Draft National Minimum Wage (Amendment) (No. 2) Regulations 2016

Chris Stephens Excerpts

Thursday 8th September 2016 General Committees

[Margot James]

I thank the hon. Lady for her intervention. I propose meeting Marks and Spencer to discuss a range of matters, including some of the points that she makes. It is important to remember that, by law, as long as companies pay the national minimum wage and, in future, pay those over 25 the national living wage, there will be a limit to what the Government can do, apart from expressing a keen concern that employers should operate within the spirit, as well as the letter, of the law.

[Chris Stephens (Glasgow South West) (SNP)]

There is a real issue with enforcement. The National Audit Office said that, last year, 209,000 workers in the UK were not being paid the national minimum wage and that 56,000 were owed arrears. Will the Minister outline the Government’s plans to enforce the national minimum wage better throughout the UK?

[Margot James]

We are doing a great deal to improve enforcement. Sadly, there will always be cases of employers who have the very immoral intent of getting round this law, but the powers of investigation of Her Majesty’s Revenue and Customs are increasing, and we are increasing the expenditure on HMRC’s enforcement team. I will come on to make other points about enforcement; there are various other things that we are doing to increase it. Every single complaint made by an employee is automatically investigated by HMRC’s enforcement team. This year, we have increased the budget from between £13 million and £14 million to £20 million. We are serious about cracking down on employers that try to flout the law. I shall return to enforcement in due course, because I agree with the hon. Gentleman that it is crucial.

The Low Pay Commission has proved that a rising minimum wage can go hand in hand with rising employment. However, the carefully considered independent advice from the commission is central to this. The Government’s 2016 remit for the commission asked it to make recommendations for the new rates, based on maximising the wages of the low-paid without damaging their employment opportunities. The commission has made its recommendations following thorough consultation with business, workers, and their representatives, and extensive research and analysis.

The Low Pay Commission’s remit is clear: when considering the pace of increases to minimum wage rates, it should take into account the state of the economy. The commission has stated:

“the labour market had continued to perform well, with robust employment growth in low-paying sectors”.

Although the referendum result may have cast some uncertainty over forecasts and assessments made before June this year, we should remember that the labour market performed robustly during the worst recession in living memory.

The increases to the minimum wage rates are, of course, in addition to the national living wage for those aged over 25, which we implemented in April. It is the Government’s ambition for a national living wage to reach 60% of median earnings by 2020. In addition, the national minimum wage cycle will be aligned with the national living wage cycle from April 2017. That will reduce the burden on businesses of having to update their workforce’s pay more than once a year and will mean that the statutory pay floor for all ages is uprated simultaneously.

[Margot James]

I thank my hon. Friend for his informative intervention. The fact that it is more or less dollar for pound indicates that we in Britain are doing as much as we possibly can to protect the interests of low-paid workers, and to pay them the maximum that the economy can afford without damaging their employment prospects.

[Chris Stephens]

Since the Government announced their version of a living wage for those over 25, there has been no explanation of why the age of 25 was chosen. Will the Minister outline why that age was set for a living wage, rather than 21?

[Margot James]

The wages of young adults between the ages of 21 and 25 are protected by the minimum wage regulations, which will continue to apply. It is felt that prior to the age of 25, people in employment are gaining experience, and that the most important thing for them is to be in work and looking at their prospects in the workplace. I am sure that is felt by the Low Pay Commission, which advises the Government on such matters, while having a remit of having regard to the state of the economy as a whole and a mission to not damage people’s employment prospects. Those factors informed the Government’s decision to pick the age of 25 for the national living wage.

I point out to the hon. Gentleman that a lot of employers—particularly in the retail sector, for which I am responsible—are finding the prospect of a national living wage a huge challenge. If we lowered the age or dramatically increased the rate, there would be a grave danger to young people’s employment prospects, which it is the Government’s duty absolutely to protect.

If I may make some progress, I will come on to the issue of enforcement, which I know is of interest to the hon. Gentleman. We are absolutely clear that anyone entitled to the national minimum wage or the national living wage should receive it. The enforcement of the minimum wage is essential to its success, and we are committed to cracking down on employers who break minimum wage law in all sectors across the economy. That is why we have increased HMRC’s enforcement budget, as I was saying earlier, to £20 million from £13 million last year. This will bolster HMRC’s resources and ensure that it continues to respond to every worker complaint.

The Government will continue to take a tough approach to employers that break minimum wage law, and will continue to name eligible employers in the vast majority of cases. From April this year, the Government have also significantly increased the national minimum wage penalty, taking it from 100% to 200% of the arrears owed to the worker, up to a maximum of £20,000 per worker. HMRC will continue to refer the most serious cases of wilful non-compliance for criminal investigation.

