National Minimum Wage (Amendment) Regulations 2025

Debate between Baroness Gustafsson and Lord Sharpe of Epsom

Monday 17th March 2025 Grand Committee

[Lord Sharpe of Epsom (Con)]

My Lords, I thank all previous speakers in this shortish but interesting debate. I will not go through the whole preamble; I note that the National Minimum Wage (Amendment) Regulations 2025 will result in an increase in the national living wage and the national minimum wage, as the Minister has outlined comprehensively. I was also going to heap praise on the impact assessment, which is an exemplar. I am slightly ashamed that I never managed to produce one like that, but I will learn my lesson for the future.

I will develop the themes mentioned by the noble Lord, Lord Fox. We obviously welcome these changes, but we approach them with a degree of caution and have several concerns, most of which are centred on the effect that they are likely to have on small and medium-sized enterprises. As usual, it looks to us as if they will bear the brunt of the increased labour costs. Indeed, it does not look that way just to us; according to the Government’s impact assessment, SMEs will account for 56% of the total monetised increase in labour costs, despite representing only 37% of the employment share. This is a disproportionate impact on SMEs and could have significant consequences, particularly, as the noble Lord, Lord Fox, has noted, given that many such businesses are already struggling with a number of combined pressures.

These are challenging business conditions, as the impact assessment specifically notes:

“Meanwhile, there is some evidence of challenging business conditions for SMEs specifically. Around 42.7% and 36.8% of micro and small businesses, respectively reported having less than three months of cash reserves in September 2024 (compared to 19.2% for large businesses)”.


That is a concerning picture of their cash. As the noble Lord noted, they will also have to wear increasing costs of employment because of national insurance contributions, and two to three times under the non-domestic rates Bill—particularly the hospitality industry, which is suffering disproportionately from some recent employment legislation.

I also concur with many of the things that the noble Lord, Lord Fox, said about the forthcoming Employment Rights Bill. As far as I can recall, the Government’s impact assessment for that Bill, which I think was published last week, said that UK businesses will pay an additional £5 billion as a consequence of that Bill but that it “could have” a potential “positive impact on growth”. That is not exactly a ringing endorsement from the Government’s own impact assessment when it comes to that legislation, which I am sure we will all scrutinise.

The CBI has raised concerns about the ability of businesses to absorb all these increases without affecting their bottom line. As it points out, while the national living wage has been effective in supporting low-income workers, it also adds pressures to businesses at a time when productivity growth is stagnant. This pressure, it argues, makes it difficult for firms to invest in the technology and innovation needed to improve productivity and deliver sustainable wage rises in the longer term.

The British Chambers of Commerce has warned that these changes could lead to price hikes, cuts in workplace training and difficulties with recruitment. Given the challenging economic backdrop, it is also vital that we carefully consider how these wage increases will affect SMEs and the economy as a whole.

Wage compression—I think the Minister called it pay differentials—must also be taken into account. As wages at the lower end of the spectrum rise, the gap between these wages and those of higher skilled workers may narrow. That would obviously create distortions in the labour market, which could reduce the incentive to pursue skilled professions or university degrees.

We have to ask whether the Government have considered the full economic impact of all these increases on businesses. How will they continue to support businesses in absorbing increased labour costs without jeopardising their ability to grow, invest and create jobs—and, of course, grow the economy?

The noble Lord, Lord Jones, touched on an extremely interesting point about apprentices. It is not necessarily directly connected to this, but have the Government investigated the effective price increase in employing them, which I think was announced in the Budget, to see what effect that has had on the numbers of people being offered and taking apprenticeships?

We recognise that these regulations are a welcome step towards improving the living standards of low-paid workers. His Majesty’s Official Opposition remain cautious, however, about their potential economic impact, particularly combined with all the other issues that we have highlighted. We support the principle of fair pay for workers but are concerned that the disproportionate burden placed on SMEs and larger businesses in sectors that are already struggling to make ends meet will have unintended consequences. I appreciate that these are general questions, but it would be good to hear some answers as to how the Government are planning to support businesses through these transitions. Much like the noble Lord, Lord Fox, I would also be interested to hear some more details on the fair work agency, if the noble Baroness is able to share them.

[Baroness Gustafsson (Lab)]

My Lords, I am grateful for the support across the Committee for these regulations and thank noble Lords for their valuable contributions to this debate. I will highlight some of the points raised. My noble friend Lord Sikka asked, rightly, given that these are times when our everyday costs are increasing, whether the real value of a lot of these wage rises has already been eroded.

Post Office Horizon Scandal: Compensation Payments

Debate between Baroness Gustafsson and Lord Sharpe of Epsom

Tuesday 11th February 2025 Lords Chamber

[Baroness Gustafsson (Lab)]

If I may refer specifically to the Horizon scandal and how we are making sure that a scandal of this level never happens again, there is a significant undertaking with the Sir Wyn Williams review looking at exactly this matter of understanding how a scandal of this scale was allowed to come about, the accountability that operates there and that the right people are held accountable, and of ultimately making sure that something to this extent can never happen again.

