are working.
The Low Pay Commission annual report highlights the wide gap between men and women. Consistently since 2011, roughly 15% of men in employee jobs have been on low weekly pay, despite the increases in the minimum wage. The percentage of women on low weekly pay is double that of men, at roughly one in three. That has fallen gently since 2011, when the rate was around 41%, but that large disparity is still there. Will the Minister say whether there are any plans to deal with that gender pay gap and the question of hours worked?
To adequately address the problems in our labour market, we have to consider not only the number of hours but the quality and insecurity of work. Citizens UK has estimated that there are 6.1 million workers currently trapped in insecure forms of work, 3.4 million of whom are on low pay. That amounts to 19% and 11% of the total workforce respectively on low pay. Low pay is not an inherent condition for those in insecure work, however; those on low pay are around five times more likely to be in insecure jobs.
It is noted in the Low Pay Commission’s report that those insecurely employed struggle to get adequate hours, still receive late shift notices and are on zero-hours contracts. Respondents noted that workers in sectors such as hospitality had to take on multiple jobs to obtain full-time hours, which brings the challenge of having to juggle their availability in order to be accessible for both.
In its fieldwork, the Low Pay Commission found that workers continue to struggle to get contracts that reflect their actual hours worked. It was also noted that employers are still allocating shifts with as little as a day’s or just a few days’ notice, with some workers interviewed even stating that they had had shifts cancelled on the day they were meant to be in work. That is clearly a problem that is not going away. I ask the Minister this: how is someone supposed to plan for the future when they do not know how many hours they will work from week to week or month to month? What can a worker do if they are told they are surplus to requirements on a particular day when they might have already paid out for childcare or transport costs? Such practices erode the gains that we have made on the minimum wage.
As I say, I will not be entirely negative—the Minister would not expect me to be so. Positive steps have been made this year. We particularly welcome the removal of the 21 to 22-year-old age category. That measure was found to have broad support among those contacted by the Low Pay Commission. But as I mentioned last year, we are sad to see the Government continuing to support age discriminatory bands for those over the age of 18. Why should someone’s age determine their pay? A young adult is unable to go to their landlord and demand lower rent or to tell the cashier at the supermarket that they should have a discount because they are under the age of 21. Their bills are no cheaper than anyone else’s, yet for some reason we expect young people to make ends meet on lower pay.
That is accentuated by the fact that the rates have grown more slowly for younger workers. The gap between the main rate and the 18 to 20-year-old rate has grown massively since the Conservative party came to power in 2010. The Low Pay Commission report shows how the 18 to 20-year-old rate hovered around 85% of the value of the adult rate throughout Labour’s time in office. It then fell to below 80% between 2011 and 2013 and has continued to fall since 2015.
The minimum wage rate now for those aged 18 to 20 is just over 70% of the adult rate—around 15% lower than it was under the Labour party, rubbing salt into an already unjust situation. I appreciate that the Minister has referred to an above-rate increase for 18 to 20-year-olds this year, but is that part of a concerted plan and strategy to bring back the differential that existed under the Labour Government?
Eligibility is only half the battle. Unfortunately, entitlement to a minimum wage does not translate directly into securing that rate of pay. Enforcement is key and the right to be paid a minimum wage remains an important part of the enforcement universe. Questions, therefore, ought to be asked about the effectiveness of enforcement, as too many workers still report being underpaid.
Data from the annual survey of hours and earnings shows that, despite the total number of people reporting being paid less than the minimum wage having fallen since 2019, last year 365,000 workers were still being underpaid by their employer. As a share of the minimum wage coverage, that has increased since 2019, at a rate of 23.4%. That means that of those who earn on or around the minimum wage, around a quarter of them are not actually receiving it. That is certainly something that we need to see more action on.
From what we have seen from the Low Pay Commission’s report, workers in certain sectors are impacted more than others. I spoke last year in the same debate about the impact in the social care sector and raised the findings that Unison had shared with me about the exploitation of domiciliary care workers. I mentioned then that 73% of those workers were being underpaid. They were not being paid for the travelling time. I also stated that record keeping by employers was found to be way below the standards expected and that the complexities of those pay calculations made it incredibly difficult for employees to establish whether they had in fact been underpaid.
It was therefore pleasing to see that the Low Pay Commission had dedicated some space in its annual report this year to discussing those issues. It noted that the amount of arrears that His Majesty’s Revenue and Customs recovered for non-payment of the minimum wage
“pales into insignificance when compared to the average amount of arrears that Unison secures”
for social care workers—well done to the trade union Unison, but should it not be HMRC’s job to recover arrears and ensure the minimum wage is paid properly in the first place? Is it the case that HMRC is unable to properly decipher the records, or is it going lightly on social care employers?
