Column 354annual rise in living standards is not significant. However, if he disaggregates the growth in average earnings, he will see that the lowest paid 20 per cent. are relatively worse off and that there is a growing divide in our country. That is the issue that we wish to discuss tonight.
Mr. Fowler : The figures that I have quoted show that the position has improved unquestionably over the past nine or 10 years and has improved much faster than under the last Labour Government. The hon. Lady may not like that evidence. She was not a member of that Government and no doubt does not take a great deal of responsibility for their actions, but that is the position.
I am not prepared to take lectures on wages councils from the hon. Member for Oldham, West. The House will understand that we are in the final stages of consulting about the future of the wages councils. Opposition Members might have rather more to complain about if, before the consultation period was over, I came to the House and announced a decision. Let me explain why we believe that consultation was necessary.
By any analysis, the wages council system has changed fundamentally since its inception in 1909. Two thirds of the workers whom it now covers are paid above the minimum rate. Wages councils cover only one tenth of the work force. It is essentially a system for retailing, catering and, to a lesser extent, clothing manufacturing. Retailing and catering together account for about 90 per cent. of the workers who are covered.
The system is not comprehensive and it is also--by common consent--full of anomalies. It covers laundries but not laundrettes, the selling of cooked meat, but not that of raw meat. Not only have circumstances changed since 1909, but there have been developments since legislation was introduced in 1986 to exclude young people under the age of 21.
There is no evidence that the removal of the right of those under 21 to take their cases to wages councils has led to lower pay for them. There is every reason to believe that it has encouraged their employment. [Interruption.] I shall give the hon. Member for Oldham, West evidence on employment in a minute. Since young people were excluded from wages councils regulation in 1986, employers have been more willing to employ them. They have also enjoyed greater freedom to fix pay levels and that has contributed to the dramatic decrease in youth unemployment. Unemployment among those aged under 20 has fallen during the past two years from 21 per cent. to just above 12 per cent. Some young people have enjoyed opportunities which would not have existed had regulation continued, and their earnings in general have not fallen away.
In hotels and catering the weekly earnings of full-time male workers under 21 have risen from £96 in 1986 to £105 in 1988--an increase of 9 per cent. Females in the same industry aged under 21 have enjoyed a pay rise during the same period from £87 to £97--an increase of 15 per cent.
In retailing, the earnings of full-time sales assistants have risen from £90 to £107--an increase of 19 per cent. There is no evidence of a reduction in the earnings of under-21s since the wages council system was introduced.
Economic and social conditions have been transformed since the wages council system was introduced. Average
Column 355pay is higher and average hours worked each week have fallen by between 10 and 15 hours. The great majority of people who are covered by the wages councils work part time and many contribute a second income to the family.
The greatest difference since the introduction of wages councils is that there is now a comprehensive framework of social security benefits--not only out-of-work benefits, but in-work benefits. The system of in-work benefits provides direct help for people on low incomes. Family credit--
Family credit is a generous replacement of the old family income supplement. It is a viable and worthwhile benefit that makes a substantial difference to the income of working families. Expenditure on family credit in its first year of operation is estimated at £420 million. That compares-- [Interruption.] If the hon. Member for Liverpool, West Derby (Mr. Wareing) waits, he will hear some answers. That compares with an expenditure of £180 million in the final year in which the family income supplement system was in operation. The amount of money devoted to low income families who are in work has more than doubled since the family credit system was introduced. A quarter of a million families now receive family credit--25 per cent. more than received family income supplement.
The average weekly award under the family credit system is more than £25--nearly double the £13 of the average family income supplement award. That is evidence that families most in need are claiming benefit.
We continue to encourage the take-up of this new benefit. It has been in operation for only 12 months. Last summer I issued a leaflet which was distributed amongst jobcentres to explain family credit and other in-work benefits. [Interruption.] If the hon. Member for Oldham, West wants to argue against in-work benefits--it will be a new stance for his party-- will he explain why the last Labour Government did nothing about them? Family income supplement continued throughout that Government's period in office.
