National Minimum Wage (Amendment) Regulations 2018

Lord Stevenson of Balmacara Excerpts

Thursday 15th March 2018 Grand Committee

[The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Henley) (Con)]

My Lords, I beg to move that the National Minimum Wage (Amendment) Regulations 2018, which were laid before the House on 5 February 2018, be approved. The purpose of the regulations is to increase the national living wage and all of the national minimum wage rates from April 2018. The regulations also include an increase in the accommodation offset rate, which is the only benefit in kind that counts towards minimum wage pay.

The national living wage has had a real, positive impact on the earnings of the lowest paid: between April 2015 and April 2017 those at the fifth percentile of the earnings distribution saw their wages grow by almost 7% above inflation. This is faster than at any other point in the earnings distribution and, according to the Resolution Foundation, wage inequality, as measured by the ratio between the top decile and the bottom decile of the earnings distribution, fell in all regions of the United Kingdom between 2015 and 2017 thanks to the national living wage. Increasing the minimum wage is one more way in which the Government’s industrial strategy is boosting people’s earning power and seeking to raise productivity throughout the United Kingdom.

From next month the national living wage for those aged 25 and over will increase by 33p to £7.83, which is a 4.4% increase. The 33p increase in April will mean that a full-time worker on the national living wage will see their pay increase by over £600 over the year. The national living wage is on course to reach the Government’s target of 60% of median earnings by 2020.

The 21 to 24 year-old rate will increase by 33p, meaning those in that age group will be entitled to a minimum of £7.38—an annual increase of 4.7%. Those aged between 18 and 20 will be entitled to a minimum of £5.90—an annual increase of 5.4%—and those aged 16 and 17 will be entitled to a minimum of £4.20, an annual increase of 3.7%. Finally, apprentices aged under 19, or those aged 19 and over in the first year of their apprenticeship, will be entitled to £3.70, which is the largest annual increase of all the rates at 5.7%.

All of these above-inflation increases represent real pay rises for the lowest-paid workers in the United Kingdom. For younger workers on the national minimum wage, it is the largest and fastest increase in more than 10 years. The Government’s green-rated impact assessment estimates that more than 2 million people will directly benefit from these regulations.

All of the rates in the regulations have been recommended by the independent and expert Low Pay Commission. The LPC brings together employer and worker representatives to reach a consensus when making its recommendations. The Government asked the Low Pay Commission to recommend the rate of the national living wage so that it reaches 60% of median earnings in 2020, subject to sustained economic growth.

For the national minimum wage, the LPC has recommended rates that increase the earnings of the lowest-paid young workers without damaging their employment prospects by setting it too high. I thank the LPC for the extensive research and consultation that has informed these rate recommendations, all of which was set out in its 2017 report, published in November.

The Government recognise that, as the minimum wage rises, there is a higher risk of non-compliance as a larger share of the workforce is covered by the minimum wage. The Government are committed to cracking down on employers who fail to pay the national minimum wage. We are clear that anyone entitled to be paid the minimum wage should receive it. Consequently, the Department for Business, Energy and Industrial Strategy has increased funding for HMRC national minimum wage enforcement to £25.3 million this year—up from £13 million in 2015. HMRC follows up on every complaint it receives, even those which are anonymous. These include those made to the ACAS helpline, via the online complaint form or from other sources.

In 2016 HMRC recovered pay arrears in excess of £10.9 million for more than 98,000 workers. Those employers who underpay their workers the minimum wage face public naming by the Government. Indeed, last Friday BEIS named 179 employers who had underpaid a total of £1.1 million to 9,200 workers.

Sustainable increases in minimum wage rates depend on strong employment growth. Over the past year the UK labour market has reached a record high employment rate, and the lowest unemployment rate since the 1970s. Evidence has long told us that investing in human capital is crucial for the long-term productivity of the workforce. The industrial strategy sets out our long-term vision for increasing productivity, including through raising the minimum wage and so boosting the earning power of the lowest-paid workers. Through these regulations the Government are building an economy that works for everyone. I commend the regulations to the Committee.

