National Minimum Wage (Amendment) Regulations 2015

Lord Young of Norwood Green Excerpts

Thursday 16th July 2015 Lords Chamber

[The Earl of Courtown (Con)]

My Lords, the purpose of these regulations is to increase the hourly rate of the national minimum wage for all workers and to increase the maximum amount for living accommodation that counts towards minimum wage pay, in line with recommendations from the Low Pay Commission.

The national minimum wage is designed to protect low-income workers and provide an incentive to work by ensuring that all workers receive at least the hourly minimum rates set. The minimum wage also helps businesses by ensuring that competition is based on the quality of goods and services provided and not on low prices based on low rates of pay. Following advice from the Low Pay Commission, the Government are uprating the minimum wage from 1 October 2015 so that the adult rate will be £6.70 per hour. Young people aged between 18 and 20 will earn £5.30 and those between 16 and 17 will have a minimum wage rate of £3.87 per hour. This represents an increase of 3% for the adult rate and similar increases for the youth rates. This is the largest real increase to the adult rate since 2006, and low-paid workers will enjoy the biggest cash increase in their pay packets since 2008. It also means that the adult rate will be closer to the average wage than ever before. The adult rate increase will benefit more than 2 million low-paid workers on the national minimum wage, and will mean that full-time workers on the adult rate will receive an additional £416 a year in their pay packet.

Finally, the Government believe that it is important to improve the attractiveness of apprenticeships for young people by delivering a wage that is comparable to other choices of work. That is why we are increasing the minimum wage for apprentices by 21%—a 57p an hour increase to £3.30. This means that someone working full time on the apprentice rate will be £1,185 better off per year than last year. This is a departure from the Low Pay Commission’s apprentice rate recommendation of a 7p increase to £2.80. We would not depart from such a recommendation unless we felt strongly that our approach would benefit apprentices in the UK. In our view this increase to £3.30, alongside wider reforms, will encourage more young people to consider apprenticeships as a credible alternative to both higher education and jobs without training.

Since its introduction in 1999, the national minimum wage has been successful in supporting the lowest-paid UK workers. It has increased faster than average wages and inflation without an adverse effect on employment. It continued to rise each year during the worst recession in living memory and is now closer to the average wage than ever before. The Low Pay Commission has proven that a rising minimum wage can go hand in hand with rising employment. This increase is carefully managed through advice from the Low Pay Commission. The Government’s 2015 remit asked the Low Pay Commission to make recommendations for these new rates based on maximising the wages of the low paid without damaging employment opportunities.

The Low Pay Commission recommendations follow consultation with business and workers and their representatives, together with extensive research and analysis. The Low Pay Commission consists of three commissioners from employer backgrounds, three from employee representative backgrounds, and three independents. Its recommendations reflect the objectives of both employers and unions, and are unanimous. The Low Pay Commission has stated in its report that we are now in a period of faster real increases in the national minimum wage, provided that the economic recovery continues.

The Chancellor announced in the summer Budget the introduction of the national living wage for those aged over 25. The Government’s ambition is for the national living wage to reach £9 by 2020. However, the national living wage is not the purpose of today’s debate. It is for implementation from April 2016, and the Government will bring forward the regulations to bring it into effect in due course. Those regulations will also be debated in this House.

The Government believe that the rates set out in the regulations before you today will increase the wages of the lowest paid while being affordable for business. I commend these regulations to the House.

[Lord Young of Norwood Green (Lab)]

My Lords, I thank the Minister for his explanation of the draft statutory instrument. I welcome the proposals, although I see a certain irony when I look at the Conservative Party’s track record on the national minimum wage, which has gone from one of, shall we say, opposition to enthusiastic espousal. Nevertheless, this is welcome, and we are going beyond it now to the national living wage. I was going to ask for some further information on how the Minister sees that impacting on the national minimum wage, but he has given us an assurance that that will be the subject of a later debate, so I will not go into that area.

I want to focus on the apprenticeship rate. It is of course good news that the Government have gone beyond the recommendation of the Low Pay Commission by an extra 50p, but I have some concerns in this area. The question of apprenticeships, especially for young people, has attracted my interest over a number of years. If I have a complaint, it is not about the Government’s enthusiasm for apprenticeships, which I acknowledge, but about their conflating the overall figures. We get a very large figure, but when we examine the number of apprenticeships for young people, there is a significant reduction. Because youth unemployment is still a significant problem, we need to focus not just on the rate that young apprentices receive but on the availability of apprenticeships.