Circumstances have changed not only since the inception of the wages councils system but since the last consultation period in 1985. For those reasons, it is right to review the role of the councils and to consult on the proposal that they should be abolished. Decisions will be taken after the consultation period.
The Opposition's attempts to link the proposed abolition of the wages councils with an increase in poverty founder on the facts. Most employees covered by wages councils are part-time workers, and about two thirds contribute a second income to the home. The size of that second income affects the standard of living of the household, but such families are not normally defined as living in poverty. Families without opportunity of employment encounter the greatest difficulty in achieving an acceptable standard of living. That is why the
Column 356Government are concentrating on creating conditions in which employment can grow and unemployment be reduced.
The Government can best help by creating conditions in which more jobs are generated and removing unnecessary barriers to employment. One that is still to be overcome is the shortage of skills in the labour market. Those goals form the background to our training proposals.
The Government have tackled income barriers that stand in the way of people taking jobs in the first place. The Government have made a serious start on raising the tax threshold by increasing personal allowances by more than 25 per cent. They have restructured national insurance contributions to make lower paid jobs more attractive to employers and employees. Since 1985, national insurance contributions have been levied at the two lower rates of 5 per cent. and 7 per cent. By raising income tax allowances and by cutting the standard rate of income tax the Government have ensured that the average liability to income tax and national insurance of the bottom 10 per cent. of taxpayers has fallen by 19 per cent. in real terms during the 1980s.
Another effect of having to finance Government expenditure by high taxes was that, after paying tax, people became better off when claiming social security than they were when employed. That is why the Government are determined to control spending and cut taxes. We are determined to ensure that people are better off in work, and that is why we have introduced family credit.
Opposition Members have expressed concern about a widening of the distribution of income. They should remember that the standard of living of every part of the income distribution has increased absolutely. Real personal disposable income, both in total and per head, is higher than at any time under the last Labour Government. The test is whether the incomes of the poorest have increased. They have. That is more important than changes in relative distribution of income. The Labour party's lurid caricatures do not square with the facts. The truth is that the majority of families are better off than they were in 1979. The incomes of couples with children have increased in real terms and the incomes of single parents have also increased. A strong growth in real earnings is important because it represents real and quantifiable increases in the material welfare of people.
Over the past 29 months or so, unemployment in this country has come down month by month. We have seen the biggest reduction in unemployment since the war. We have also seen the creation of a record number of new jobs. That is the Government's record, and it is a record that brings undoubted benefit to everyone in this country.
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Mr. Martyn Jones (Clwyd, South-West) : Despite the protestations of the Secretary of State, in the past 10 years, the divide between rich and poor has widened hugely. Methinks the Secretary of State doth protest too much. My hon. Friend the Member for Oldham, West (Mr. Meacher) has told us that, since 1979, the number of adult workers falling below the Council of Europe's decency threshold as specified by the European social charter has increased from just under 8 million to 9.9 million. Over the same period, pay rises for the highest paid fifth of men have been 50 per cent. greater than those for the poorest fifth. The poorest fifth of manual workers earned only 64 per cent. of the average in 1987, compared to 69 per cent. of the average in 1886. Meanwhile, the highest paid now earn more, relative to the average, than at any time since 1906. I do not remember the Secretary of State challenging those figures. Perhaps he will when he winds up, but I doubt it.
The problem of low pay has worsened, and progress towards equal pay for women has stopped. The average earnings of women full-time workers is two thirds that of men, and the gap between the earnings of young people and adults has continued to widen. People between 18 and 20 years of age earned just 60 per cent. of average adult pay in 1979. There is also growing regional inequality, which the Secretary of State did not tackle. Even in the south-east, nearly one in four adults earn low wages despite working full time. In the rest of Britain, the figure is about one in three and that applies to regions such as Wales.