[Lord Stevenson of Balmacara (Lab)]

My Lords, I thank the Minister very much for his introduction. I will not go back over the recent history of the introduction of the national minimum wage, because I think it is now a settled agreement between all the parties that it is a good thing. It works for all sections of society, but particularly for the lower paid, and we have evidence before us that shows that.

While we are in congratulatory mode, I thank the LPC, as the Minister did, for its work. It is often unsung and not very visible, but it is well rooted in the interest it has in this area and I know that Ministers value the work that it does. I also congratulate the team responsible for the paper before us. It is a bit of a shock to have to read back through some of the stuff one thought one had forgotten a long time ago about microeconomics and the impact of some of the very narrow points raised in the 51 pages or so of the supplementary work, which I am sure the Minister has in his mind and can quote extensively from memory. It is a very good read and very interesting. It agonises a lot about issues that we do not need to detain the Committee with, but it is important that that work is done. I appreciate the fact that it is there and we should publicly recognise the contribution made by it.

Having said that, while I give an alpha plus for the work that has been done, I give it a beta minus for presentation. I came to this slightly late, otherwise I would have raised it earlier, but it is unfortunate that some of the pagination has been lost in the form that the document comes to us. The pagination matters because, for instance, on page 15 of the copy we have from the Printed Paper Office there is a box that should be on one page but which has gone on to several pages. It makes it very difficult to pick up where we are on that. On page 17 there is a rather complicated and important wage distribution graph that is only really readable in colour, although it is printed in black and white. It therefore does not make sense. You have to spend quite a lot of time working out which of the confidence limits percentages are being referred to in the text. If they had been colour coded one would have been able to do so. I am not complaining about this; I am just pointing out that intelligibility would be improved if we could think more about a reader who is not directly involved.

I will make three points—but before I do, I will say that this is the third time that I have responded to this particular instrument, so I am quite familiar with the process, and in particular the rather neat shuffle that took place this time last year, or maybe six months ago, when we moved from October to April. Last time the instrument came partly under the national minimum wage and partly under the living wage. It did the work of assessment and thinking in terms of the minimum wage but prefigured how we would move to the living wage. This is a simpler and more straightforward document than we had the last time we went through this.

Having said that, we have lost a little bit of the context for the decisions that are quite important in this area, which is that the move from the minimum wage to the national living wage is one of significant increases over a relatively short period of time to jump-start an increase in funds at the lower end of the pay spectrum. We absolutely welcome that, but I have lost the thinking of why we are doing it over three years. Also, the Minister used the phrase “subject to satisfactory economic growth”. Well, economic growth is not very satisfactory. For reassurance’s sake, may I have a confirmation that there are no red lights about the future of this and that, as far as we are able to say at this stage, we are still on track to do this oddly phrased equal bite, or single bite, or whatever it is called—it is called the “straight line bite path”—movement from the current position to hit 60% of the median earnings in October 2020, and that there is nothing I have missed in this that would suggest there is any doubt about whether we will do that, subject obviously to the overriding concern about economic growth? It is important to give reassurance if we are at that stage.

Another minor point is that the percentage increases in individual hourly rates are good. One could perhaps make a little too much of 5.7% arising from a 20p per hour rate increase for apprentices, but nevertheless it is valuable in itself. However, the rates are significantly higher than they would have been otherwise and indeed contrast with the reduction in real wages which we are seeing elsewhere in the economy—so to that extent it is doubly welcome.

Having said that, the LPC has recommended, and as far as I can see the Government have accepted without comment, a much bigger increase in the disregard for accommodation rates. I wonder if the Minister could give me some thoughts on that. This is a sensible way of treating those who have accommodation benefits. I do not dispute the principle, but the particularity of squeezing cash in the pocket or the purse, as it were, by raising the disregard for accommodation at a higher rate than the increase in pay seems a little unfair. Is there any context around that in documentation that we have not seen? I would be grateful if the Minister could tell me that today. If not, I will be happy to receive a letter.