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Mr. Willetts: The hon. Lady says that they do not, but Opposition spokesmen and the recent report from the Institute of Public Policy Research have said that family credit is an indiscriminate wage subsidy that unscrupulous employers use to hold down wages below the level at which they would otherwise be. We are told that the minimum wage will somehow achieve benefit savings by stopping that abuse of the benefit system by employers. That is one of the ways in which Labour claims that the minimum wage will save money.
The research shows how false that charge is. It shows that only 9 per cent. of employers are aware of the exact status of their employees and whether they would be able to claim family credit. We know that only 12 per cent. of those on family credit claim it for more than a year. Family credit is not an indiscriminate wage subsidy. It helps people starting back into work, perhaps in relatively low-paid jobs, who then move up to better-paid work. It goes with the grain of the labour market and is a much more effective way of helping people than the minimum wage.
Have Labour Members justified the minimum wage? They seem to imagine that employers will not mind paying the extra costs of employing someone with a minimum wage of £4 or £4.26 an hour. If employers will pay the higher wage, why does the Labour party also
advocate a £75-a-week tax rebate for employers who take unemployed people into work? Presumably Labour Members believe that pricing people into work is effective in those circumstances. That is why they advocate the rebate. If the rebate helps to price people into work, why will the minimum wage not price people out of work? They cannot have it both ways.
Mr. Bernard Jenkin:
I invite my hon. Friend to shed a little further light on the exchanges between my right hon. Friend the Secretary of State and the hon. Member for Peckham (Ms Harman) on the distribution of the increase of social security between unemployment-related poverty and other programmes. Is it not evident that the hon. Member for Peckham is including any growth in family credit as a negative factor--as part of the unemployment-related problem--rather than as a positive programme which is helping people back into the jobs market?
Mr. Willetts:
My hon. Friend makes a very good point. To regard family credit, which supports people in work, as a cost of unemployment is perverse, even by the extraordinary accounting conventions that the Labour party seems to use.
We know from research done by the Institute for Fiscal Studies how badly targeted a minimum wage would be. Many of the people who would benefit from the minimum wage live in relatively affluent households. According to the IFS research, the most affluent third of households would gain bigger increases in their incomes from the minimum wage than the poorest third. The Labour party complains about growing divisions in the country, but it advocates a minimum wage that would benefit the most affluent households more than the poorest households. That is extraordinary and perverse.
Mr. David Shaw:
I can give my hon. Friend an example of how the minimum wage creates jobs. Calais, which is just 22 miles from Dover, has a minimum wage, and unemployment there is so bad--it is double the Dover level--that French people rush across the English channel to get jobs.
Mr. Willetts:
My hon. Friend is right. The Labour party's policies--the minimum wage and the social chapter--derive from its belief that such issues are better managed on the continent, but the evidence shows that exactly the opposite is true. The Labour party wants to copy policies that have delivered 4.5 million unemployed in Germany, more than 3 million unemployed in France and more than 2 million unemployed in Italy. In this country, with Conservative policies, we have fewer than 2 million unemployed, and falling. The Labour party's policy would be an extraordinary trick to play on the British people.
Mr. Berry:
Can the hon. Gentleman name a year since 1979 in which unemployment, on the claimant count, has been lower than the level inherited by the Conservative Government?
Mr. Willetts:
I cannot remember every year's unemployment figures since 1979 off the top of my head. It is the trend that is important, and we have a downward trend in unemployment. Our labour market reforms have made the falls possible and the policies that the Labour party advocates are driving up unemployment on the continent, so the message is clear.
The Labour party says that it believes in the importance of education and training. It claims that the windfall tax will be used to finance measures to invest more in education and training. However, its policies would have the opposite effect. If the minimum wage were introduced at £4 or £4.26 an hour, what would happen to someone who has worked hard for an NVQ, some GCSEs or an A-level and who earns £4.50 an hour, such as a senior cook in an hotel? Alongside such a person, the assistant might earn £3 an hour.
The minimum wage would have one of two effects. One is that the unskilled worker in the kitchen would receive the same pay and the skilled cook would want the differential reinstated--that is a good old-fashioned expression from the 1970s that would come back if we ever had a Labour Government. The restoration of differentials would lead to an old-fashioned increase in wage costs that would drive up unemployment. That is why a minimum wage would cost 800,000 jobs at £4 an hour and more than 1 million jobs at £4.26 an hour.
Mr. Keith Mans (Wyre):
My hon. Friend has given an excellent example of the effect of a minimum wage. It is relevant to the north-west, especially in Fylde where the tourism industry is strong. The introduction of a minimum wage would cause huge unemployment, because the newly trained would not get jobs. There would be fewer jobs because the tourism industry would be less viable. The young--for example, university students in Lancaster--would not be able to get jobs and learn a trade.
Mr. Willetts:
My hon. Friend is right. Important British industries, such as the tourism industry, would be significantly threatened by a minimum wage.
Mr. Booth:
Will my hon. Friend give way?
Mr. Willetts:
I shall give way in a moment. I first wish to impale the Labour party on the twin horns of a dilemma. The first horn is the restoration of differentials, which would cause a significant increase in unemployment--
Mr. David Shaw:
And in strikes.
Mr. Willetts:
Yes, strikes would increase as people demanded their differentials. However, if the Labour party claims that the minimum wage would not cause wage increases, it would be telling people not to bother to obtain qualifications or to stay on at college to be trained, because they would not get any more money if they did so. That is the second horn of the dilemma, and it is extraordinary hypocrisy for the Labour party to talk about its support for education and training.