The Chair
Order. I know that the Low Pay Commission report and recommendations are in the paperwork we have been given, in the impact assessment, but enforcement and so on are slightly wide of the scope of this very narrow SI, which is simply about a change to rates. I am sure the shadow Minister will reflect that in his soon-to-be brief closing comments.
Justin Madders
I understand what you say, Mr Hosie, but this is the only occasion we get to debate the Low Pay Commission report and, as you correctly point out, it is instructive in setting the minimum wage. I will, of course, be guided by your comments.
I will just say a little more about the naming and shaming scheme. I am pleased to see that we have managed to get two rounds of it in the last year. However, one problem is that we are talking about historical breaches—one of them in the last round was from 2012. There are evidently problems with the naming and shaming system. Employers that do not pay the minimum wage must feel that they will face the obloquy of the naming and shaming scheme quickly—much more quickly than they do now. When will the Minister be able to update us on how the enforcement and naming and shaming schemes will be operating faster?
I will skip over the questions on procurement that I raised last year, Mr Hosie, but I want to raise a couple of final points mentioned in the Low Pay Commission report. One was about the number of commissioners. There has been a gap in that number, and the commissioners expressed some frustration that they were not at their full complement. I think there is still a vacancy on the commission. Can the Minister update us on when that is likely to be filled?
Finally, the commission noted that the labour force survey was becoming less reliable. What plans does the Minister have to ensure that in future, when the Low Pay Commission is setting its rates, it can do so on the basis of a robust dataset? I recognise that he has made comments about the remit being issued for 2024 shortly, but it is probably lacking a little bit of detail. Does he have anything to share with us about the Government’s plans and ambitions for raising the minimum wage in the next decade?
Chris Stephens
It is a pleasure to see you in the Chair, Mr Hosie. I direct the House to my entry in the Register of Members’ Financial Interests, as I will be raising some issues pertinent to it.
I have been present at every Delegated Legislation Committee since 2015 that has discussed the national minimum wage and its rates. Year after year, those of us who have argued about age discrimination have been mocked, traduced and told that we were talking nonsense. We were told that those aged 25 or over had higher bills than those aged 21. I made the point then that that was a nonsensical position, but was told that I was talking nonsense. However, it turns out that the Low Pay Commission finally agrees with those of us who believe that those aged 21 have the same bills as those who are older.
I welcome that change. Will the Minister take the opportunity, on behalf of his colleagues in years gone by—some of whom are in the Cabinet now, I note—to apologise to those of us who argued the position on age discrimination? I note that age discrimination still exists in relation to national minimum wage rates, and I believe that is nonsensical. Two workers working beside each other, one aged 17 and the other 37—let us say they are flipping hamburgers at a McDonald’s franchise—should get paid the exact same wage for doing the exact same job. I hope the Minister will explore that with the Low Pay Commission to ensure there is no future age discrimination, despite the welcome change that the Government have made.
Sir Desmond Swayne (New Forest West) (Con)
Will the hon. Gentleman give way?
Chris Stephens
I give way to a good friend I served with on the Work and Pensions Committee.
Sir Desmond Swayne
The hon. Gentleman makes a fair point, but—I have employed young people myself—is it not right to allow employers the discretion to discriminate between various employees on the basis of their ability and readiness to work, and indeed to pay a younger employee, perhaps, marginally more for their greater efficiency than another employee, rather than constrain all employers within the tight rules he would impose?
Chris Stephens
I thank the right hon. Gentleman for that point. That provision already exists, but we are talking about the minimum wage rate—the very floor—and that should not be subject to age discrimination. He is correct that some employers have grades and spinal column points, and that is allowed. That reflects people’s experience, how long they have been with the employer and all the rest of it. That does happen, but I do not believe the bottom line—the absolute minimum that a worker can be paid—should be subject to any age discrimination at all. We cannot have two workers doing the exact same job on different wage rates because of their age, not because of their experience. There is a difference between age and experience.
I listened intently to the hon. Member for Ellesmere Port and Neston, who is correct about the economic conditions and the fact that in-work poverty still exists. The Government have failed to implement the report that they asked Matthew Taylor for: only seven of the 59 recommendations have been enacted. Now, I do not want every single one of those recommendations to be enacted, but to do only seven out of 59 is disgraceful.
As the hon. Gentleman said, wages are being dragged down in this country through shifts being cancelled and because people are in what I would argue is bogus self-employment—zero-hours contracts. I note that those issues are covered in a private Member’s Bill to be debated on 26 April, the Workers (Rights and Definition) Bill, which is in my name. I hope the Minister and shadow Minister will welcome the Bill and indicate that they will support it.
