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Session 1999-2000
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Delegated Legislation Committee Debates

Draft National Minimum Wage (Increase in Development Rate for Young Workers) Regulation 2000

Fifth Standing Committee on Delegated Legislation

Tuesday 16 May 2000

[Mr. John McWilliam in the Chair]

Draft National Minimum Wage (Increase in Development Rate for Young Workers) Regulations 2000

4.30 pm

The Minister for Competitiveness (Mr. Alan Johnson): I beg to move,

    That the Committee has considered the draft National Minimum Wage (Increase in Development Rate for Young Workers) Regulations 2000.

I begin my remarks by wishing you a very happy birthday, Mr. McWilliam. It is my birthday tomorrow so, if we finish our proceedings quickly, we can have Pimms on the Terrace.

It is a great pleasure to present to the Committee regulations that build further on one of the Government's most successful policies—the national minimum wage. We asked the Low Pay Commission to monitor the effect of the national minimum wage during its first few months in operation and to report its findings to us. That it did, and we published its second report and our responses to it on 15 February.

The commission's report was a ringing endorsement of the national minimum wage policy, which confounded the merchants of doom on the Opposition Benches. It showed that the minimum wage has brought substantial benefits to many people, especially women and part-time workers, without having any significant adverse effect on employment or the economy. The commission reported that more than 1.5 million workers are now entitled to receive at least the national minimum wage and that the majority of them are receiving their entitlement. A recent survey showed that nearly 90 per cent. of employers support the minimum wage.

We have heard surprisingly little recently about what a menace the minimum wage is to society and how it will be the end of civilisation as we know it. Its success has left detractors bereft of any plausible detracting to carry out. As the Low Pay Commission said, the minimum wage has meant a pay rise for many young people while not affecting their employment opportunities, and it is young people with whom we are concerned this afternoon.

In the light of the Low Pay Commission's positive findings, we could accept its suggestion in its first report that the minimum wage rate for those aged 18 to 21 years should increase from £3 per hour to £3.20 from 1 June . The regulations put that into effect and the main rate for the minimum wage will also be increased this year from £3.60 per hour to £3.70 per hour, with the change to take place on 1 October. Further regulations will be brought before the House in due course to achieve that.

Were we not a modest and self-effacing Government, we could be excused a little self-congratulation on reaching the point that we have so successfully reached on schedule. However, I shall not yield to the temptation to crow, unless provoked. [Hon. Members: ``Go on.'']

The Chairman: Order. Sedentary interventions are always to be deplored and normally encourage hon. Members to speak for longer than they intended.

Mr. Johnson: I shall resist that temptation, Mr. McWilliam. There is a strong feeling in some quarters that there should be one rate for all adult workers—that is, all workers aged 18 years or above. I remind those who may agree , that although the minimum wage has been successful, part of the secret of its success is our cautious approach.

Mr. Andrew Mackinlay (Thurrock): I wish to clarify a matter. I thought that the Low Pay Commission had made a distinction for 21-year-olds—that is, people below 22 years. It recommended that their wage should be increased to £3.60 an hour. If I am correct, why have we not adopted that proposition?

Mr. Johnson: Perhaps my hon. Friend will wait a moment. I am coming to that. Part of the secret of the Government's success is their cautious approach. I remind the Committee that it was not only the Opposition who were against the introduction of the minimum wage last time we were in government: the trade union movement, with a few exceptions, opposed it in the 1970s. It is a brave new world in British industrial and employment policy.

The introduction of such a new initiative is not the time to throw caution to the wind by introducing rates that look generous on paper, but the effects of which might be disastrous in reality, particularly for young people entering the labour market for the first time. We know from surveys on minimum wage legislation in other countries that when the rates have a negative impact on employment, their effect is felt most keenly by younger age groups.

Whether we are assailed by calls to raise or lower the minimum wage, the rates that we set are based on advice received from the Low Pay Commission, which gives us a firm foundation from which to proceed. It bases its advice on wide-ranging consultations and fact-finding exercises. Through that partnership approach, we can be sure that the rates we set represent the greatest improvement for workers that are compatible with affordability for individual employers and the United Kingdom economy as a whole.

The minimum wage should support rather than hinder training and education. People looking for their first job should not be priced out of the market. That is the context in which the development rate for young people needs to be understood. A closely related question is where the line is to be drawn between the youth and adult rates—the point raised by my hon. Friend the Member for Thurrock (Mr. Mackinlay). At present, 21-year-olds are included in the lower range, but the issue is being kept under review. The Low Pay Commission recommended that 21-year-olds should come under the adult rate. A certain amount of caution is needed, not least because there are respectively 50,000 and 80,000 more youngsters in the 19 and 20-year-old age range, than are included in the current 21-year-old rate. There is a blip in the population with a boom in those reaching 21 in the next year or so.

