National Minimum Wage (Offshore Employment) (Amendment) Order 2020

Viscount Younger of Leckie Excerpts

Thursday 25th June 2020 Lords Chamber

Moved by

[Viscount Younger of Leckie]

That the draft Order laid before the House on 6 May be approved.

[Viscount Younger of Leckie (Con) [V]]

My Lords, this draft order amends Article 2 of the National Minimum Wage (Offshore Employment) Order 1999, known as the 1999 order, and will extend the provisions of the National Minimum Wage Act 1998, known as the Act, to seafarers working domestically in UK territorial waters or in connection with offshore activities in the UK sector of the continental shelf. The amended order will not, however, apply the provisions of the Act to seafarers employed on a ship which is exercising the right of innocent passage or the right of transit passage, which I will explain.

It is clear that the current provisions do not go far enough to enable the minimum wage to be paid to most seafarers working domestically. This draft order has come about following a significant amount of engagement and consultation. The background is that in 2017, a working group encompassing government and industry was formed to explore this issue, which had been an area of significant interest for more than a decade. The working group was chaired by the Department for Transport, with policy and legal representation from interested government departments: BEIS, the Foreign and Commonwealth Office, and HMRC. The working group also included the maritime unions—the RMT and Nautilus International—plus the UK Chamber of Shipping and representatives from individual shipping companies. It met formally three times over nine months and was preceded and succeeded by other dialogue with industry and unions. This measure has also been considered, and is supported, by the Maritime and Coastguard Agency.

The result was that this group recommended that the existing legislation should be amended to extend the eligibility of the minimum wage to all seafarers working domestically in UK territorial waters, on the UK continental shelf or in the UK’s exclusive economic zone. This order seeks to implement those recommendations as far as they apply to the UK continental shelf.

I have referred to several concepts as they are defined in the 1982 United Nations Convention on the Law of the Sea—UNCLOS—and will give some further explanation. The continental shelf of a coastal state comprises the seabed and subsoil of the submarine areas that extend beyond its territorial sea to the outer edge of the continental margin. Where the outer edge is beyond 200 nautical miles, it shall not exceed 350 nautical miles. The coastal state has sovereign rights to explore or exploit the natural resources of the seabed or subsoil. The exclusive economic zone is related but does not extend beyond 200 nautical miles. The coastal state has sovereign rights to explore or exploit, conserve or manage the natural resources—whether mineral or living—within the sea, the seabed or its subsoil, and the area above the sea. In simple terms, the continental shelf could be considered with regard to oil and gas and the EEZ with regard to fishing and renewable energy.

UNCLOS defines a vessel’s passage through a state’s territorial sea as being innocent if it is not prejudicial to the peace, good order or security of the coastal state. The word “passage” means navigation through the territorial sea for the purpose of traversing that sea without entering internal waters, calling at a roadstead or port facility outside internal waters, proceeding to or from internal waters, or a call at such a roadstead or port facility. Transit passage means the exercise of the freedom of navigation and overflight solely for the purpose of continuous and expeditious transit of the strait between one part of the high seas and another, or between exclusive economic zones.

We expect this order to benefit primarily seafarers in non-officer roles, such as ratings. These are a broad range of semi-skilled to skilled roles that cover a range of activities on board a vessel, whether on or below deck, in technical areas or in providing onboard services. Industry has stated that many seafarers working domestically in the UK or supporting the UK offshore sector are paid at or above minimum wage. We therefore think that it will be a relatively minor cost to industry when compared with other recent regulatory measures such as the sulphur emission measures. It is expected that the cost to industry will be approximately £3.2 million a year.

However, that should not diminish the importance of this measure. We are aware that other states are also seeking to improve standards for seafarers, but minimum salary for seafarers is not legislated for internationally or at a European level, so I am very pleased that it is understood that the UK will be the first country to provide such explicit protection to all seafarers working domestically. The ILO’s Maritime Labour Convention sets out that ratifying states should seek continuous improvement to the rights for seafarers, and this is exactly what the UK is doing.

I will provide a little more detail. Section 1 of the Act provides for the national minimum wage to be paid to individuals who, under their contracts and subject to other requirements of the Act, are working, or ordinarily work, in the UK. Specific provision about employment outside the UK is made by Section 40 of the Act and by the 1999 order that was made under Section 42. There is currently a wide exception in Article 2(2) and (3) of the 1999 order; that is, that the order does not apply the Act to individuals working on ships in the course of navigation, on fishing vessels, or on ships engaged in certain dredging activity. The amendments to the 1999 order will extend entitlement under that order to individuals working on vessels operating in UK territorial waters or, in connection with specified activities, in the UK sector of the continental shelf, subject only to an exception for employment for the purposes of activities on a ship exercising the right of innocent passage or the right of transit passage. The 1999 order is without prejudice to Section 40 of the Act, which operates in parallel and will continue to do so.

