Living Wage (Farmers)

Gordon Henderson Excerpts

Wednesday 28th October 2015 Westminster Hall

[Gordon Henderson (Sittingbourne and Sheppey) (Con)]

I beg to move,

That this House has considered the effect of the living wage on farmers.

Last week, on 21 October, it was apple day, a day on which we could celebrate the wealth and variety of apples available in the United Kingdom. I am a proud man of Kent, a county that produces a high percentage of the fruit grown in Britain, including 60% of its apples. I fear, however, that Kent’s status as the garden of England might be under threat from a Government policy with which, ironically, I agree: the introduction of the national living wage.

I called for this debate so that I could set out some of the worries of farmers in Kent, particularly those who grow soft fruit, top fruit and stone fruit, but I will begin by making a couple of things clear. First, agriculture and horticulture are not low-wage industries, as is often suggested. Indeed, only a very small proportion of farm workers earn at the level of the national minimum wage.

[Jim Shannon (Strangford) (DUP)]

I thank the hon. Gentleman for bringing this important issue before the House. I declare an interest as a member of the Ulster Farmers’ Union, which shares my concern that the living wage has the potential to put farmers off employing those under 25 who do not have experience, which will have a knock-on effect. Does the hon. Gentleman feel that we should take that issue on board as well?

[Gordon Henderson]

Yes, and I will come on to discuss how we might resolve that later in my speech.

The second thing I want to emphasise is that, like me, farmers in my constituency and beyond support the principle of a living wage. Nevertheless, they are concerned that, because of a number of challenges unique to their industry, they will be forced out of business, not by the national living wage directly, but because they will be unable to compete with cheap imports from countries where farmers will not have to pay their workers as much as their British counterparts.

[Helen Whately (Faversham and Mid Kent) (Con)]

I thank my hon. Friend from Kent for calling for this debate and setting out the case very well. Fruit farmers in my constituency are also worried about the effect of the living wage, although they also very much support it and often pay experienced workers well above it. They are worried that it will increase their labour costs by perhaps 11%, when they make margins of only around 1% or 2%. I feel strongly on their behalf that the Government must look at mitigating the impact if we want to maintain a successful British fruit industry.

[Gordon Henderson]

I am pleased that my hon. Friend and fellow Kent MP has raised that important issue, because I will be dealing with it later in my speech.

Another problem faced by farmers is foreign competition, which has made things worse. Their main customers are supermarket chains that are notoriously hard-nosed when it comes to price negotiations: they always look for the cheapest suppliers, whether or not they come from this country. It is inconceivable that supermarkets will, without protest, allow farmers to pass on the increased labour costs they will be forced to pay. The supermarkets will simply buy cheaper, imported produce.

Many of the workers employed by farmers are seasonal. Traditionally they were students who, because they were generally under 25, would not be covered by the national living wage, but the supply of home-grown student workers dried up and was replaced by foreign workers, many of whom came to this country under the seasonal agricultural workers scheme. Sadly, two years ago the Government scrapped SAWS, a decision that will exacerbate the problems faced by farmers if they are forced to pay the living wage.

Some farmers will look into introducing even greater mechanisation in order to reduce their labour costs. There is little doubt that such a move will inevitably lead to fewer staff, so it is highly likely that an unintended consequence of the national living wage will be a rise in unemployment among farm workers. Of course, some farming sectors do not lend themselves to mechanisation, and horticulturists such as soft, top and stone-fruit farmers are in that category, which is why they face the biggest challenges. As I said earlier, some of those challenges are unique to farmers. For instance, they have to deal with the vagaries of the supermarkets, which, in addition to demanding unsustainably low prices, have been known to reject a delivery of perfectly good crops as imperfect, simply because they still had some of that crop in stock from a previous delivery.

Farmers have to contend with unpredictable weather, which can decimate their crops. They also have to contend with the additional costs associated with the sale and delivery of highly perishable products and, as I have pointed out, competition from foreign imports from EU countries such as France that are becoming even cheaper because of the fall in value of the euro against sterling.

Farmers are not like widget manufacturers: they cannot just buy in components to produce goods; they have to plant crops, nurture them and eventually harvest them. Top-fruit farmers face a particular problem, because when they plant trees they are unlikely to have a saleable crop for three or four years. When considering whether to invest in new trees, a farmer needs to be confident that he or she will be able to sell the eventual crop of fruit profitably. Such farmers believe that the national living wage will make that very problematic. There are farmers in my constituency who planted fruit trees last year based on the understandable assumption that, over the next few years, their wage costs would be in line with the trend in the minimum wage seen over recent years. Imposing the new living wage on those farmers, without consultation or warning, will put their financial stability in jeopardy unless mitigation is forthcoming from the Government.

