Employment Opportunities Bill
Debate between Brian Binley and Mark Prisk
The Minister of State, Department for Business, Innovation and Skills (Mr Mark Prisk)
I congratulate my hon. Friend the Member for Christchurch (Mr Chope) on securing parliamentary time for the Bill. I confess that I have not been a regular attender on Fridays and I found this to be—how can I put this nicely?—a different style of debate.
We began with some rather florid language. I think there was talk of gouging and the crushing hand of state socialism by stealth—a particular favourite of mine—which presumably is the opposite of the hand which Adam Smith liked to talk about. Perhaps more predictably, we had some early fireworks from the right hon. Member for Rotherham (Mr MacShane) in response to that. Then there was a wide-ranging debate, ably chaired, Madam Deputy Speaker, by your fellow Deputy Speaker. We visited small business in Wellingborough, asylum seekers in Zimbabwe, and, at one point, the Victorian age, possibly in person, though my hon. Friend the Member for North East Somerset (Jacob Rees-Mogg) is not here now. Two topics which I suspect, although I am happy to be corrected, may be popular on a Friday morning—the EU and IPSA—also seemed able to be drawn into the heart of debate, all within order, of course. There was, just for a moment, the prospect of an unholy alliance between the hon. Member for Manchester Central (Tony Lloyd) and my good friend the hon. Member for Christchurch, but as my hon. Friend rightly concluded, this is an important debate to our constituents, and in many senses too serious for yah-boo politics. I will seek to address the range of issues that have been highlighted during the past three and a half hours.
There are four elements to the Bill. Clause 1 provides that no foreign national lawfully resident in the UK who is above compulsory school age can be prevented from engaging in remunerated employment. The rest of the Bill concentrates on the national minimum wage. Clause 2 provides an opt-out, clause 3 exempts a person who is getting a training wage from the minimum wage, and clauses 4 to 8 provide for the introduction of a regional minimum wage. As the Bill principally concentrates on the national minimum wage, I will discuss those provisions first, but I will address clause 1 as well.
I am pleased that the debate gives me the opportunity to remind hon. Members that the Government are committed to the national minimum wage. We believe that it gives protection to low-income workers and provides incentives to work, and we made that clear in our coalition agreement. As the Under-Secretary of State for Business, Innovation and Skills, the hon. Member for Kingston and Surbiton (Mr Davey), who has responsibility for these matters, made clear, the aim of the national minimum wage is to establish fairness in the workplace and to make sure that work pays. It does that by ensuring that all workers receive at least the hourly minimum rates set. As well as helping workers, the minimum wage also helps business by ensuring that competition is based on the quality of goods and services provided, and not on the lowest price potentially based on exploitative low rates of pay.
Hon. Members will be familiar with the fact—we have talked about it in the debate—that the level of the minimum wage is recommended to the Government by the Low Pay Commission. The commission has widespread support, not just from the trade union movement, but from employers. It is independent of Government and comprises nine commissioners, and the aim is simply stated as to
“have a minimum wage that helps as many low-paid workers as possible without any significant adverse impacts on inflation or employment.”
Those impacts have been raised in the debate, and I will address them specifically because I know that they are of concern to right hon. and hon. Members.
Commissioners receive submissions and take oral evidence from a wide range of representative organisations. They also visit businesses throughout the UK. That puts them in direct contact with businesses in low-paying areas and areas with unemployed and low-paid workers and their representatives, so that they can understand the realities of the circumstances in the workplace. That consultation supplements the commission’s analysis of high quality and extensive research and official data, so the basis of the agreement that commissioners represent to Government is robust evidence. Since the introduction of the national minimum wage, the commission has carefully monitored its impact on the economy in general and the labour market in particular. It looks at a range of issues and variables, including profits, prices, productivity, investment and business creation.
Clause 2 provides that a person who would otherwise qualify for the minimum wage may elect to opt out of such an entitlement. It makes it clear that any such election must be made by an employee in writing to their employer and must be signed by both the employer and the employee. I believe that the proposals in clause 2 are flawed in a number of serious ways. First, they make it easier for workers to be exploited. My hon. Friend the Member for Christchurch stressed that he is talking about arrangements for freely consenting adults, but how will he ensure that that is in fact the case in every place of work? Low-paid workers who may be fearful of losing their jobs are unlikely to have that free choice—that equal position—over whether they should accept a pay cut taking them below the national minimum wage.
Some people might feel that that is far-fetched, but it is worth looking at the first evidence that the Low Pay Commission established. In its June 1998 report, it states:
“Most workers in the UK have seen an increase in their real earnings over the past two decades. But increases have not been uniform. Average earnings have increased much more rapidly than the earnings of lower-paid workers, and the earnings of the skilled have increased relative to those of the unskilled. Certain groups of workers are much more likely to be low paid than others: these include women (particularly those who work part time) as well as young ethnic minority and disabled workers. Temporary workers and male part-time workers are also more likely to experience low pay.”
