Baroness Neville-Rolfe
Main Page: Baroness Neville-Rolfe (Conservative - Life peer)National Minimum Wage (Amendment) Regulations 2016
Baroness Neville-Rolfe Excerpts
Baroness Neville-Rolfe
That the draft regulations laid before the House on 7 December 2015 be approved.
Relevant documents: 13th Report from the Joint Committee on Statutory Instruments, 19th Report from the Secondary Legislation Scrutiny Committee
The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills and Department for Culture, Media and Sport (Baroness Neville-Rolfe) (Con)
My Lords, I am rarely surprised by events in your Lordships’ House but I must admit that I was taken aback to be confronted by a regret Motion on the statutory instrument before us, laid by the main opposition party. The policy thinking behind the regulations is to move to a higher-wage, lower-tax and lower-welfare society, one aspect of which requires building on the present national minimum wage. This thinking has been widely explained and debated here and in the other place.
As to the detail, the essence of the regulations before us is to introduce the new national living wage on 1 April this year, initially at a rate of £7.20 an hour for all those aged 25 and over. As has been well publicised, the objective is to reach a rate equivalent to 60% of median earnings by 2020, which is expected to be over £9 per hour. Further steps towards the 60% objective between now and 2020 will benefit from the advice of the Low Pay Commission. Its role going forward will be even more important: consulting and recommending increases to the national living wage as well as recommending national minimum wage rates for under-25s.
Of course increasing minimum wages makes possible non-compliance a more serious issue. Therefore the regulations also include measures to deal with this aspect, notably by significantly increasing the penalties, which I will come back to. We will also be launching a publicity campaign to run until 24 April to ensure that everyone, employer and employee alike, is aware of their rights and their responsibilities. We estimate that this will cost up to £4.8 million.
These changes require a certain amount of administrative tidying-up. In particular, the Government are undertaking a review to assess the case for aligning the national minimum wage cycle with that for the national living wage and with the tax year. As part of this review we are consulting key employer and worker representatives as well as working closely with the Low Pay Commission, whose good work I remember so well from my time as a private employer. For completeness I should add that a number of measures have been adopted to help employers to adapt to the changed situation, notably via cuts in national insurance contributions and in corporation tax, and by increasing small business rate relief for a further year. That is the background and the contents of the regulations in a nutshell.
I now turn to possible problems which may be of concern to the Benches opposite. Their Motion refers to the 19th report of the Secondary Legislation Scrutiny Committee. That report drew attention to risk of non-compliance to which the Government themselves had drawn attention in our impact assessment. The committee stressed that the Government should continue to acquire and publish information on non-compliance. The Government accept this principle, and the information will continue to be provided through the Low Pay Commission, which publishes a hefty report alongside its annual recommendations to government.
The wider background is that companies might react to the increase in minimum wages in a number of ways, including by a reduction in profits, by a reduction in the number of hours worked, by a restructuring of their workforce, by an increase in prices or by increasing the productivity of their workers. Of course, theoretically, non-compliance would be another response, but we are taking steps to deal with that. We calculate that by 2020, if the policies I have outlined are followed, then the number of workers on the national minimum wage and living wage will almost double from 1.5 million now to around 3 million. So of course effective enforcement is key.
Here we have done much and propose to do more. Since March 2014, both the penalty calculation and the cap have been increased. The rules on naming and shaming have been relaxed, so more employers are named publicly. We have significantly increased HMRC’s enforcement budget—from £8.3 million in 2009-10 to £13.2 million this year—with commitments from the Prime Minister in September to further increases. All this has resulted in greater enforcement activity and tougher sanctions for those who break the law. Already this year, HMRC has recovered over £8 million in arrears for 46,000 workers—this compares to £3.3 million in arrears and 26,000 workers in the previous year.
Your Lordships will recall that this Government have recently increased the maximum penalty an employer can face when they break the law. We quadrupled the £5,000 cap to £20,000 in March 2014—the noble Lord, Lord Stevenson, will remember some of the discussion—and applied the cap on a per worker basis rather than per employer in May 2015. We are starting to see those larger penalties come through. In the next month, we will name a single employer who faced a penalty in excess of £500,000. Under the old regime, that penalty would have been capped at £5,000. As a result of these regulations, a penalty for any similar underpayments in the future would be greater still.
Increasing the calculation of the penalty from 100% of the arrears owed by an employer to 200%, as proposed in these regulations, will further deter employers who would otherwise be tempted to underpay their workers. We are using the power of advertising to ram this home. The Government want everyone to benefit from the economic recovery. That is why we believe that the national living wage is the appropriate step up for hard-working people right across the United Kingdom. I commend these regulations to the House.
Baroness Neville-Rolfe
My Lords, I thank the noble Lord, Lord Stevenson, for his comments. I endorse his comments about the great work done by the Secondary Legislation Scrutiny Committee; year in, year out, it does us a great service. I thank him for his kind words about the impact assessment and I shall pass them on.
I sympathise with noble Lords opposite, who were clearly wrong-footed by the most recent Budget, especially the living wage aspect, but then disappointment is part of political life. The strength of the economy means that we can afford to take this important step towards a higher-wage, lower-tax and lower-welfare society. The measures support the Government’s commitment to deliver fairness on pay for working people while being sensitive to the needs of business. By 2020, the national living wage will benefit 2.75 million low-wage workers directly, with up to 6 million in total expected to see their wages rise as a result of the ripple effects further up the distribution chain. I think that this is good news, and the House seems to recognise that.
