Draft National Minimum Wage (Amendment) Regulations 2020 Draft National Minimum Wage (Amendment) (No. 2) Regulations 2020

Paul Scully Excerpts

Tuesday 17th March 2020 General Committees

[The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Paul Scully)]

I beg to move,

That the Committee has considered the draft National Minimum Wage (Amendment) Regulations 2020.

[The Chair]

With this it will be convenient to consider the draft National Minimum Wage (Amendment) (No. 2) Regulations 2020.

The Minister will speak to both instruments. At the end of the debate, I will ask him to move the second motion formally.

[Paul Scully]

It is a pleasure to serve under your chairmanship, Mr Paisley. One of the Government’s proudest achievements is creating millions more jobs since 2010. We are determined to make the UK the best place in the world to work. As announced in the Queen’s Speech, we will bring forward an employment Bill to deliver the greatest reform of workers’ rights in more than 20 years. Our approach is to balance the needs of workers and employers. These regulations, concerning the national minimum wage and the national living wage, are crucial to that approach.

We are helping to protect low-paid workers while supporting employers to comply with the legislation. We have a labour market to be proud of. Our employment rate is at 76.5%, a record high, and unemployment is 3.8%, which is lower than this time last year. Since 2010, the national minimum wage has increased faster than average wages and inflation, meaning more money for the lowest paid workers. The regulations will increase the rates of the national minimum wage and the national living wage from 1 April, which we estimate will lead to a pay rise for about 2.4 million workers.

I am delighted to say that we have accepted all the recommendations made by the Low Pay Commission. That independent expert body brings together the views of businesses and workers and, informed by research and analysis, reaches a consensus on that advice. I place on record my gratitude for its work.

The regulations will increase the national living wage for those aged 25 and over by 51p to £8.72 an hour. That increase of 6.2% means that the national living wage is projected to meet the Government’s target of reaching 60% of median earnings in 2020. A full-time worker on that rate will be more than £930 better off over the course of the year.

The regulations also increase the rates for younger workers and apprentices. Those aged between 21 and 24 will be entitled to a minimum hourly rate of £8.20, a 50p increase. Workers aged between 18 and 20 will receive an extra 30p an hour, taking their rate to £6.45. Under-18s will earn at least £4.55 an hour—a 20p increase. Apprentices aged under 19 or in the first year of their apprenticeship will receive an increase of 6.5%, meaning an hourly rate of £4.15.

The regulations also change the amount that employers can charge workers for accommodation without it affecting their pay for national minimum wage purposes. From April, that will increase to £8.20 a day.

Looking ahead, the Government have pledged to raise minimum wages further. In our manifesto, we set a new target for the national living wage of two thirds of median earnings by 2024. The Low Pay Commission will continue to have a central role in taking economic conditions into account and advising the Government on this ambitious target, ensuring that the lowest paid benefit from the increases. To improve fairness for younger workers, we will apply the national living wage to workers aged 23 and over by 2021, and to those aged 21 and over by 2024.

The first step was changing the law. We need to ensure that all workers know they are entitled to the minimum wage and that all employers know that they must pay it. The Government run an annual campaign to increase awareness. Last year, we spent £1.1 million reaching workers and employers through posters and billboards, as well as digital and online channels.

We know that most businesses pay at least the statutory minimum wage, but we take tough action against the minority of employers who underpay their workers. Since 2015, we have more than doubled our investment in minimum wage compliance and enforcement activities to £27.4 million. Such an increase in the budget allows Her Majesty’s Revenue and Customs to focus on tackling the most serious cases of non-compliance while educating employers to comply. HMRC follows up every worker complaint it receives, even those that are anonymous. It conducts proactive enforcement in sectors or areas where there is a higher risk of workers not being paid the legal minimum wage. In 2018-19, HMRC identified a record £24.4 million in pay arrears for more than 220,000 workers, and issued more than £17 million in penalties for non-compliant employers.

In February, we announced the recommencement of the national minimum wage naming scheme. Publicly naming employers who do not adhere to the rules remains an important part of our enforcement and compliance toolkit for the minimum wage. From now on, any firm that owes minimum wage arrears of more than £500 to its workforce can be named. To help educate employers, future naming rounds will be supported by a quarterly educational bulletin to highlight details of common compliance issues.

We are also acutely aware of the burden that regulations, including the minimum wage, place on business. As the level of the national living wage enters new territory, we want to make sure that the rules are as straightforward as possible. So long as workers are getting the wages they are entitled to, we want to make it easier for businesses to comply with the law. That is why I am also presenting regulations that will aid business compliance.

We have worked closely with stakeholders to identify areas of the national minimum wage rules that add complexity for employers, without providing clear protections or benefits to workers. Employers, particularly in the retail sector, told us that some aspects of the rules can be particularly and unnecessarily difficult to comply with. We have listened to those views. Following a review of evidence from the consultation on salaried workers and salary sacrifice schemes, the changes to the regulations will support businesses who employ salaried hours workers. Changes have been considered only where they maintain or enhance protections or benefits to workers.