The report concludes:
“We met many workers who felt trapped on low pay because of lack of skills, mobility or opportunities. They feared that their only alternative was unemployment.”
The commission also found examples of “gross exploitation”. In its report it cited the example of a woman employed in a bar who routinely worked what was described as a “four hour” evening shift for £12 gross. The four hours reflected only the time that she was serving, however; they did not include the requirement for her to spend another two hours after closing in order to clear up the bar. That time was not paid for at all. Those instances do occur, and we need to ensure that when we frame legislation we respect all of them.
There is no guarantee that an employer’s motives for getting a worker to accept pay below the minimum wage will be based on ensuring the business’s survival. That has come out in the debate from a number of contributors, and it goes to the heart of the economic reasons underpinning a national minimum wage. In technical terms, that would be described as monopsonistic competition, but in less technical language it is about market power, and several hon. Members, including the hon. Member for Manchester Central and my hon. Friend the Member for Gainsborough (Mr Leigh), have highlighted that issue.
Vulnerable workers—those with few qualifications, those who are in fact functionally illiterate and those with work-limiting disabilities—do not have equal bargaining power when compared with their employer. There is a mismatch, and there is that risk of exploitation, and the problem with clause 2 is that it does not take account of that potential problem. We believe that it could reinstate the problems that led to the introduction of the minimum wage in the first place.
That is not the only problem, however, important as the issue of vulnerable workers is, because the Bill’s proposals could be bad for business as well. The Low Pay Commission found in its first report that competing simply on the basis of low pay can lead to a damaging downward spiral of low wages and poor standards, which would be bad for businesses and workers. This was recognised by the British Chambers of Commerce, which stated in its evidence to the commission that
“businesses recognise that a low wage policy leads to a vicious circle of low morale, low performance and low productivity”.
It is important to remember that, although the vast majority of employers seek to do the right thing and do the right thing, there will always be that minority, and the danger of shifting away from that is one that affects employers and employees. That is not just my own view, or indeed that of the Government. I am in good company, because Winston Churchill made the point that
“the good employer—
without minimum wage protection—
“will be undercut by the bad, and the bad employer will be undercut by the worst.”
There is also no evidence that the provisions in clause 2 are necessary. I have mentioned what the Low Pay Commission set out, but it is also worth looking briefly at the balanced way in which it has implemented the national minimum wage over its lifetime. I know that there was much discussion about the expectations that were or were not raised prior to the introduction of the minimum wage, but the commission’s approach has been reasonably cautious. It has been cautious in difficult times, but, yes, it has balanced that with more generous rate recommendations in better times.
Mr Binley
Will my hon. Friend help me? I need to understand something, because under the previous Government—it could only have been under the previous Government—the minimum wage increased by twice the rate of inflation. Is that where this Government want to go with the minimum wage, or will it not increase at that rate under my hon. Friend’s jurisdiction?
Mr Prisk
I am saying that the Government will seek from the Low Pay Commission a careful assessment of the market conditions year on year, whether they are good or bad: what is affordable and where the balance can best be struck between ensuring that the minimum wage is reasonable for those who are affected and not having an unreasonable effect on businesses as a whole. The Government cannot set it in advance or seek for it to double.
Mr Binley
Perhaps my hon. Friend can help me further, because he did not answer my question. We all recognise that the double-inflation increase has had the effect of raising wages throughout the system. Given that, does the Minister understand why it is important, particularly at this time, to ensure that the minimum wage does not rise above the rate of inflation?
Mr Prisk
Absolutely; we will be careful to ensure that the recommendations we receive from the Low Pay Commission take that point into account. It should consider not only the conventional measures of inflation, but the costs that affect businesses, who are also the employers. This is a year-on-year process because flexibility is needed as the market changes.
In 1999, the commission set the rate at £3.60 an hour, which was pretty cautious. In the early years of the minimum wage, the commission continued to take that cautious approach. I do not propose to go through each and every year, although it is tempting. Since 1999, we have seen good times and bad, and I think it is worth considering how the commission has responded in those different contexts.
In 2001, the commission recommended that in 2001 and 2002 the adult minimum wage should increase to the level that it would have reached if it had always been raised in line with average earnings. In other words, at the start when things were challenging, the commission did not want to raise it too early. However, as the market improved and became more robust in labour terms, it was able to add to the minimum wage in a way that related to the costs of businesses.
In 2007, the commission came to the conclusion that a more cautious approach was again required. It looked at the pay differentials, particularly in the retail and hospitality sectors, both of which were progressing. That was coupled with concerns about price inflation feeding into wage inflation. The commission reported for the first time that it was concerned that the minimum wage was biting in that way.