We can blame deliberate Government policy, including the 1983 abolition of the fair wages resolution and the 1986 weakening of the wages councils' minimum wages system. As a result, some groups of workers have experienced actual cuts in weekly wages. The Secretary of State says that unemployment is the key to low pay. I would say that the Government have created the conditions for unemployment precisely for that reason. The number of people claiming benefit--to use a euphemism--may have come down, but there are still large numbers of people chasing jobs, which is good for low wages and profits, but bad for Britain in the long term. The Government seek to justify the encouragement of low-wage employment as a means of creating jobs, but the increase of 1.6 million in the number of people affected by low pay since 1979 is exactly matched by an increase in the numbers who are unemployed.
My reason for speaking today is to give one example of an area that is neglected entirely by Government policy. I shall describe an effect slightly different from that of the abolition of the wages councils. My point is that we have a shortage of many skills, such as those of hospital technicians. I apologise for giving a list, but it is necessary. Areas affected by a shortage of skills are microbiologists--of which I am one-- haematologists, health physicists, audiology and radiology technicians, pharmacy technicians, pharmacists and ECG technicians. All those workers are low-paid, yet they are desperately needed. Senior pharmacy technicians' pay starts at £5,500--one third of the average wage in this country. Pharmacy technicians at the top of the scale receive £8,500. That is a pittance in anybody's book. How can one recruit people to those highly technical jobs with such pay? Their responsibilities are increasing. Microbiologists have been
Column 358much in the news with salmonella, listeria and legionnaire's disease and without such technicians we should not be able to run the National Health Service--be it private or public.
I shall give one more example of the specific problem of recruitment. In the hospital that serves my area, ECG technicians are impossible to recruit. There should be five staff in the department, but there is only one full-time technician. She cannot even take a holiday because of low pay. People have come off the dole who are unable to survive on that pay. If pay is forced down in a professional sector such as that, how can we as a nation hope to compete in an increasingly technical world?
Mr. Tim Janman (Thurrock) : At the heart of the speech of the hon. Member for Oldham, West (Mr. Meacher) was the Opposition's desire to eradicate differentials completely from the labour market and to have us all start the race at the same point in life and to end up at the same point. That is at the heart of their philosophy. If it is not their objective to achieve complete equality of income across the labour market, it is certainly their desire, through bureaucratic intervention and regulation, to prevent the correct differentials occurring between different sections of the labour market. Those differentials are, of course, directly proportional to the different skills, abilities and experiences that different individuals have to offer.
It is ridiculous for the hon. Gentleman to start making comparisons between the income of a Secretary of State and somebody on low pay. It is a ridiculous, emotive and nonsensical point to make.
Mr. Janman : If the hon. Member for Birmingham, Ladywood (Ms. Short) thinks that in the real world a person doing an unskilled job should be paid the same as a carpenter or a fitter, or somebody in the professions, she is clearly living in a world of her own.
Ms. Short : We hear so many speeches from Conservative Members in which they talk about people's wages as though those people were not real human beings. It is important to ask Conservative Members whether they could live on £100 a week. Could they keep their families on that money? Imagine what it would be like, and just think what they spend. They should think about the pay of many people working in public services in our country ; that is the point to try to make Conservative Members understand. We are talking about real family budgets and family needs, not some abstract economic theory.
Mr. Janman : I do not need any lectures from the likes of the hon. Lady about what it is like to live on a low income, given my own family background. I come from a low-paid, one-parent family, and I can assure the hon. Lady that I continually visit constituents who have to live on low incomes.
Mr. Janman : The hon. Lady is taking a flight into fantasy, as her party continually does, if she thinks that there is a broad-brush, simplistic answer to the problems that people on low incomes face in coping day by day.
If the hon. Lady considers the track record, as my right hon. Friend the Secretary of State said, of the results of this Government's policies and compares them with those of the previous Socialist Administration--and with all the previous Socialist Administrations in this country--she will see that this Government have a much better record of increasing the real living standards of people on low pay, people on average earnings and those with above-average earnings. The hon. Member for Ladywood and her hon. Friend the Member for Oldham, West can make up the facts if they wish, but what I am saying is the truth.