[Lord Sharpe of Epsom (Con)]

My Lords, in December we had a very similar Question. I asked then whether the Minister could

“tell us what safeguards are being put in place to ensure that no authority, public or private, can act with unchecked power similar to that exercised by the Post Office during the Horizon case”.—[Official Report, 12/12/24; col. 1874.]

The Minister said she would have more information on this in the future. I was wondering if she could therefore provide an update to the House on progress.

[Baroness Gustafsson (Lab)]

The purpose of the Sir Wyn Williams review is specifically to look at how this was able to occur within the Post Office, and make sure that those lessons have been learned. We are expecting the outcome of that review to be within some months, but I would anticipate before the end of this calendar year.

EU Law

Debate between Baroness Gustafsson and Lord Sharpe of Epsom

Tuesday 28th January 2025 Lords Chamber

[Baroness Gustafsson (Lab)]

We will continue to co-operate with European partners on regulatory matters wherever possible and we have held constructive discussions with the EU areas of mutual benefit. But one of the Government’s priorities is supporting our own growth and our own ambitious goals and making sure we have the regulatory and legislative framework to support us. It is an opportunity that is within our direct control.

[Lord Sharpe of Epsom (Con)]

My Lords, following on from the question from my noble friend Lord Forsyth, at the Davos 2025 conference the head of Meta’s global business remarked that the overregulation within the EU is stifling business, making the region significantly less competitive on the global stage. Therefore, does the Minister agree that the UK should prioritise aligning our regulatory framework to the most competitive global standards and avoid aligning with the EU, particularly as part of any reset, if we are truly serious about economic growth?

[Baroness Gustafsson (Lab)]

The Government’s priorities are around driving economic growth within the UK, and I firmly believe that regulation has an important role to make sure that that growth is not short-term but long-term and sustainable. We have many trading opportunities within Europe, which is one of our largest trading partners, and there is an opportunity to make sure that we work to remove any barriers that get in the way of supporting that trade while making sure that we still support our own ambitions within the UK to drive that sustainable economic growth.

Competition and Markets Authority Chairman

Debate between Baroness Gustafsson and Lord Sharpe of Epsom

Monday 27th January 2025 Lords Chamber

[Lord Sharpe of Epsom (Con)]

My Lords, the Chartered Institute of Personnel and Development has called on the Government to conduct a meaningful consultation with businesses. Instead, the Government convened the regulators to seek advice on how to drive growth. Is the Minister aware that the union-authored Employment Rights Bill will create another raft of regulations which will further weaken an already damaged employment landscape? As a business founder and employer, does she believe that that Bill, which is due in your Lordships’ House soon, will really drive the growth agenda?

[The Minister of State, Department for Business and Trade and Treasury (Baroness Gustafsson)]

My Lords, commenting to the regulators about supporting the Government on their number one ambition of growth is entirely appropriate. Effective regulation is essential to delivering growth. The Prime Minister has been clear that regulators have a vital role to play, and that includes the CMA. I do not believe that working on things like the workers’ rights Bill is at contradiction with the terms of both powering economic growth and making sure that our workers are protected.

Reporting on Payment Practices and Performance (Amendment) (No. 2) Regulations 2024

Debate between Baroness Gustafsson and Lord Sharpe of Epsom

Monday 13th January 2025 Grand Committee

[Lord Sharpe of Epsom (Con)]

My Lords, I join other noble Lords in welcoming the Minister to her place. The construction sector in the UK is not only one of the largest but one of the most vital industries underpinning our economy, as both noble Lords noted. In 2022, the sector achieved a turnover of £487 billion and employed over 3 million individuals, representing about 8% of the UK workforce. Its contributions are therefore fundamental in driving economic growth, fostering innovation and advancing development throughout the nation.

However, the sector is also characterised by considerable fragmentation. There are over 444,000 businesses engaged in a broad spectrum of work, ranging from contracting and product supply to associated professional services. The fragmentation is compounded by complex, multi-tiered supply chains, as major projects often involve 50 or more firms working collaboratively.

This brings us to the topic of retention sums, which are a long-standing practice in the construction sector. Retention—as it is still called for now—sums serve as a financial safeguard and ensure that work meets the required standards. Typically, half of the retention is released upon project completion while the remaining portion is withheld until the expiration of the defect’s liability period, proving additional assurance that all specifications are met. That, at least, is the dictionary definition of retention.

Given the current practices within the sector, we need to focus on the amendment introduced by these regulations. They all come into force on 1 March 2025 and apply to the financial year starting on or after 1 April 2025. The changes impose specific reporting requirements for qualifying companies and limited liability partnerships operating within the sector. The amendment extends existing reporting regulations and requires qualifying companies to disclose detailed information about their payment practices, policies and performance in relation to retention clauses in construction contracts.