In the most recent reports in 2009 and 2011, the commission was clearly dealing with a very different economic environment. By the time of the 2009 report, the UK was clearly in significant economic decline and recession, accompanied by sharp increases in unemployment and a fall in total employment. The decline in economic activity was much sharper than had been anticipated by most economists, never mind those working for the commission. That is why the commission recommended that the adult minimum wage should increase by only 1.2%—much less than in previous years.
The report published in April 2011 reflects the fact that the UK economy is recovering following the recession. The labour market has continued to show the resilience it had in the recession and unemployment remains below the median levels forecast at the time of the 2009 recommendations. The commission concluded that its approach needed to recognise the continued economic uncertainty, while protecting the lowest-paid workers from falling further behind—hence the recommended increase in the adult minimum wage of 2.5% to £6.08, which is broadly in line with average earnings and pay.
Those points in time—1999, 2001, 2007, 2009 and 2011—were all at different points in the economic cycle. The review that I have undertaken in preparing for this debate has demonstrated that the commission has been sensitive to the different market conditions. Sometimes it was able to be more generous and sometimes it had to be more restrictive. That is the right balance.
Many Members have raised the impact of the minimum wage. I will deal first with its impact on earnings and labour costs. Businesses react in different ways to labour costs. If they rise, some businesses absorb them by reducing non-wage benefits or adjusting their pay structures, as we have heard from several hon. Members. However, the employment picture is a little different from the one that has concerned several Members. In fact, I say in particular to my hon. Friend the Member for Shipley (Philip Davies) that since the minimum wage was introduced in April 1999, aggregate employment has grown. Despite the recession, it was still higher last September than it was prior to the introduction of the minimum wage. That occurred through the boom, through the Labour bust and back into the new coalition Government’s recovery. During that period, the number of employee jobs has increased by 1.1 million and the number of employees by 1.4 million. The number of hours worked has increased by 3.1%.
My hon. Friend—I do not see him in his place at the moment, but I will continue my point for the benefit of the House—asked the eminently sensible question whether the impact of the minimum wage on those on lower incomes had been adverse by comparison with the rest of the economy. I have sought the answer to that question. In the same period, from the introduction of the minimum wage in 1999 to the first quarter of 2011, the number of employee jobs in the low-paying sectors has actually increased by 366,000, which is 4.8%.
Mr Prisk
That brings us back to whether it is actually a choice to do so. I totally respect my hon. Friend’s point that there are people on the edge of the labour market who are keen to work. However, if we open up the system and return to competition based on the lowest pay, we will go back to the original problem. I agree that we must ensure that we do not have undue inflexibility in the system, but I believe that returning to the position that the Bill suggests would create more problems than it solved.
Mr Binley
I am most grateful. Does my hon. Friend recognise that most employers, and certainly my company, try very hard to set the wage levels for their low-paid employees above the market rate, to attract the very best labour? That is the major concern of most small and medium-sized enterprises. I recognise that a very few rogue employers would not do that, but does he accept that in the main, companies wish to pay more to attract better labour?
Mr Prisk
Absolutely. The vast majority of decent employers are keen to ensure that they get the brightest and best, and are willing to pay for that. We should not allow any characterisation of employers in this country as always wanting to do down their employees. That is not my experience, and I hope Opposition Members will not tolerate such a characterisation in future.
Clause 3 seeks to exempt a person from the minimum wage as long as they receive a training wage. We have had a constructive discussion on apprenticeships, training and the importance of helping young people, to which the clause is relevant. Ever since the Low Pay Commission’s first report in 1998, it has been argued that young people should be treated differently from their older counterparts. The rationale is that the threat of unemployment because of too-high wages is greater for younger people than it is for older people. Clearly, young people often lack experience in the workplace, and are therefore more likely to be both on lower earnings than older workers, and to work in lower-paying sectors.
Young people are therefore more likely to be more vulnerable in the labour market. We have seen that, sadly, in the last couple of years. If I may say, it is encouraging that since May of last year, there has been an improvement in youth unemployment. I am pleased that I can confirm today that youth unemployment is lower than that which we inherited. I hope that Opposition Members will acknowledge that, because it is an important issue on which we agree.
The current rate for workers aged 16 to 17 is £3.64 an hour, and the rate for those aged 18 to 20 is £4.92 an hour. That contrasts with the adult rate for those aged 21 or above, which is currently £5.93. In recommending minimum wages for young people, the commission aims to ensure that the rates neither provide an incentive for young people to leave education or training—that is an important balancing act—nor harm the employment prospects for those who decide to work. As well as the minimum wage rates for young workers, we last year accepted the commission’s recommendations to end the exemption from the minimum wage for apprentices under the age of 19, or those aged 19 and over in the first year of their apprenticeship.
We have hence introduced a new minimum pay rate for those people within that framework, which has ensured—for the first time, I believe—that all apprentices in the UK get the protection of the minimum wage. It gives them a fair deal, and therefore protects them from exploitation, but it does not deter businesses from taking them on. As we have heard, that apprentice rate is currently £2.50 an hour.