When I intervened on the Minister, I made, I think, a very important point. I asked how many UK Government workers will benefit from this delegated legislation. I again refer to my entry in the Register of Members’ Financial Interests: I am the chair of the PCS parliamentary group. To the best of my knowledge, there are tens of thousands of UK Government workers who are paid the national minimum wage, including some employed by the Department for Work and Pensions. I invite the right hon. Member for New Forest West, who sits on the Work and Pensions Committee, to have a look at that, because it is a serious issue that so many workers in the Department for Work and Pensions have to rely on the benefits they are administrating because they are on the national minimum wage. I invite the Minister to write to all Committee members and tell us how many Government employees are paid the national minimum wage.
It is not just the DWP—incredibly, some of those on the minimum wage are employed by HMRC. Some of those employed to chase tax avoidance and evasion, and perhaps to tackle multinational companies that do not pay the rates they should, are paid the national minimum wage. Will the Minister write to tell us how many UK Government employees are being paid the national minimum wage? That is important, because the wage increases he has announced today are what UK Government employees will be getting. That will be their only pay increase this year, and I hope he will take that away.
I want to mention enforcement, because it is important that the Government outline how they will enforce this delegated legislation laid today. My concern is that there are far too many vacancies in the national minimum wage rate compliance unit; perhaps the Minister can tell us how many there are. If there are vacancies, they will lead to the backlog referred to by the shadow Minister and the chasing of unpaid wages for years. I hope the Minister will be able to answer those points when he sums up.
Kevin Hollinrake
I thank hon. Members for their contributions. The passage of the regulations will provide a boost to the incomes of 3 million workers, rewarding many of the lowest paid people in society for their contribution to the economy and protecting them from exploitative wage levels.
The shadow Minister, the hon. Member for Ellesmere Port and Neston, talked about the increases in the living wage. There is not just an increase above inflation over that period of time; it is more than double the rate of inflation. I invite him to again clarify exactly where he thinks it should go. On whether we will raise the expectation above two thirds of the medium wage, that is again something that I am sure we will set out in our manifesto. From a personal perspective, having talked to many businesses around the country, as we have done today at our SME Connect event, I know that many, particularly in hospitality, social care and other sectors, are finding life difficult right now. We should always bear in mind the needs of businesses and try to strike a balance between the impacts on businesses and the benefit that people get from higher wages.
The hon. Member raised a point about the gender pay gap. I note that, according to a recent report by the Office for National Statistics, the gender pay gap has
“decreased across all major occupational groups”
over the past two years, and the accountancy firm BDO said it decreased over the past six years, so that gap is definitely narrowing. He raises the valid point that more women are on the national living wage, but of course they benefit disproportionately from an increase because there are more of them. I do not think that any of us will rest until that gap is narrowed further. The hon. Member talked about predictable hours. We have legislated on predictable hours in line with the Taylor review. I think the actual term is the right to request predictable terms and conditions.
Justin Madders
On the Minister’s point about how the minimum wage has increased over the past eight years, why is it still the case that so many people are in in-work poverty? How many people have actually made that request for predictable hours under the legislation?
Kevin Hollinrake
There has been a significant decrease in the number of people in absolute poverty—millions of people since 2010 and 400,000 fewer children in absolute poverty, which we all welcome. As I said before, in pushing the national living wage as high as we have done, we are putting burdens on businesses. We want to ensure that we strike a balance, and that is our concern with this. We always take into account the concerns of employers as well as workers.
Sir Desmond Swayne
I entirely accept the point the Minister makes with respect to the definition of poverty, but the hon. Member for Glasgow South West makes a fair point in drawing attention to the number of people, particularly those employed by Government, who are claiming benefits notwithstanding being paid the minimum wage. It behoves Government to make some analysis of the extent to which the taxpayer is subsidising low wages, albeit one of the principal concerns drawn to my attention by small businesses is every increase in the minimum wage.
I accept that this is a very difficult equation to have to deal with, but I have always suspected that the former Chairman of the Work and Pensions Committee, Frank Field, was right in his assumption that universal credit, like tax credits before it, was actually just subsidising a low-wage economy that would not otherwise exist. There are clearly costs that are not worth incurring here.
Kevin Hollinrake
My right hon. Friend is right to say that part of the rationale behind the national living wage is to ensure that wages that employers pay are not being subsidised. The total cost of the welfare system is around £303 billion, some of which is a result of the issue he raised. To me, that is wrong and that is one of the reasons why we would like to see the national living wage increased. Nevertheless, we do not want to see that at the detriment of jobs in our economy.
