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

Michael Fabricant Excerpts

Thursday 8th September 2016 General Committees

[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.

[Michael Fabricant (Lichfield) (Con)]

Is my hon. Friend aware that in the US, which had a minimum wage before we did, the rate is currently $7.25 an hour? That is only £5.50 at the current rate of exchange. Does that not put into context how good our minimum wage is, let alone the living wage?

[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.

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[Bill Esterson]

Perhaps the Minister has just told us that she has no intention of putting up the so-called national living wage by very much. I remind her that the Living Wage Foundation says that a living wage in this country is £8.25, or £9.40 in London—not the lower smoke-and-mirrors figure of £7.20 that the former Chancellor introduced.

[Michael Fabricant]

I was quite involved in the minimum wage when it came in under Tony Blair, the former leader of the Labour party, in 1999. The age of 25 was chosen was because the Labour party got good advice that if it priced the minimum wage for those under 25 at the same amount as for those aged 25 and over, those under 25 would not get employed. The Labour party wanted 21 to 25-year-olds in work; it is as simple as that. It may be that the old Labour party, as opposed to new Labour, resents or rejects that, but that was the view of the Labour party at the time, and it was correct.

[Bill Esterson]

I remember all too well the all-night sitting—I was a researcher at the time—during which Conservative MPs filibustered as long as they could to prevent the national minimum wage from being introduced, so we will not take any lectures about the implementation of the national minimum wage. [Interruption.]

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[Michael Fabricant]

I was not going to speak, but I have been driven to do so by the hon. Member for Sefton Central. I agree with his last few words—enforcement is tremendously important—but his rewriting of history has been quite remarkable. He may have been here as a researcher when the minimum wage was introduced; I was the Opposition Whip at the time, but they would not put me on that Committee because the only row I ever had with our then leader, William Hague—now a noble Lord—was over the minimum wage. I said to him at the time that the minimum wage was something that we would come to support. He said, “It will never happen”—that was not a very good impersonation—and I said, “Oh yes it will, and it works in the United States.” On that occasion, I was proved right and he was wrong.

Earlier, talking about the level of the minimum wage, I gave the example of the United States, where the federal rate is just $7.25 an hour. Interestingly, there are many exemptions in the US. For example, disc jockeys—I was a disc jockey for a short while on a pirate radio boat—are exempt, and so are waiting staff. That is one of the reasons why people have to tip well when they go to the US—because the waiting staff live on tips. I go to the US a lot for private reasons. I was chatting to a barman who told me that he is on $2.50 an hour, which is only £1.90, so we really can be proud of the UK’s minimum wage.

The rate is tremendously important. It is all very well for the hon. Member for Sefton Central to say that it should be higher, but if people are not employed, the rate is zero per hour. It is always a balance. Tony Blair knew that; Gordon Brown knew that; sadly, the hon. Gentleman does not seem to realise that. If people are priced out of the market, they will not get anything, because they will be unemployed.

[Bill Esterson]

Given the hon. Gentleman’s belief that the national living wage prices people out of jobs, was he against the former Chancellor’s introduction of the national living wage at £7.20—a rate significantly higher than the then national minimum wage?

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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.

[Margot James]

Will my hon. Friend give way?

[Michael Fabricant]

Of course I give way to my honourable and very real Friend the Minister.

[Margot James]

I thank my hon. Friend for his enlightening comments and for giving way. To amplify his point about the difference between those under and over 25, he might be interested to know that unemployment among those 25-plus is just 3.7%, but it is still 13.6% for 16 to 24-year-olds. I agree with the Low Pay Commission that increasing those rates further for under-25s would put their employment prospects in serious doubt.

[Michael Fabricant]

Yes. Also, people pay a premium for experience, and the younger people are, the less experienced they are. Although 13%—was it 13%?

[Margot James]

It is 13.6%.

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[Michael Fabricant]

Although that is too high, in Spain, youth unemployment is at 48%. In France, it is near 40%. I think we can all applaud this Government for strong management of the economy.

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[Nia Griffith (Llanelli) (Lab)]

I was pleased to hear the Minister speak of strengthening enforcement, which is essential both to protect workers and to stop unscrupulous employers undermining responsible ones, but she must keep up the pressure to ensure that better enforcement becomes a reality. When the former Chancellor, the right hon. Member for Tatton (Mr Osborne), announced the so-called living wage of £7.20 an hour, which I consider to be simply a new minimum wage, I was disappointed to note that it would apply only to the over-25s and not to those aged 21 and over, as the national minimum wage did. By the time that young people are 21, they may have finished their higher education course, or they may have been in work for a couple of years. They may be married and they may have children. They should be receiving the same as those aged 25 and over.

I point out to the hon. Member for Lichfield that when Labour introduced the national minimum wage in 1999, the full rate applied to those aged 22 and over, not 25 and over as he indicated. Twenty-two was reduced to 21 some 10 years later.

[Michael Fabricant]

I am grateful to the hon. Lady for correcting me on that point, but she will concede that the age was changed to 25 under a Labour Government. Gordon Brown felt that in that way, the Government could keep under-25s nearer to full employment.

[Nia Griffith]

The national minimum wage was introduced for 22-year-olds and over, not for 25-year-olds and over, in 1999. That is the important point.

[Michael Fabricant]

Yes, but 10 years later—

[Nia Griffith]

Ten years later, it was reduced from 22 to 21.

If there is a valid argument that there is a higher unemployment rate among 21 to 25-year-olds and that depressing the wages of this group compared with the wages of those aged over 25 will make employers more likely to employ them, it is very exploitative and very unfair, both because it discriminates against younger adults by setting a lower rate of pay, and because it could prejudice the chances of over-25s getting work, as they may be seen as more expensive. We should instead address the underlying reasons for it being more difficult for this group to get work. We know that there have been far fewer openings in recent years, with confidence still low in the private sector, with the recovery patchy across the country, and with swingeing cuts in the public sector, which means there is little expansion in many areas. Retiring workers are often not replaced, or are replaced only by casual workers on zero-hours contracts or other such arrangements.

Moreover, there is an argument that raising the minimum wage would save the public purse by lowering the tax credit bill; that argument applies equally to those under 25. When Labour introduced the minimum wage, in the face of fierce opposition from the Conservatives, we had to proceed cautiously. The hope was that, once introduced, rates could be gradually improved. I have consistently argued for less of a differential for 18 to 20-year-olds and for 16 to 18-year-olds, with higher annual percentage increases for these groups.

When the new over-25s rate was set at £7.20, it was an increase on the existing national minimum wage of some 7.5%, whereas the proposed new rate for 21 to 24-year-olds is an increase of only 3.7%. If the Government are not minded to give the full £7.20 to that age group, they could at least use this opportunity to raise the rate by more than 3.7%. Likewise, looking at the 4.7% increase for the 18 to 20-year-olds, from £5.30 to £5.55, and the 3.4% increase for 16 to 17-year-olds, from £3.87 to £4, the gap is now widening, not narrowing, between the three groups of younger workers and the over-25s.

I want a concerted effort to increase the 18 to 20-year-old rate by a greater percentage, to reduce the differential and bring the rate up to that for the 21 to 24-year-olds, and then to that for the over-25s, for the reasons I have already alluded to. Of course, many young people now work to fund their studies. I also want a greater percentage increase and a lesser differential for the 16 to 17-year-olds, and I feel that today’s legislation is a missed opportunity to begin on this path.