Currently, low-paid salaried workers cannot be paid in fortnightly or four-weekly cycles without their employer risking a breach of regulations. Similarly, if companies were to pay such salaried staff extra for working a bank holiday shift, there is a risk of breaching regulations. The amended regulations widen the range of pay arrangements that are compatible with workers being treated as salaried hours workers from 6 April 2020. That will help preserve certain pay arrangements that are valued by many workers.

The regulations also make a small change to the rules on workers making purchases from their employer—for example, where a clothing retail worker buys a uniform from their employer. The change ensures that employers get credit for reimbursing the worker as they currently do when the purchase is from a third party.

As well as making changes to the regulations, the Government have announced further support for businesses to comply with the minimum wage rules. For instance, we are offering tailored support to new, small businesses. HMRC is proactively visiting selected employers to educate them on the national minimum wage and to help them get their practices right from the start.

To further improve understanding of the rules, we will soon be publishing an improved guidance offer through gov.uk. Our new offer will include thematic guides on topics where breaches are common, such as pay deductions, apprentices and unpaid work. We have convened a guidance readership panel of employer groups, unions and relevant experts, to make sure that we get these products right.

The regulations ensure that the lowest paid workers are fairly rewarded for their valuable contribution to the economy. They also provide greater flexibility to employers to help them comply with the rules, while maintaining our world-leading employment rights. Our commitment to raising the national living wage to two thirds of median earnings makes the UK the first major economy to set such an ambition. I commend the regulations to the House.

--- Later in debate ---

[Paul Scully]

I thank hon. Members for their valuable contributions to the debate. The national minimum wage and the national living wage make a real difference to the lives of millions of workers in the country. I am glad that there is agreement—notwithstanding some questions, which I will try to answer to the best of my ability—that the lowest paid workers deserve an inflation-busting pay rise, which the regulations will provide.

The regulations mean that, from 1 April, workers on the national living wage will be over £3,700 better off over the year compared with 2015, when the policy was announced. That marks a 21% increase in the national living wage since 2015. Younger workers will also get more money through the increases to the national minimum wage rates. We know that most businesses support increases to the minimum wage rates. Through the regulations, we are reducing burdens on employers in meeting minimum wage obligations while maintaining worker protections.

The hon. Member for Ellesmere Port and Neston mentioned the technical changes to the second set of regulations. He is right to say that we will continue to review the situation. Part of the reason for the changes to the regulations is that there were some unintended consequences when the national minimum wage and national living wage were introduced—for example, the four-weekly cycles and the fortnightly cycles. Regardless of how extensive they are, smoothing out those problems is a sensible measure. Of course, we will continue to see how that works in practice, as we will with all those sorts of things.

In no particular order—I have papers strewn absolutely everywhere—I will try to cover some of the points raised. The hon. Member for Glasgow South West talked about Government contractors paying a real living wage. The national minimum wage is a minimum wage, as is the national living wage. Good employers should always seek to go beyond that. The Department ensures that all contractor staff receive a minimum wage equivalent to the annual survey of hours and earnings median rate for their occupation or to the Living Wage Foundation rate, whichever is higher. It means that from April 2020 contractor staff will receive no less than £10.75 in London, or £9.30 outside London.

The hon. Member for Glasgow South West also asked why the national living wage is not higher. Right from the conception of the national living wage and the national minimum wage, we have been trying to work with businesses to ensure that employers and workers get the right balance. That goes to the question from the hon. Members for Glasgow South West and for Ellesmere Port and Neston about younger people. Again, we hope to rectify the situation so that, by 2024, 21-year-olds will be able to benefit from the higher amount. The Government took the decision to ensure that we get the right balance for younger people in the employment market. Our 16 to 21-year-olds’ unemployment rate is four times higher than that of people aged 25 and over. It is about having a balance between ensuring that they are paid a fair wage and that there are jobs and opportunities for them in the first place.

We are at the forefront on enforcement, and are significantly increasing the amount of money paid to HMRC for that purpose. HMRC will enforce in a proactive way, through education and visits to employers in the sectors that are most at risk. HMRC will have the financial resources to put where it considers best to tackle non-compliance. We have closed 770 investigations into employers between 2016-17 and 2018-19 that were opened with a potential apprenticeship risk. More than half those cases were closed with arrears found for the worker.

Several projects over the last few years have targeted apprentices and the sectors in which non-compliance is most prevalent, such as hairdressing and childcare. HMRC has undertaken many communication campaigns, including webinars and targeted projects, communicating rights and responsibilities to apprentices and their employers, to ensure that people know their rights, so that they can call out non-compliance, and that employers adhere to the rules.

HMRC also send text messages to nearly 350,000 apprentices when the annual rate increase comes into effect. We ensure that we have that communications campaign as soon as the increase is approved because it is so important that those who are the most vulnerable and the lowest paid understand their rights and how to complain. As I said in my opening remarks, HMRC also investigates anonymous complaints.