There is still a balance to be struck on making sure people have the opportunity for predictable hours. That is covered in the legislation we have introduced. I understand that the policy of the hon. Member for Ellesmere Port and Neston is that anybody who has been in work for 12 weeks and is on a contract can request those hours in terms of as a permanent position. I think that is the policy that the Opposition are going to introduce. It will be interesting to see what impact that will have on employers, particularly employers of seasonal workers.
There is a balance to be struck between business and workers. I point out that there are 4.2 million more jobs in our economy than there were in 2010. That is a huge success story. There are 1.2 million fewer people unemployed and looking for work. That is a huge achievement. Some of the policies that Labour always tend to bring forward end up costing jobs. Every single time we have had a Labour Government, unemployment is higher at the end of their term than it was at the start.
Justin Madders
Is the Minister aware that an election is about to be called, because he has spent the last couple of minutes talking about Labour policies rather than the statutory instrument? If he is so convinced that our policies are bad, why won’t he let the public decide?
Kevin Hollinrake
I am purely responding to the points that the hon. Gentleman raised, to try to make him understand there is a balance to be struck in the economy between jobs and pay. That is the balance we are trying to strike.
The hon. Gentleman and the SNP spokesman, the hon. Member for Glasgow South West, made points about enforcement, which we take very seriously. We have doubled the compliance budget between 2015-16 and today to £27.8 million. We have ordered employers to reimburse £100 million to 1 million workers. We take this very seriously.
The naming and shaming scheme was suspended during covid. I understood why, but I was very keen to reintroduce it. It is the principal deterrent. I reassure the hon. Member for Ellesmere Port and Neston and other members of the Committee that, whenever we are about to do a naming round, we write to all the employers and tell them that they are going to be named. We get a lot of push-back, and we push right back again. There is no excuse for not paying the minimum wage. We have named a total of 3,200 businesses since 2013, including more than 500 just last month.
The hon. Gentleman raised the point about the vacancy in the Low Pay Commission. We are actively seeking candidates for that; if anybody is out there listening, I am very happy for them to come forward. I am very confident that new chair Baroness Stroud will do a fantastic job.
The SNP spokesman said that he wants a higher living wage, which I completely understand. He is very willing to nail his colours to the mast, unlike the Opposition, about where he thinks that should be, but I gently push back to him as well on the balance we need to strike here. The hospitality sector in Scotland is struggling as well as ours, and others are too. We must make sure we get that balance right. I have to say that in Scotland the failure rate in hospitality is even worse, being 30% higher than it is in England. That is partly down to the fact that Scotland has not passed on the rates money for those hospitality businesses, as has been done in England. The average pub in Scotland is £15,000 a year worse off because of that policy.
Chris Stephens
Surely, the big problem in the hospitality industry is the fact that worker after worker is being discriminated against in that industry. Zero-hours contracts are rampant—people turn up for a shift and they are told the shift has been cancelled. Surely that is the big problem. The Minister is not seriously defending bad employers, is he?
Kevin Hollinrake
I would never do that; as a former employer myself, I would never do that. However, I do not accept the picture that the hon. Member paints. The hospitality sector is a fantastic sector in this country, with many good businesses and many good employers. For him to trash the reputation of the sector in that way, saying that zero-hours contracts are “rampant” in the sector—I think that he should just check his language. That sector does a fine job under very difficult circumstances, and the circumstances are far more difficult in Scotland.
Regarding the Low Pay Commission, the hon. Member made the point about younger workers on lower pay. That is a very fair point; he raises it time and again. It is our position and the position of the Low Pay Commission that younger people are more susceptible to a weaker labour market. That is why we have different rates. I declare my interest—I have daughters of that age who earn the lower rates of the minimum wage and I am very happy that that is the case, because I would rather that they had a job than no job at this point in time.
The minimum wage and the national living wage are floors, not ceilings. If good employers pay more, and many do, clearly we welcome that.
I will just conclude—
Chris Stephens
Before the Minister concludes, can he answer this question about UK Government employees? How many of them are on the national minimum wage? Can he say whether the Government have a plan to deal with that situation?
Kevin Hollinrake
As I said before, I do not know the answer to that question; if the hon. Gentleman wants to put down a written question on the subject, we can give him an answer to it by separate means.
This debate is an important reminder of the good that Government can achieve—a sentiment that I am sure will be echoed by Committee members. I thank the Low Pay Commission once again for its advice this year, which has been as expert as ever, and I commend the regulations to the House.
Question put and agreed to.
Resolved,
That the Committee has considered the draft National Minimum Wage (Amendment) (No. 2) Regulations 2024.