I accept that it was announced in the summer Budget that the cost to employers of paying the living wage would be offset by changes to corporation tax rates. The problem is that in the horticultural industry a reduction in corporation tax will not have the beneficial impact that the Government suppose, because 95% of producers are sole traders or partnerships, for whom corporation tax is not payable. Similarly, although the increase in the employment allowance will reduce employers’ national insurance contributions, that will have little effect on horticultural businesses because, typically, they employ relatively large numbers of workers, and the change to the employment allowance applies only to a business, not to the number of workers employed.

Although horticultural businesses employ large numbers of workers, they are, in the main, low-turnover small and medium-sized outfits.

--- Later in debate ---

[Andrew Rosindell (in the Chair)]

Order. The debate will now resume and will conclude no later than 4.45 pm.

[Gordon Henderson]

As I was saying before we were so rudely interrupted, while horticultural businesses employ large numbers of workers, they are in the main low-turnover, small to medium-sized outfits, which leaves them exposed to the impact of the living wage. As my hon. Friend the Member for Faversham and Mid Kent (Helen Whately) pointed out, profitability levels in the industry are low and having to pay the living wage will push many producers over the edge and out of business. Unless the Government step in and help farmers, we are likely to see the loss of British-grown produce and an increase in imported food, which would have serious long-term consequences for not only the British economy but our country’s food security.

Farmers also face a couple of other problems. Accommodation provided by an employer can currently be taken into account when calculating the national minimum wage. It is not clear, however, whether that arrangement will continue under the living wage. If it does not, many employers who provide accommodation will face rising wage bills without the benefit of a reduction in the amount that they pay to subsidise that accommodation. It might help if the Minister confirmed whether and how the living wage will differ from the national minimum wage in that respect.

Another problem is that the introduction of the living wage comes at a time when farmers, like other businesses, are facing increased costs from other employment legislation, including pension auto-enrolment and an increase from 1% to 2% in the employer contributions that will come into effect in 2017. Farmers believe that the rise in wages under the living wage will lead to a growth in contributions to auto-enrolment pensions. Assessing a complex, changing workforce and calculating contributions for short periods for seasonal workers who stay with a business for just over the current 12-week postponement period will add to farmers’ costs.

To help British farmers in general, and my local farmers in particular, I want the Government to consider several possible mitigating measures. First, supermarkets could be encouraged to work with farmers to help ensure that they receive a fair price for their produce. Ministers could do that by convening a meeting between the management of our major supermarkets and farmers’ representatives to put together a long-term plan for the industry. Secondly, the exemption from the living wage for workers under-25 could be widened to include seasonal workers. Thirdly, employment allowance could be changed so it is based on individual workers and not a business. Fourthly, we could introduce staged increases for the level of accommodation offset that counts towards an employer’s payment of the national minimum wage and, presumably, the living wage. Fifthly, the cumulative and disproportionate administration burden associated with auto-enrolment duties could be reduced by extending the current three-month postponement period to six months to help capture seasonal workers in the postponement period.

Sixthly, the starting point for national insurance could be aligned with the starting point for income tax. In 2011-12, the class 1 NI threshold was set at almost 95% of the income tax starting threshold. Today, it is just 76%. Finally, the review cycles for the national minimum wage and the living wage could be aligned to reduce complexity. As I asked earlier, will the Minister perhaps confirm whether and how the living wage will differ from the national minimum wage? In addition, will he provide clarity on how the two wage rates will co-exist and whether the various rates can be simplified?

Agriculture and horticulture are important to Britain. They are particularly important to Kent, which, in addition to being the garden of England, just happens to be God’s own county.

[Tom Tugendhat (Tonbridge and Malling) (Con)]

My hon. Friend speaks for many of us who represent some of the fantastic areas of the kingdom of Kent. I am delighted to hear his comments, which forcefully express the importance of agriculture to our region. In my constituency is Hugh Lowe Farms, which grows the strawberries for Wimbledon, and the community there has done a great deal to develop not only the farm but the economy around it. Marion, who runs the farm, raised the possibility of considering the Australian piece rate, which is a concept that would see the average employee wage be 25% above the minimum. If my hon. Friend is not going to come on to that point, will the Minister consider it anyway?

[Gordon Henderson]

I welcome that intervention because I was not going to mention the concept, so it is just as well that my hon. Friend did.

In conclusion, I want to see a thriving farming industry in Kent that provides food security for future generations. To achieve that, however, we need the Government to back British produce.