We must ask what we mean by "low pay" and "poverty" because they are moving targets and always relative. If one raises the purchasing power of people on the bottom rung, the people on the next rung will want theirs raised to maintain the differential, and that mechanism will continue throughout the labour market.
As I said a moment ago to the hon. Member for Ladywood, I regularly visit many of my constituents. I operate a mobile surgery and take myself to my constituents instead of expecting them to come to see me. Because, inevitably, most of the people I visit tend to have problems--often derived from low incomes--I see what is happening at grass-roots level in my constituency. However, my observation, which proves that poverty is relative, is that sometimes when I go into a household which, on paper, has a low income, and look around, I see items that five or 10 years ago would have been considered luxuries. Although I am not denying that there are genuinely people on low incomes in my constituency, as there are in many, if not all, constituencies in this country, there are cases in which people who are supposedly on low incomes or who are "poor" according to the figures of the Low Pay Unit have television sets, videos and hi-fis. That proves that the definition of poverty given by the Low Pay Unit is ridiculous.
Two centuries ago Adam Smith was much more accurate when he stated :
"By necessaries I understand, not only the commodities which are indispensably necessary for the support of life, but whatever the custom of the country renders it indecent for creditable people even of the lowest order to be without."
In other words, people always want to keep up with the Joneses. As people of a certain level in society have their income and standard of living raised, so everybody below that level will want to keep up with them.
Our record of expenditure on the social and welfare system is far better than that of the previous Labour Administration, but due to the definition of low pay, each successive expansion of the benefit system results in more people being defined as "poor" if one takes the ridiculous definition that the Low Pay Unit and other bodies want us to accept. On that definition, it is argued that 15.4 million people now live in or on the margins of poverty in this country. I am confident that, if the vast majority of our people were told that on those figures 29 per cent. of the population were living in or near poverty, their reaction would be that the figures were utter tripe--and utter tripe is exactly what they are.
The Low Pay Unit, the Labour party and other professional do-gooders, few of whom contribute to the
Column 360wealth creation process in this country, do the genuinely needy a great disservice by blurring the real problems that exist and by carping on in their naive and unrealistic way about the genuine problems of poverty that have always existed under Labour, Conservative and Liberal Governments. It is ridiculous and naive to suggest that with one simplistic policy decision one could remove at a stroke the problems that will inevitably continue to exist in any economy and in any society. Indeed, around the world, far more people are living on the breadline in collectivist, totalitarian, Socialist societies than in fluid, free-market capitalist societies such as ours.
It is worth considering the change in purchasing power in this country. Although my figures relate to average earnings, as my right hon. Friend the Secretary of State said earlier, as average earnings rise the real incomes of people on low wages also increase. I shall compare 1971 with 1987 in terms of how many minutes or hours somebody would have to work to buy certain key items that are important to ordinary family life.
In 1971, to buy one large loaf of bread one had to work for nine minutes ; by 1987 it had fallen to six minutes. The 55 minutes worked in 1971 to buy 1 lb of rump steak had fallen to 41 minutes by 1987. Although there was perhaps a slightly different attitude to buying eggs in 1971, to buy 12 eggs in 1971 a male on average earnings would have had to work for 22 minutes ; but by 1987 that had fallen to 15 minutes. It took 40 hours 30 minutes of labour to buy a car licence in 1971 ; which had fallen by 1987 to 23 hours 35 minutes. It would have taken 19 hours 55 minutes to earn the money to buy a colour television licence in 1971 but only 13 hours 41 minutes in 1987. The relevant figure for an average telephone bill fell from 50 minutes in 1971 to 35 minutes in 1987. That is clear evidence of a real increase in the standard of living of our people, both for people on average earnings and for those on lower pay.
There has been some talk about different countries and about people's relative incomes across the world. A couple of weeks ago, I was lucky enough to visit the Socialist shangri-la of Sweden--a country that is often held up as a model of Socialist perfection and as able to deliver higher living standards and good incomes on, from the Opposition's point of view, an impressive egalitarian stance. However, the wages in Sweden are so low that it is impossible--
Mr. Janman : Well, I am sorry to have to tell the hon. Lady that, on the figures quoted to me when I visited two Saab locations in Sweden, I was surprised, given Sweden's reputation, at just how low the wages of people working in the motor industry are. Given that taxation is so high, a husband has to have his wife going out to work in almost every instance in Sweden for the family unit to be able to have any income on which to live.