The 1999 order extends the Act to cover individuals who meet two conditions. The first condition is that they are in “offshore employment”, as defined in Section 42(1). The second condition is that they are working, or ordinarily work, in UK territorial waters or the UK sector of the continental shelf.

In the interests of time, I will cover ferries in my closing remarks as I understand that noble Lords may raise questions on it. By happenstance, today is the Day of the Seafarer. This is an opportunity to recognise the invaluable contribution that seafarers make to international trade and the world economy, often at great personal cost to themselves and their families. It is not lost on me that we would be in a worse place today, during this crisis, if seafarers were not bringing vital supplies and goods to the UK. This country has a long history of leading on issues regarding the welfare and employment of seafarers, and I am pleased that this continues. I commend the draft order to the House.

--- Later in debate ---

[Viscount Younger of Leckie [V]]

My Lords, I start by saying that I am very pleased that this order has been broadly welcomed by the House this afternoon. As the noble Lord, Lord Hain, said, seafarers make a vital contribution to our economy, and my noble friend Lady McIntosh reminded us of the dangers faced by those working offshore, including in fishing. I was also rather struck by the speech from my noble friend Lord Holmes, who mentioned proudly his grandfather’s experience.

I will pick up on a couple of points made by the noble Baroness, Lady Bennett. I reassure her that seafarers are classed as key workers. I take her point about the different roles, defined as non-skilled, skilled or semi-skilled, but I remind the House that many of these roles are already paid above the national minimum wage. So the picture is not quite as bad as the noble Baroness painted, but more needs to be done. I also want to answer a question about age raised by the noble Lord, Lord Mann. He asked about the effect of a birthday occurring—presumably because, of course, there are different rates for different ages as regards this order. Under national minimum wage legislation, what matters is the age at the start of the pay reference period; we do not see the need to change the rules on the calculation.

I shall address as many questions as I can. Inevitably, there were a lot and I feel that I will be writing a letter; I shall be reading Hansard very carefully after this debate. I shall go straight into answering questions raised about costs, led by the noble Lord, Lord Rosser, and the noble Baronesses, Lady Burt and Lady Randerson. Although we have asked the salary costs for seafarers working domestically, operators have been reluctant to share detailed employment costs with government, as I think the noble Lord, Lord Rosser, recognised. The UK does not restrict access to its domestic market, and therefore not all seafarers will be represented by a domestic union.

To assist the noble Lord, perhaps, we have statistical data on vessel types and vessel operations, which has allowed us to estimate the number of seafarers working domestically. We have a knowledge of expected salary levels across grades and have evidence from collective bargaining agreements and other sources such as job adverts. This has allowed us to make reasonable assumptions regarding costs and the number of seafarers. This is set out, as he may have seen, in the de minimis assessment that was undertaken in connection with this order.

We must also be clear that industry bodies have stated that many seafarers working domestically are already paid at rates commensurate with the minimum wage—a point I made earlier. We believe that setting a minimum salary level in our domestic market will benefit UK ratings and allow them to compete for jobs on a more level playing field. I realise that the answer I have given is not perfect and, clearly, I agree with many in the House that there is more work to be done to analyse the data in this area.

The subject of ferry routes cropped up—as I predicted it might—raised by the noble Lord, Lord Mann, who made some very good points on ferry wages, and the noble Lord, Lord Berkeley. We are aware that concern remains that ferry routes are largely not covered by the amendments and that some ferry services may be using low-cost employment models. Let me be clear that routes operating between Great Britain and Northern Ireland, the Scottish ferries and other domestic services are covered. Ferries operating to the rest of Europe are on international voyages and, unless flagged with the UK, are outside our jurisdiction. Operators on the North Sea routes have stated that low-cost models are necessary to allow them to provide such a service; otherwise, these services would not be economically viable—a point raised again during the debate.

We are committed to improving standards here and will consider other options in regard to these operations. I note the pertinent points raised by the noble Lord, Lord German, on short crossings. Perhaps I might give some reassurance by saying that UK resident seafarers are also covered by Section 1 of the Act, so if working regularly on a service to or from a UK port, seafarers should be, invariably, eligible for the national minimum wage. In answer to the question asked by the noble Baroness, Lady Randerson, there are no other exclusions that I know of.