A recent investigation by the Local Government Association and the IPPR found that the majority of apprenticeships are being used to train older workers who are existing employees and are having little or no impact on youth unemployment. Almost four in 10 employers do not regard the qualifications that the Government describe as being apprenticeships in the same way, while 93% of those aged 25 or over who completed apprenticeships last year already worked for the employer beforehand. I am not complaining about the reskilling of more mature workers—we know there is a need for workers to constantly upgrade their skills in an environment where technology is constantly changing. My concern arises when we hear figures such as 2 million and then find that, in fact, the vast majority of those people are already employed. I question whether those should be given the title of apprenticeships. I am not the only one—the Richard report made a similar comment.

The other concern I have is that an alarming number of apprentices are still not receiving their legal minimum wage. I have some information from the Library, which I hope the Minister will agree is a safe and independent assessment. I will quote a few points:

“Looking only at Level 2 and 3 apprentices for whom compliance can be assessed, 15 per cent were paid below the appropriate NMW. (Across all apprentices results indicate that 78 per cent of all Level 2 and Level 3 apprentices across Great Britain were paid at or above the NMW”.

That means that 22% were paid below it, so there is a very significant number of young people whom employers are illegally paying less. What are the Government doing about that? This is not a new problem, it has been going on for a while. I do not expect perfection and do not expect it to be solved overnight, but I feel that we owe young people a response from the Minister which shows that, first, the Government treat this seriously and, secondly, they will put in place the means to resolve the issue.

There are some other instances:

“Young apprentices will be more likely to be earning less than the minimum wage, with nearly a quarter (24 per cent) of Level 2 and Level 3 16-18 year olds having non-compliant pay levels, compared with 20 per cent of 19-20 year olds, 17 per cent of those aged 21-24, and eight per cent of those aged 25 or older”.

The younger you are the more likely you are to be exploited, unfortunately. This is the message that we are getting.

On the question of formal training on the apprenticeship, the information shows:

“Eight in 10 (79%) apprentices have received formal training of some kind”.

That means that 21% did not. We had an assurance from the Government that they were going to crack down on apprenticeships that were not really apprenticeships, so there is still a lot of work to be done. This continues:

“This figure was derived by combining the proportion of apprentices that trained with an external provider and apprentices saying that they received formal, off-the-job training, and represents a significant, if small, increase from the figures in 2013 (77%) and 2012 (76%)”.

It has gone up a little, but more than 20% are still not getting any formal training.

--- Later in debate ---

[Lord Young of Norwood Green]

Before the noble Lord sits down, while I welcome that, given the circumstances—that it was a government-supported training provider—surely there ought to be some further review of the actual process of allocating young people to these employers. Of course, we know where primary responsibility lies, but if we are entrusting young people to a training provider and they are allocating them to an employer, never mind what the primary responsibility of the employer might be, the provider also has a primary responsibility. The reassurance I am seeking from the Government is that they will go away and look at exactly what training providers are doing. What are the checks, balances and procedures to ensure that this does not happen again? I would welcome some report back at a later stage.

[The Earl of Courtown]

Yes, I will write to the noble Lord on that issue, but I can assure him that my colleagues in the department will be looking very carefully at what has been said this evening.

The noble Lord, Lord Stoneham, asked about the Low Pay Commission and its future involvement with the national living wage and the national minimum wage. The Government published the Low Pay Commission’s new remit on 8 July 2015. The Government are asking the Low Pay Commission to recommend the level of the path of the national living wage going forward, with the target total wage reaching 60% of median earnings by 2020. The Low Pay Commission will also continue to provide recommendations for the other national minimum wage rates, as it has done previously.

The Government are committed to the national minimum wage because of the protection that it provides to low-paid workers and the incentive to work that it provides. The regulations that we have been discussing today support the Government’s commitment to delivering fairness, supporting business and delivering world-class apprenticeships. I believe that they are fair and appropriate. The increase in the adult rate will maintain the relative position of the lowest paid while also being one that business will be able to afford. I commend the regulations to the House.