Mr. Ken Eastham (Manchester, Blackley) : Only a few weeks ago the Select Committee on Employment visited Sweden for informative in-depth discussions. The hon. Gentleman talked about so-called poverty pay and drew inferences about Sweden, but I advise him that average wages there were quoted as £1,000 per month in our terms.
Column 361Mr. Harry Barnes (Derbyshire, North-East) rose --
The example that I was quoting was related not to average earnings but to the earnings of people in the lower income bracket doing unskilled assembly work in the motor industry. As I understand it, this debate is about low pay. I have to say to the hon. Gentleman that the gross income of those people was no more, in terms of purchasing value and taking into account exchange rates, than that of workers in a similar industry in this country.
When the punitive taxation, the high marginal rates of tax, that Swedish workers have to pay in order to provide for the over-bureaucratic Socialist system that Sweden has to support is taken into account, I can say to the hon. Gentleman that, from what I saw, the standard of living of a person doing an ordinary manual job there is far worse than in this country--and it is far worse because of the punitive taxation and excessive employment protection legislation that effectively leads to fuller employment than is commensurate with labour market conditions at the time and that works through to very high prices.
So in Sweden, at the lower end of the labour market, wages are no more, in real terms, than they are here, yet the person is paying much higher taxation and much higher prices in the shops. When the hon. Member for Blackley goes back to Sweden he may like to take a look at the difficulties that employers have in paying any considerable differential between skilled and unskilled workers where there is very little difference at all. If they provide for any differential, because of the very high marginal rates of taxation it is all taken by the state, and the net income of the skilled worker is no more than that of the unskilled worker. I can assure the hon. Gentleman that the skilled worker in Sweden is hit very hard by that punitive taxation system.
The best protection for the low-paid, and the best way of providing maximum employment opportunity, is not regulation, intervention and wage councils ; it is low taxation. I should like to take this opportunity to ask my right hon. Friend the Chancellor of the Exchequer to look hard at the possibility, in the next Budget, of making huge increases in the tax threshold. Already, 1.7 million fewer people pay tax than would be the case if there were still the same tax regime that we inherited from the Socialists in 1979. There is much more scope for reducing the tax burden on the low-paid in this country by making changes that would take millions more out of the tax system.
The other main matter of importance to the low-paid is also a matter for the Treasury, and that is a firm monetary policy to protect the low-paid from inflation. Inevitably, when we have high inflation rates--and from 1974 to 1979 they averaged 15.5 per cent.--it is the low-paid on fixed incomes who are worst hit, not the rich.
Mr. Nicholas Bennett (Pembroke) : Does the hon. Member not agree that, until we tackle the level at which people start to pay national insurance stamps, we will not actually lift them out of the low-pay group? We need to look at that in conjunction with the income tax system.
Column 362would certainly include national insurance in the definition of "tax". National insurance, which is there for a specific purpose, is, of course, an element of taxation.
Let me mention now the need to abolish wages councils. This topic was one of the core parts of the speech of the hon. Member for Oldham, West. Before drawing some conclusions, I should like to quote from a letter I received from a small business woman, a constituent of mine, on this matter. I am afraid that this constituent was a victim of the Waffen SS wing of the Department of Employment, the wages councils inspectorate.
She writes :
"Dear Mr. Janman,
We are a small retail shop selling all types of fabrics and trimmings.
We recently had a visit from The Wages Council' and unfortunately we're not paying quite the full amount per hour to the part-time workers. The ladies who work here were quite happy with the arrangements we had with them, but that didn't count, because according to the inspector, We were breaking the law'. Whose law? In the end I felt like a criminal and that I didn't like."