Companies will be required to report on whether retention clauses are included in their contracts, the percentage of retention withheld and the procedures followed for releasing these sums. Additionally, businesses will be asked to disclose the contract value thresholds under which no retention clause applies and outline the standard rate of retention typically applied in their agreements. By 1 March 2025, qualifying businesses will be obliged to publicly report on their payment practices, specifically concerning retention clauses in construction contracts.

It is important that this amendment acknowledges the significant challenges caused by fragmentation within the construction sector, which of course affects businesses of all sizes. We understand that the aim of these regulations, as the Minister noted, is to enhance transparency by requiring businesses to report not only the inclusion of retention clauses but whether their retention practices align with industry standards or are more onerous than typical practices. Furthermore, companies will be required to provide clear descriptions of the processes that they follow to release retention sums, which is intended to ensure greater clarity and fairness for all parties involved. However, there are several important points on which further clarification is needed.

These amendments are said to provide increased transparency, fairness and clarity within the construction sector, but can the Government explain the mechanisms by which the regulations themselves will be enforced? How will compliance be monitored and what penalties will be applied to businesses found to be in breach of the new requirements? Additionally, while the new regulations seek to promote fairer payment practices, can the Government elaborate on how they plan to ensure that large companies are not able to exploit their market position, despite the new transparency measures? Will there be any safeguards in place to prevent larger firms imposing even more burdensome retention clauses on SMEs?

The regulations are presented as a solution to the ongoing issue of delayed payments, which have long caused a financial strain on SMEs, yet how will the Government measure the effectiveness of these changes? What evidence is there to suggest that requiring businesses to disclose their retention practices will have a significant impact on the cash-flow issues faced by smaller companies? As an aside, the noble Lord, Lord Fox, has raised an important point about how we will judge these companies in future, based on these particular metrics. These are not, of course, the only things by which one should judge a company or its potential to complete a project successfully and efficiently, so will there be some way of measuring that as well? If that has not been considered, it is something that should be.

While these measures are presented as steps towards promoting better cash-flow management and financial security for smaller businesses, we would urge the Government to further clarify how the regulations will be implemented and monitored to ensure that they achieve their intended outcomes. Will there be a review process to assess whether these regulations are having the desired effect on industry practices and the broader economy?

[Baroness Gustafsson (Lab)]

My Lords, I am grateful for the support for these regulations from across the Committee. I thank the noble Lords and noble Baronesses present for their constructive comments on this measure. Allow me to try to address each of the questions that they asked in order.

First, we heard from the noble Lord, Lord Aberdare. He asked a number of questions, the first of which was: have the previous regulations come into effect yet? The answer is yes; they came into effect and required a report as of 1 January 2025.

The noble Lord’s second question was about how the regulations will be enforced and how the accuracy of the data will be monitored. For that, the Department for Business and Trade will implement a more visible compliance and enforcement approach with non-compliant businesses going forward. Businesses that do not take action to meet their reporting obligations will be prosecuted.

We had a question, supported by the noble Baroness, Lady Neville-Rolfe, about why we would not just abolish retention payments altogether—that is, why are we taking this measure forward and not abolishing it in its entirety? The Government are aware of the impact that retentions have on the supply chain. We are very committed to going further to tackle poor payment practices: in September 2024, we announced our plans to consult on new legislative measures. Now, as part of that consultation, we intend to consult on measures that will address poor payment practices.

Moving on, I refer to the questions asked by the noble Lord, Lord Fox: does defining retention create a potential loophole for companies? Will they suddenly be redefined as completion bonuses? This is one of the arguments in favour of taking this sort of measured, proportionate approach, because we will be able to identify any unintended consequences of some of this legislation, but a key aspect of addressing the naming convention is that it is very clearly defined in a schedule not by what it is called but by the behaviours that it exhibits. Of course, we will monitor this and make sure that, if it requires an update, we will do so accordingly.

The noble Lord, Lord Sharpe, asked what the penalties are for failure to comply. The penalty for a breach of the 2017 regulations is an unlimited fine where a company fails to report or makes a false report.

Lastly, the noble Lord, Lord Fox, asked about sanctions, whistleblowing and the imbalance of power in the supply chain. I say in response that the imbalance of power in the construction supply chain is an ongoing challenge; that is widely understood and acknowledged. However, through the introduction of payment reporting measures for retentions and the enforcement of them, we will be able to create an incentive for firms to improve their payment practices in relation to retentions, as has happened following the introduction of the payment reporting regulations. As I talked about in my introduction to this instrument, we have seen the number of businesses paying within 60 days improve from 82% to 96%, so we should be encouraged that we are supporting correct behaviours with regard to policy.

This Government are committed to making sure that we tackle late and long payments. We want the UK to be the best place in the world for both large and small businesses to thrive. This work on retention payments aligns closely with the department’s wider policy on late payments and will strengthen the existing payment reporting regulations. It will provide for enhanced transparency in relation to the practice of withholding retentions—a practice that, as we have heard, is all too often unfair to small businesses and can, of course, be subject to abuse. It will also provide information to small firms and the construction supply chain about the policies and performance of firms that they are considering working for, enabling them to make better-informed decisions and to secure the payment of moneys due.