The noble Baroness moved on to discussing differential pay. Maritime is the only sector in the UK that continues to permit this. This is set out in the Equality Act 2010 (Work on Ships and Hovercraft) Regulations 2011. The then coalition Government did not outlaw it completely as the protection would apply only to UK-registered vessels and there was concern that owners would simply flag away from the UK to avoid the requirement, thereby removing protection from any seafarer, regardless of nationality. The industry will still state that differential pay is the necessary requirement and that seafarers are paid a competitive rate when considered against the average salaries they could receive in their own countries. I acknowledge that this remains a difficult argument to accept when it would not be accepted in any other sector. The Government will consider whether further changes are required when the Equality Act regulations are reviewed towards the end of this year.

The noble Baroness, Lady Randerson, also asked about the outstanding maritime legislation and I hope I can give an explanation here. A programme of planned legislation up to 2023 was shared with the Secondary Legislation Scrutiny Committee last year. This identified no less than 44 separate SIs. Of that list, four SIs have been completed, with a further 10 planned to be laid by the end of 2020; 12 are expected to be completed in 2021, with the remaining 23, including five that have since been added to the list, expected to be completed by the end of 2023.

The unprecedented and challenging global pandemic we are all facing has meant that work on some SIs has been temporarily paused, while others have been deferred to 2021 to help alleviate pressures on parliamentary time in late 2020, allowing for necessary EU-related legislation at the end of the current implementation period.

I move on to several questions raised by the noble Lord, Lord Chidgey. I was interested to hear about his family background and the stark reminder of how dangerous the sea is. First, he inquired about enforcement, which was also raised by my noble friend Lord Wei. BEIS is responsible for funding HMRC enforcement of the minimum wage. The 2021 overall budget is £27.5 million, of which £26.4 million is allocated to HMRC enforcement. HMRC takes a risk-based approach to enforcement, which means it can flex its resources to tackle an emerging threat or issue, including for seafarers working in the shipping industry. HMRC recently closed a seafarer case, identifying approximately £31,000 in arrears for nine workers and issuing penalties of over £56,000.

In 2018-19, HMRC identified over £24.4 million in arrears for more than 220,000 workers. This is more than a 50% increase on the amount of arrears identified in the previous financial year and a 10% increase on the number of workers identified. The increased clarity of the requirements should allow HMRC better to target its resources and ensure greater overall compliance.

The noble Lord, Lord Chidgey, asked about the status of pilots and offshore workers. They may already be covered within the existing requirements of Section 1 or Section 40 of the Act; if not, they will meet the eligibility requirements set out in the order. Employees on offshore oil rigs are already covered by the existing requirements but this will bring crew on offshore supply vessels into scope.

The noble Lord, Lord Foulkes, spoke about Scotland. He made some very kind remarks about my father, for which I am grateful. Of course, the minimum wage is a reserved matter. However, we have kept the devolved Administrations informed. This order should be particularly welcomed by the Scottish Government, who have made an admirable commitment to ensuring that the minimum wage is paid on all Scottish ferries. The order will further strengthen their position and should greatly support those working in the supply sector of the UK offshore energy market.

The noble Baroness, Lady Randerson, and the noble Lord, Lord Berkeley, made important points about skills and training. Creating a skilled, diverse and flexible workforce is essential to the future success of the maritime sector. To support the sector, the Government have worked with industry in creating a suite of maritime apprenticeships and are driving up the cadet intake though SMarT—Support for Maritime Training—with funding increasing to £30 million by 2024-25. The department has provided £300,000 in funding to establish a maritime skills commission. It has also provided £100,000 to support the 1851 Trust STEM roadshows for girls, £40,000 to the Maritime and Me project and £40,000 to the Institute of Chartered Shipbrokers Trust.

The noble Baroness, Lady Northover, asked a number of questions. She will be pleased to know that I have answers but they are only semi to hand so, bearing in mind the time, I will write to her.

I hope noble Lords will agree that this is a small but significant step toward raising employment standards for seafarers working domestically in the UK. We are an island nation, yet we are often sea-blind to the seafarers who do so much to support our economy, as I said earlier. The UK has rightly been lauded for its support and compassion for seafarers not just in the UK but of all nationalities. The MCA and the Marine Accident Investigation Branch are recognised around the world for their high standards.

We are not standing still. People are an integral part of our Maritime 2050 strategy. We will continue to work closely with the sector to attract more people to it. Today, we announced that the UK Government will host the first international summit on the impact of Covid-19 on crew changes next month, bringing together UN, political and business leaders from across the globe. This will be led by the Maritime Minister, Kelly Tolhurst, and will be an opportunity to reflect on the impact of this dreadful pandemic on the global shipping industry and on what Governments and industry must do to protect the welfare of crew workers around the world.

On the question asked by the noble Baroness, Lady Burt, the UK has repatriated more than 7,000 seafarers from cruise vessels recently.

We have a long and important maritime history. I am sure that the UK will continue to play its part on the global stage.

Motion agreed.