Low Pay

Matt Hancock Excerpts

Wednesday 30th October 2013 Westminster Hall

[The Minister for Skills and Enterprise (Matthew Hancock)]

It is a pleasure to serve under your chairmanship, Mr Hood. I thank the hon. Member for Glasgow North East (Mr Bain) for securing the debate and giving us the opportunity for discussion. I have listened carefully to his arguments, which were passionately put. As he said, there is a strong cross-party consensus behind the minimum wage and the institution of the Low Pay Commission, which advises the Government on the appropriate rate. Interestingly, more Government Members than Opposition Members are in the Chamber, which demonstrates the cross-party support for the minimum wage and a commitment not only to it, but to its effective enforcement. We are absolutely clear that anyone entitled to be paid the minimum wage should receive it.

Before I answer some of the points made and set out what the Government are planning to do, I want to give some statistics in response to the hon. Gentleman. Times are undoubtedly tough following the great recession of 2008 to 2009, but since then the bottom quintile or fifth of the population have become around 6% better off, in part because of measures taken by the Government. Overall, household disposable incomes have risen in the past year and in the past quarter.

Specific actions taken by the coalition Government include freezing council tax; freezing and then cutting fuel duty; introducing the apprenticeship minimum wage, which did not exist before, in 2010; cutting beer duty; and of course raising the tax threshold, which was mentioned by my hon. Friend the Member for Hexham (Guy Opperman). The tax bill of people working full time on the minimum wage has been cut in half.

Government Members would argue that the best route out of poverty is work, with benefit and education reform and, as the hon. Member for Glasgow North East mentioned, an enhancement of skills. That is vital in the long term, but we have been able to take some shorter-term fiscal measures to support people’s disposable incomes—after tax—even in difficult times.

The hon. Gentleman also discussed universal credit and tax credits. Tax credits have the disadvantage of the withdrawal rate and the increase in marginal effective taxes. However, universal credit will ensure that work always pays, so it and a consistent withdrawal rate will be part of the solution to poverty. We want to ensure that incentives are right to support people who get on and work hard.

[Mr Bain]

How do the Government respond to the research produced today by Gingerbread? Given the new way in which universal credit will work—assessed on after-tax income—what lone parents get through the tax system they will in effect lose through universal credit. Frankly, will that not make it difficult for the Government to make good the pledge of the Secretary of State for Work and Pensions, that work will pay for every hour that people work?

[Matthew Hancock]

Absolutely; it is vital that work always pays for every hour, and that is why having a consistent withdrawal rate in universal credit matters. It is valuable that this debate is not particularly partisan, but I draw the hon. Gentleman’s attention to the fact that, with tax credits as they were, withdrawal rates were sometimes more than 100%, so in some cases—not in large numbers—people were taking home less when they worked harder. Universal credit will put an end to that, which should be welcomed in all parts of the House.

[Guy Opperman]

Does the Minister accept that the true way to engineer people out of low pay is to provide them with the skills to do a better job and to make progress? Last week, I opened an engineering academy in Hexham, and shortly we hope to welcome to the north-east the skills funding pilot of the Department for Business, Innovation and Skills. Does he accept that skills are the real secret for the future of the low-paid?

[Matthew Hancock]

Yes, of course. As the Skills and Enterprise Minister, everyone would be amazed—I would not be doing my job—if I did not support that argument, which I do.

[Nia Griffith]

As has been rightly pointed out, whether with tax credits or universal credit, there is an issue about tapering. More importantly, there is also an issue about the public purse. Whatever the history—which, in my opinion, shows that when the national minimum wage was introduced, it was opposed by certain parties, so it had to be brought in at a compromise level—the issue remains that, unless we look seriously at raising the minimum wage at a faster rate, we will continually have to top up from the public purse.

--- Later in debate ---

[Matthew Hancock]

I was about to answer that point. To consider what best to do to ensure that everyone gains from the economic recovery as it comes, we have to understand all the factors affecting low wages and low pay in our economy. I imagine that there is a common desire to see wages rising without damaging employment.

The Low Pay Commission was set up to get that balance right. We have now asked it to look at what economic conditions might be needed to allow the national minimum wage to rise more in future than current conditions allow without having an adverse impact on jobs. Improving incentives to work by having a higher minimum wage has a positive impact on employment, but we must get the balance right. Employment is growing strongly in this country, which is good because unemployment is worse than being in a job on the minimum wage. We must get that balance right.

We are doing what we can to protect the incomes of working households that have been squeezed, hence we have cut income tax by raising the tax threshold and taking almost 3 million people out of tax. The rises in the personal allowance are worth up to £700 in cash and more than £500 in real terms from April 2014, which is a significant improvement.

We are also taking important action on enforcement of the national minimum wage. Anyone who is entitled to it should receive it. Since 1 October, employers who fail to pay it will be publicly named, and revamped criteria were announced in August to make it easier to clamp down on rogue businesses. In 2012-13, more than 700 employers received penalties totalling more than £775,000 for failing to comply with minimum wage law. From the start of this month, I am writing personally to every new apprentice to ensure that they are aware of their rights under the legislation. Under the original scheme, we named only one employer because the benchmark was set high. It was introduced only in 2011 and did not exist in that form under the previous Government. We have strengthened it from 1 October.

All that is part of an effort to toughen up enforcement of the national minimum wage, not least because it is fair that scrupulous employers who pay the national minimum wage are not undercut by unscrupulous employers who do not pay it. We are taking a multi-faceted approach, including improved new targeted communications, to raise awareness in addition to letters from me, which I am sure every apprentice enjoys receiving. This work is starting to produce results. In 2012-13, Her Majesty’s Revenue and Customs identified £3.9 million arrears of wages for 26,500 workers.

Action has been taken, but we must get the balance right. We have asked the Low Pay Commission to take further action, but we must do that in a way that supports the rising number of jobs in this country. Overall, it is valuable not only to debate the issues, but to continue to try to get the balance right between ensuring that work always pays and that the minimum wage is at a level that supports people in work as consistently as possible with ensuring that it does not harm the employment prospects of those who are seeking work.

Doing that at the same time as trying to remove some of the fiscal costs—the taxes on jobs—asking the Low Pay Commission to take a forward-looking view of what economic conditions would be necessary to allow a faster increase in future and the stronger naming scheme demonstrate that we are working hard to ensure that the national minimum wage is effective, fairly enforced and supports people who do the right thing, work hard and are trying to provide for their families in tough times. That shows that the coalition Government are on their side.

[Mr Jim Hood (in the Chair)]

I confirm that the next debate must be concluded by 5.15.