The noble Lord, Lord Stevenson, asked whether we had considered the use of primary legislation. Of course we considered all legislative options, but the powers are available to do this through secondary legislation and it will ensure that workers get their pay rise much more quickly. That is the reason why we have adopted this approach. I also took note of some of his questions on apprenticeships. I will need to have a look at Hansard, and perhaps he and I can have a word at one of our many meetings on other matters.
The rationale for 60% is that the 2014 Resolution Foundation review of the national minimum wage, More Than a Minimum—chaired by the excellent Professor Sir George Bain, who, as some will remember, was the founding chair of the LPC—recommended a national minimum wage at 60% of median earnings as “a reasonable lodestar”—a great word. The report’s expert panel also included Professor Alan Manning, Professor Paul Gregg and Professor Karen Mumford.
I accept that there was no consultation on setting the original rate at £7.20. The background work existed, and of course this was a Budget measure and its announcement was treated as such. I am afraid that that is the nature of Budget measures, but I hope that I have already given some reassurance in my opening remarks on the process in future in relation to consultation. Future national living wage rates will be recommended by the independent Low Pay Commission, which will continue to provide the invaluable advice that it has been giving for many years, firmly grounded in evidence and with public consultation. It seems right that it should have a pivotal role in this.
The noble Lord asked about the double impact of the national living wage and the apprenticeship levy. This will of course mean extra costs for some businesses, but it is right that workers are fairly rewarded for the work that they do. The economy is growing and profits and wages are rising, and we have given businesses some help, as I said in my opening remarks. The apprenticeship levy is equally necessary. It will support the development of a higher-skilled, more productive workforce, supporting greater economic growth in future and the creation of new jobs right across the UK. Employers will of course be able to get back the levy for the training that they are doing.
The noble Lord, Lord Stoneham, asked about how the LPC will seek advice when it is uprating the national minimum wage. It will continue to adopt the sort of process that we have seen operating successfully under the coalition: it will make recommendations to the Government by the end of October 2016, setting out its ideas for rates for the new national minimum wage from April 2017 and looking at indicative rates from April 2018.
Productivity growth is one of the key economic challenges for this Parliament and a route to raising living standards for everyone in the UK in a long-term, sustainable way. Our ambitious plan for this is set out in Fixing the Foundations and includes the introduction of the national living wage. There is a fair amount of research that shows that increasing wages to the national living wage should result in an increase in productivity in many areas, as people use labour more carefully and capital more efficiently.
As the noble Lords, Lord Stoneham and Lord Stevenson, mentioned, some parts of the economy—for example, the social care sector and retail—will be impacted more than others when the living wage is introduced. I reassure noble Lords that this Government recognise the particular position of these sectors. In response we are, for example, giving local authorities access to up to £3.5 billion in new support for social care by 2019-20. Equally important will be enforcement in these sectors. I have already outlined some of the changes that we are making, such as the extra funding and work on bringing the new rights to the attention of workers, and HMRC is taking action against those employers who break the law and underpay their staff. It currently has 155 investigations open with social care employers. These include acting on complaints and extensive targeted enforcement. I know from having worked in business that HMRC is also very keen to make sure that the national minimum wage—and in future the national living wage—is paid in low-paid service sectors.
The noble Lord, Lord Stoneham, and the noble Earl, Lord Listowel, asked about early years provision and employing under-25s. It is for the Low Pay Commission to use its consultations and expert judgment to advise on appropriate rates for under 25 year-olds and those aged 25 and over. As with all of its recommendations, should it recommend a change to the differential in the national minimum wage or living wage rates, the Government will want to understand why it thought this was appropriate to ensure that the minimum rates of pay continue to support low-paid working people as well as the economy. The substitution effect will depend on future LPC recommendations. Of course, the underlying reason for the difference between the national living wage and that for under 25 year-olds is that we are extremely keen to ensure that early years provision is employed provision—we really want to make sure that we do not hit employers and that we encourage people to give jobs to the youngsters.
I hope that the comments I made in my introduction and the points that I have been able to make in summing up will go some way to reassuring noble Lords who have put down this regret Motion both in respect of our plans and in respect of stronger enforcement. In the light of that, I recommend these regulations to the House.
Lord Stevenson of Balmacara
My Lords, I am very grateful to the noble Lord, Lord Stoneham, and the noble Earl, Lord Listowel, for contributing to this debate. They raised additional questions that were helpful and useful. I hope that further information will be forthcoming from the department into some of the details the Minister was not able to get to in her response.
The Minister ended by saying that she hoped that noble Lords—there is only one—who put down this regret Motion could see their way to providing some measure of agreement that this regulation is a good thing. Of course, we cannot be against additional pay for the lowest paid and we support the Minister on that. However, I sense a slight poverty of ambition behind the regulations and that is why I wanted to put forward a regret Motion for those of us who feel that this is a step in the right direction but only a very small step. It would have been good if we could have got from the Government more of a sense of an understanding of the need for pay to go up, for sticky areas in the economy to be addressed very vigorously and for the regulations to deal with those who wish to severely underpay—I think that some do go down that route—as well as, to pick up a point that the Minister made in her opening and closing remarks, an understanding that this is not just a right/left issue.
Many commentators—of which the Resolution Foundation, a non-partisan group, is a very good example—absolutely believe that the basis on which we will see recovery in this country is a real commitment to a proper high-wage and well-rewarded economy, in which people are paid for the work they do in growing the economy and making exports and everything else return to a level that we have seen in the past. I do not think that the regulations, as described, get us all the way there. They are a step in the right direction, but I think that this is something that we may wish to return to.
The reason for putting down the amendment—although not the timing, which was in the hands of the Government and not in our hands—was to get these debates up and running, and we have achieved that. With that, I beg leave to withdraw the amendment.