[Laughter.] Hon. Members opposite may laugh, but the fact of the matter is that the existence of this legislation and the existence of these wages councils is jeopardising not only that business and the employment that my constituent is providing, but similar small businesses up and down the country. I do not know exactly how many there are, but I am sure it must be tens of thousands.
The hon. Member for Oldham, West may like to quote the CBI, but the CBI is essentially the representative of large corporate concerns, or big business, and I do not believe that it is going to be totally in tune with the sort of problems that many small businesses, particularly in the retail sector, are going to have. It is that type of business which, I am afraid, has to bear the brunt of the totalitarian instrument of the wages councils. My constituent's only crime was to pay a wage that her business could afford and that her employees found acceptable, and the alternative is no business for her and no work for the people she currently employs.
Mrs. Maria Fyfe (Glasgow, Maryhill) : Could the hon. Member tell us how much this constituent of his was paying herself and exactly how much she was giving her under-paid workers, who, for all I know, may also have been constituents of his?
Mr. Janman : The hon. Lady misses the point completely. My constituent's exact payment to herself, which I suspect was not that large, and her exact payment to the people working for her, is not the point. The point is whether wages councils destroy job opportunities or enhance them. The fact of the matter, so ably illustrated by my constituent, is that they destroy jobs very successfully. The abolition of wages councils could free the labour market of this totalitarian and egalitarian distortion, and create up to 300,000 new jobs. I hope that this Government, who believe in the free market, will act and abolish these out-dated institutions. Finally, I want to come to some conclusions on what the real issue in this debate is. The real issue, on which this Government have such a good record, is how, within the benefit system, we can genuinely make sure that people in this country, given their circumstances, are provided with a minimum income. The correct way of doing that is not to put a burden on businesses by way of wages councils, distort the labour market and destroy jobs ; the correct way
Column 363of doing it--as we have been doing through family credit, which is now much more extensive, and far more generous, than anything we have seen from any Socialist Administration--is to target benefits on those on the lowest incomes and to take as many people as possible out of the tax net altogether, allowing them to keep their earnings and spend them as they wish, instead of people on low incomes still having to pay some of the highest marginal tax rates in the world. Those are the real issues, and I hope that on wages councils my right hon. Friend will act soon.
Mr. James Wallace (Orkney and Shetland) : The point that grieved me most about the speech of the hon. Member for Thurrock (Mr. Janman) was the patronising way in which he treated people in relative poverty who-- surprise, surprise--have a television set. It comes ill from a party that tries to preach choice to say that some people should have no choice in life, that they must make do with the basic necessities and that they cannot try to get something better or at least try to ensure that such small mechanisms as are available through the state to help them get something better should not be made available.
To some extent, I agree with the Secretary of State--Labour Front Bench Members would probably agree, too--that those in poverty from low pay are not all the people who are in poverty, although there is undoubtedly a strong correlation and a large overlap.
In his evidence to the Royal Commission on the distribution of income and wealth Professor Layard noted that :
"Of workers in the lowest 10 per cent. of wages, only one in five was in the lowest 10 per cent. of relative incomes."
There are undoubtedly some reasons for that. As has been said, many of the lowest paid are in second jobs, and their earnings help to raise a family income above the poverty line.
On the other side of the coin, there are many families in poverty, particularly large families in which a working parent is on a reasonable wage, yet it is insufficient to meet family needs. However, that should not blind the House to the fact that the most recent figures of the Low Pay Unit demonstrate that about 4 million people live in poverty or on its margins as a result of low wages. Poverty may exist for reasons other than low pay, and in the long term, measures such as the integration of the tax and benefit system can do more than a national minimum wage to tackle the problem of poverty. I am becoming increasingly sceptical about the national minimum wage. Research in the United States, where there is a national minimum wage, suggests that it is not as helpful as it might seem on the surface in trying to take people out of poverty. A study by Carolyn Shaw Bell concludes :
"no money sum of wages can be calculated to be a minimum wage that will provide an income above poverty."
Other surveys tend to suggest that job losses, which undoubtedly push more people into poverty, can result from the introduction of a national minimum wage. But it