Clearly, unpaid internships are a concern, in terms of their being a barrier to social mobility. The hon. Member for Ellesmere Port and Neston is right to identify that they are often used in this place. In terms of tax and worker rights, the term “internship” does not mean anything. If someone is on work experience, just looking and learning, they are not working day to day and adding value to the company. If they are adding value to the company, and doing what could be seen as a worker’s job, the national minimum wage and national living wage legislation applies to them. Employers should look at that, and we will come down heavily on those who fail to adhere to it.

HMRC has contacted more than 2,000 employers found to be advertising unpaid internships online to ensure that they are compliant with the law. We have sent 35,690 letters to employers in those sectors that tend to use interns: publishing, media, the arts, marketing and fashion, as the hon. Gentleman said.

[Justin Madders]

I appreciate what the Minister says about how the nature of the work determines whether someone should be paid the minimum wage, but is it not a slightly artificial situation to expect someone at the very bottom of the ladder, in a very precarious situation in an internship, to report their employer to the national minimum wage helpline?

[Paul Scully]

By contacting 2,000 employers, we are reminding them of their legal responsibilities. I understand the hon. Gentleman’s concern about vulnerability and whistleblowing in those situations, but that is why it is important that we give HMRC the resource that it needs to have proactive oversight, and to go to those companies that are most likely to offer and advertise unpaid internships, so that we can nip it in the bud. To build our understanding, so that HMRC can follow the matter up properly, we have incorporated a question into the Department for Education’s employer skills survey, asking 90,000 UK employers whether they have used unpaid interns. Results are expected in late spring 2020, and we will follow up on that.

On the protection of the low-paid self-employed, we will introduce the Employment Bill, which covers a couple of the questions that were raised. That is a result of the good work plan published by Matthew Taylor and his colleagues. We hope to tackle a number of the issues raised in that report and will publish the Bill as soon as we can to ensure that it gets scrutiny from, and involvement of, all parties in its development. I look forward to introducing the Bill and having debates on it so that we continue to lead on workers’ rights.

[Gareth Thomas (Harrow West) (Lab/Co-op)]

I apologise for missing the Minister’s opening remarks. He will understand the particular concern among the low-paid and self-employed about their situation during the coronavirus crisis, as my hon. Friend the Member for Ellesmere Port and Neston mentioned. Can the Minister give us a hint about Government announcements in that area, as part of the process of reassuring constituents who are in that employment bracket?

[Paul Scully]

Unfortunately, I am not the Chancellor, but I look forward to the statement this evening. At this time, it is important that we continue to speak out daily for businesses and, as the hon. Gentleman rightly points out, for the self-employed, for workers and for people who are worried not just about their jobs and the viability of the business, but about shifts in those areas. Make no mistake, we have all seen in our inboxes the amount of concern out there, so it is so important that we continue to address the concerns of self-employed workers, employees and businesses. The Chancellor introduced a timely and targeted package last week in his Budget, but things are clearly moving at pace, and we will see what he says during his statement at 7 o’clock.

On the future of the national living wage, although we are increasing it and getting through the technicalities now, it is really important to reiterate the point about younger workers. We are planning to extend the reach of the national living wage to workers aged 23 and over from April 2021, and to workers aged 21 and over by 2024. Unfortunately, I suspect that the children of the hon. Member for Ellesmere Port and Neston will have already reached that higher level by that time.

A UK-wide minimum wage, recommended by the independent expert Low Pay Commission, ensures that the pay of the lowest paid in society is protected, and means that businesses compete on a level playing field. In 2016, the Government committed to raising the national living wage to 60% of median earnings, and we have stayed true to that commitment. We have the highest employment rate since comparable records began. The strength of our labour market shows that a higher minimum wage can go hand in hand with strong employment growth.

[Chris Stephens]

Before the Minister continues, he did not answer my question about employers using tips to reach the national living wage. That is a form of cheating that happens in the hospitality sector in particular. Will he respond to that specific point?

[Paul Scully]

Forgive me, I missed that one. The current rules are clear that tips do not count towards pay for national living wage purposes. That is part of the education that we need to ensure that the hospitality sector adheres to and does not fall foul of those rules, whether or not employers know about them. That is an area of possible exploitation and can be an area of ignorance, which is no excuse. We will shortly introduce legislation to ensure that 100% of tips go to workers, which I am sure will be welcomed in the hospitality industry.

Our pledge to raise the national living wage to two thirds of median earnings by 2024, taking economic conditions into account, makes the UK the first major economy in the world to set such an ambition. We will soon publish the remit for the Low Pay Commission, which will include recommending the national living wage rate to apply from April 2021—that is the first step on the path to two thirds of median earnings. We will continue to come down hard on employers who fail to pay the minimum wage.

The regulations and accompanying non-legislative measures show that we are committed to helping employers get the rules right at the first time of asking and without the need for enforcement. I commend the regulations to the Committee.

Question put and agreed to.

Resolved,

That the Committee has considered the draft National Minimum Wage (Amendment) Regulations 2020.

draft national minimum wage (Amendment) (No. 2) Regulations 2020

Resolved,

That the Committee has considered the draft National Minimum Wage (Amendment) (No. 2) Regulations 2020.—(Paul Scully.)