Mr. Booth:
Before my hon. Friend leaves the subject of the minimum wage, I remind him that the chairman of the Confederation of British Industry recently gave specific examples of factories in the north-east in which at least 50 per cent. of the work force would have to be put out of work, if the minimum wage were introduced at the levels proposed by the Labour party, because the work would be done in the far east.
Mr. Willetts:
I agree with my hon. Friend. The gains that have made us a paradise for inward investment, as Jacques Delors put it, would be lost if we imposed the same social costs as they have on the continent.
Strangely, the hon. Member for Peckham did not mention another Labour party policy that has implications for education and training, even though it is one of its few specific policies on social security. I refer to the means testing of child benefit for 16 to 18-year-olds, which would be an attack on people staying on at school to get an extra qualification. The electorate are entitled to know the details of the means test for child benefit for those children.
We are all familiar with the arguments about the Princess of Wales and other rich people getting child benefit, but the Labour party faces a practical problem: either it uses the means tests that already exist--the income support means test, for example--or it introduces a new one. In the first case, many families with modest incomes, for whom the decision of a child to stay on at school is financially significant, would lose child benefit. In the second case, the Labour party would have to spend large sums on a new means test, with a new administrative structure and new computer programmes, to take child benefit away from a relatively small section of the population. That is another policy that would do nothing to encourage education and training: it would have the opposite effect.
I accept that, when people get a job after a period of unemployment, or for the first time, they receive low pay; people do not necessarily start work on a high income. It is important to have an open and mobile society so that people can reasonably hope that, if they stick at their work, turn up at work punctually and get an extra qualification, they can look forward to promotion and rising income. All the evidence is that Great Britain is one of Europe's most successful societies in delivering rising incomes to people once they have their first foothold in the labour market.
According to a study by the Organisation for Economic Co-operation and Development, in Sweden, which is one of the models that the Labour party is supposed to admire, only 39 per cent. of under-25s enjoyed a significant increase in their incomes over a five-year period, whereas in Great Britain 62 per cent. of the same group enjoyed an increase in income. The poorest 10 per cent. in 1991 enjoyed, on average, a 25 per cent. increase in income in the following year.
Thanks to research commissioned by my right hon. Friend the Secretary of State for Social Security, we know that people who were in the bottom fifth of the earnings scale in 1979 enjoyed, over the following 15 years, an increase in their earnings of 42 per cent., much better than the 33 per cent. increase in incomes enjoyed by people in the top fifth of the earnings scale; thus, those who started in 1979 at the bottom of the earnings scale did better than average over the following 15 years.
All that paints a picture of a mobile and enterprising society. It is not a continental stakeholder society that believes in standardisation and regulation; it is a flexible labour market in which we aim to help people to get their first toehold in the labour market and, once they are there, through education, training and investment in their futures by their employers, to look forward to their incomes rising.
This country is seeing a transformation of the pensions regime. One change to which my right hon. Friend the Secretary of State referred--I cannot improve on what he
said--is the shift towards funded provision and the extraordinary boom--which, we hear today, has reached £650 billion--in funded pensions. What a contrast with the unfunded pensions liabilities that will hold down the public finances and the balance sheets of private companies on the continent.
Another change is happening in the world of pensions. It is a change from defined benefit pensions to defined contribution pensions. Old-style, defined benefit occupational pensions may have been fine in the days when one joined a company and stayed in the same firm for 40 years, but with a more mobile economy and a flexible labour market, fewer people live that sort of life. Once people moved and started shifting around, those occupational pensions often treated people extremely roughly. That is why many more people instead want defined contribution schemes, which allow them to see a pot of funding accumulating in proportion to and in accordance with the contributions being made.
I am aware that, for some people, the administrative costs of taking out a personal pension on its own have been too great, which is why it is important to encourage good personal pensions that are a sensible compromise between traditional, occupational defined benefit schemes and completely individualised personal pensions.
I welcome the fact that, only the other week, we had a further announcement of more liberalisation of the regime for group personal pensions. I hope that what we heard is not the end of the matter, because the biggest obstacle to encouraging the private provision in which all Conservative Members believe--private provision for pensions and private insurance against the vagaries of life--is the regulatory burden faced by people trying to provide such financial services. If we are serious about wanting more people to take out more insurance cover and personal pension cover, saving for their retirement or for a rainy day, we must make it possible for people in the City of London and our other great financial centres to market those products effectively.
There is nothing more depressing than talking to a banker who says that the bank has an extraordinary amount of money sitting in interest-bearing deposit accounts because it does not believe that its customers know or are confident about what financial instrument, savings package or insurance product they should buy. I am afraid that regulation in the City of London has got out of hand. We are in danger, through over-regulation, of making it excessively difficult for the people whom we want to encourage to sell financial services around the country to do so effectively. To have a company like the Prudential, for which I have the greatest respect, being fined by City regulators seems to send out exactly the wrong signal. No useful purpose is served by such excessive and heavy-handed regulation.
We can be sure, however, that the way forward is by encouraging personal saving, personal pensions and personal insurance, not by the route to which the hon. Member for Peckham briefly referred when she, somewhat hesitantly, talked about a stakeholder pension scheme. I wanted to hear more about stakeholder pensions. We know where those exist--in Australia, where they are industrywide and involve representatives of the trade unions and employers' bodies, who run them along old-style, corporatist lines.
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