In conclusion, the Government believe that the rate set out in the regulations will increase the wages of the lowest-paid while being affordable for business.

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[Michael Fabricant]

I have not even mentioned the national living wage; the hon. Gentleman was not listening to what I was saying. I am talking about the national minimum wage. Whether we are talking about the national living wage or the minimum wage, it has to be set at a rate that people can be employed at. Otherwise, why not set the national minimum wage at £50 an hour? That sounds a good figure. Why not make it £100 an hour? The hon. Gentleman knows as well as I do that that would be ridiculously stupid, because it would price people out of the market. It is always a question of balance. He may or may not be a great economist—I do not know his background; forgive me, but I have not read his biog—but he would know that.

It is all too easy to score cheap political points and say, “Let’s make the rate higher,” and “Aren’t the Tories wicked and mean for not having it higher?” [Hon. Members: “Yes!”] Listen to them now, Mr Wilson. They are saying, “Yes, the Tories are wicked and mean.” Well, I am not a wicked Tory, and I am not mean. [Hon. Members: “Hear, hear!”] Thank you. I supported the minimum wage at the time. However, it has to be at the correct rate, and I think that on balance, this is the correct rate. All I agree with the hon. Gentleman on is that the rates must be enforced, as I said earlier.

[Chris Stephens]

rose—

[Michael Fabricant]

I will give way. I like SNP Members, because at least they are hard-working.

[Chris Stephens]

I thank the hon. Gentleman, although I think I have been damned with faint praise. He is talking about the right rate. What is his view on having different rates for different age groups? That is an issue on which there is real debate, and I would like to hear his view.

[Michael Fabricant]

I thank the hon. Gentleman for that question. The analysis done by the Low Pay Commission and others suggests that unless we have different wage rates by age, people under the age of 24 or 25 will be unemployable. That is the problem. For example, if we set the rate too high, it would be a disincentive for companies to engage people in apprenticeships.

--- Later in debate ---

[Chris Stephens]

It is a pleasure to serve under your chairmanship, Mr Wilson. There are two main themes that I will touch on. The first is enforcement. We heard about some sort of strategy to address that, but I have questions for the Minister similar to those that the hon. Member for Sefton Central asked. What impact does the HMRC office closure programme have on enforcement of the minimum wage? Have any of the compulsory redundancies made by HMRC affected any minimum wage enforcement staff? It is important to get enforcement right. If 290,000 workers in the UK last year were not paid the national minimum wage, it seems that there is a real problem with enforcement, and we need to do it better. How many people are employed to deal with minimum wage enforcement? Are there any plans to increase that number?

The Minister mentioned the alignment between the living wage and national minimum wage rates. When will that alignment take place? It is important to look at the whole picture. The criticism of the UK Government’s so-called living wage is that it is actually just an additional tier of the national minimum wage. She and the hon. Member for Lichfield have argued that the rates change at 25, then 21, and then at other age bands. I think that that is wrong. I do not accept the arguments, well put though they were, that young workers should be discriminated against in terms of wages. I have never agreed with that analysis.

I say that for a couple of reasons. First, young workers have the same costs. A 21-year-old or a 19-year-old has the same costs as a fellow worker aged 25. I have never accepted the view that we should have different age bands. Another way of looking at it is that if there are two workers flipping hamburgers in a fast food restaurant, one aged 17 or 18 and the other aged 37, and both are doing the same work and producing the same output, they should be paid the same rate. Under the Government’s proposals, one would be paid £4 an hour and the other would be paid £7.20 an hour, which is a difference of £3.20 an hour between two workers working alongside each other and doing the same job. Employers address training and experience by inventing a pay grade containing different bands.

Well put though the arguments are, I am afraid that I want the Government to reconsider this and to direct the Low Pay Commission to look at the various age bands of the national minimum wage, because young workers have the same costs. When young workers go into the labour market, they should not be treated any differently from others. They should not be used as cheap labour, as some employers use them. I ask the Government to consider young workers, and I look forward to the Minister’s response to those questions.

--- Later in debate ---

[Margot James]

I thank hon. Members for the interesting points they have made. I will take the issues turn by turn, starting with the valid points raised by the hon. Member for Sefton Central about the national living wage. He quoted the other organisation for a real living wage, whose deliberations I follow. However, the Government follow the recommendations of the Low Pay Commission, rather than those of the other organisation. The Low Pay Commission is independent of the Government and, as I said, it makes its recommendations on the basis of what the economy can afford without damage to the employment prospects of young people.