We are asking the Low Pay Commission to continue to monitor the minimum wage and to look again at the 21-year-old rate. We have also asked it to produce a further report on whether there is a case for any further increase in the rates and, if so, to what level by July 2001, so that any increase can take place in October 2001. As part of the same exercise, we have asked the commission to consider not only the youth rate as a whole but to continue monitoring the 21-year-old cut off, so that a decision about that can be made at the same time.

Our strategy has been to proceed with a partnership approach, acting on the basis of firm advice from the Low Pay Commission which, let us remember, is a balanced group with membership drawn from the CBI and small and large businesses, as well as trade unions and academic specialists.

In conclusion, the important fact is that the rise is 6.67 per cent.—20p an hour. It will make a real difference to about 150,000 young people, but will do so with a minimal cost to business—less than one hundredth of 1 per cent. of the total wage bill. It will not damage our continuing improvements in reducing unemployment, which has been reduced by 70 per cent. since the election. I commend the regulations to the Committee.

4.38 pm

Mr. Richard Page (South-West Hertfordshire): I echo the congratulations on your birthday, Mr. McWilliam. Whatever I intend to say today should not task your chairmanship, as I do not propose to cause any difficulties whatever. I see no point in fighting old or even recent battles.

I commend the ways in which the Minister charmingly argued in favour of the measure and in which he, as an ex-trade union official, managed to ditch the argument about differentials by quickly tossing it to one side. It is obvious that he is tipped for promotion at the earliest opportunity, especially as I understand that there will be some changes in the Department of Trade and Industry when one or two less successful Ministers are moved on. Much as I should like to see him do well, I should discuss the issue that we are debating, Mr. McWilliam, or you could rightly accuse me of promoting too vigorously his chances in the reshuffle.

I have no ideological hang-up about the national minimum wage, but I worry about the fact that the country is not a homogenous whole. The rates applicable in the south-east are not those applicable in some less prosperous regions, so although the minimum wage is fine in some areas, in others it could be a disincentive to employment and job opportunities.

The Minister alluded to the fact that the rate goes from £3 to £3.20 on 1 June. Albeit briefly, he touched on the establishment of the Low Pay Unit, which made the calculation. I have considered how other countries operate such schemes and am apprehensive about the simple linkage of indexation. The Low Pay Commission has reported on the matter and the way in which it has been handled, and I can only say amen to that. To be guided is advisable, but to be dictated to by, say, an indexation is of greater concern, so I understand the appreciation of being advised and guided by rather than dictated to.

In the commission's second report on 15 February, it acknowledged

    that the introduction of the UK minimum wage might be too recent for the Government to make decisions on what longer-term mechanisms might be put in place for re-setting it. A further re-setting might be necessary before we can be confident what level and frequency of changes are right for the UK economy. Nevertheless, if it is not uprated it will cease to be a useful labour market tool, and cease to provide any material benefit for low-paid workers.

That is obvious. The report continued:

    The more belated the adjustment, the greater the disruption to companies. During 2000 there will be further data, and a full picture of the impact of the minimum wage on the economy and low-paid workers, from which to make sensible recommendations on a future rate.

We would all agree with those arguments.

As has been said, the Low Pay Commission has been in place only nine months following the introduction of the minimum wage and it rightly needs time to assess the impact of the wage on the economy. The more time goes by, the more full will be the analysis of issues such as the interaction between the minimum wage and the working families tax credit. The Government will presumably continue to ask the Low Pay Commission to monitor the minimum wage and produce a further report. I am glad that they have asked the commission to go even further and account for movements in earnings and other factors including the impact on the economy and competitiveness. That is vital, bearing in mind that we have slipped from fourth to eighth in the international competitiveness league. We must consider competitiveness, jobs and training, and in particular the impact on small firms, because they have the least manoeuvrability to take into account international movements. I presume that the Government will make their decision on the basis of such a report, so that the increases can take place by October 2001 as proposed.

The national minimum wage has had an easy ride because unemployment has been falling. It is relatively simple to set the level when the economy, as a result of the golden legacy inherited by the Labour Government, has gone from strength to strength, which has made finding employment so much easier for everyone. Demand for labour drives up prices, so the minimum wage will not have the same impact. I am pleased that a study will be undertaken into the impact on the economy of the other factors that I mentioned. The proof of the pudding will come when the economy is not going so well. That will be the acid test of the effectiveness and advisability of the minimum wage. Obviously, I would like to believe that everyone will find a job and that no one will be unemployed, but I am especially worried about the manufacturing sector, which seems to be running into increasingly greater difficulties every day. [Interruption.]


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