I also mentioned the increase represented by the national living wage, which will rise over the next few years, as we all know. We on this side of the House think that is a very good thing. A lot of employers, particularly in the retail sector, are seriously concerned about their future viability with this new cost; for example, we have already identified that people in the social care sector, which several hon. Members mentioned, are very concerned. The Government are right to follow the recommendations of the Low Pay Commission, for those good reasons.

[Chris Stephens]

Will the Minister give way?

[Margot James]

I am going to make some progress, but if I do not cover the point the hon. Gentleman wants to make, he can intervene later.

I will say a little about enforcement, which was mentioned by the hon. Member for Llanelli; I very much agree with where she is coming from, and I thank her for her comments. As I said earlier, the Government are absolutely committed to cracking down on employers who break the national minimum wage law. I mentioned the budget increase for HMRC’s enforcement team; we have also increased the minimum wage underpayment penalties from 100% to 200% of the arrears owing to workers.

Employers who have underpaid their workers by more than £100 are eligible to be named. We name the vast majority of those employers: 700 have been named to date. I will make sure that that operation continues and is put on an expected footing of quarterly naming and shaming. I assure hon. Members that naming impacts on firms’ reputations, especially locally, because the local media always pick these stories up. It is a serious deterrent.

We are also creating a statutory director of labour market enforcement—I hope to have the individual in place by the end of the year—who will establish a single set of priorities for all enforcement bodies, and will back up the work of the HMRC enforcement team. The increased budget for HMRC will enable it not just to continue to investigate every single employee complaint, but to carry out more targeted inspections that do not depend on employee complaints.

I recognise that some employees, particularly in small firms, are worried about their future employment security if they make a complaint. There is the facility to make confidential complaints—people can complain directly to HMRC or they can call the free helpline that ACAS operates—but there is still that worry and fear at the back of people’s minds. I had someone come to my constituency surgery about it; they were so worried, and I took the matter up on their behalf. To ensure that that worry is not a barrier to enforcement, HMRC will carry out targeted inspections across various sectors of the economy.

That point leads me on to the care sector, which several hon. Members mentioned and which is a priority for the Government. HMRC is already undertaking targeted inspections: so far, it has made inquiries into almost 500 social care companies operating in the sector. It is worth pointing out that many of those inquiries result from targeted inspections; they are not dependent on employees making complaints. We have also enabled local authorities to charge a precept of up to 2.5% on council tax to provide considerably more funding for the social care sector, because we are concerned by what we have heard from companies operating in that space.

Hon. Members mentioned prosecutions—an issue that causes me concern. So far, HMRC has brought just 12 successful criminal prosecutions. I think we would all agree that that is a small number, but there is a good reason why HMRC prefers the civil remedy. It is far quicker; it is also cheaper, and we must have an eye on cost. Each criminal prosecution costs, on average, £50,000, and some cost considerably more. We need to make sure that criminal prosecution is in the armamentarium of HMRC, for the serious repeat offenders and employers who go out of their way to break the law. They should be the subject of criminal prosecution, but there is much more we can do, and hon. Members should not forget that when a civil remedy is pursued, the employees get their arrears immediately, whereas with a criminal prosecution they have to wait—and, of course, if it is not successful, they receive nothing.

I think I have dealt with most of the matters that the hon. Member for Sefton Central raised, including the Low Pay Commission. On the point about the disparity between people aged under 25 and those aged over 25, I listened attentively to the hon. Member for Llanelli, who obviously has expertise on the issue, and I accept that there is a difficulty in terms of strict equality between someone aged 18 and someone aged 37. I do not accept that they necessarily have the same costs, but there is an issue.

Let us not forget that the figure is a floor—a minimum. A lot of good employers who can afford it pay younger and older workers equally, and I think we would all like that to happen; but we must accept that the position of younger people in the labour market is different, and among the differences is the fact that sometimes they are training, or they need experience. I have already pointed out the significant difference in the unemployment rate.

I do not think that the provisions are a licence for exploitation. I think it is a realistic acknowledgement of the different position of different age groups, and the need to incentivise employers to employ younger people who do not have experience. Employers must have some kind of benefit from doing that. If they are in highly competitive and low-paid sectors that are under threat, such as the retail sector, which as I have mentioned is under severe threat for all sorts of reasons, they need that cushion, and that is what the Low Pay Commission recommends.

[Chris Stephens]

Some of those companies in the retail sector are multinationals making millions of pounds of profits. Is the Minister also looking at some of the companies that are changing contracts and taking away other premium payments to enforce the living wage? In debates in the House, evidence has been given of companies taking away other payments and changing hours and shifts to try to get round the living wage. Is the Minister looking at that issue?