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National Minimum Wage

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Angela Smith (Basildon): I am pleased to see my hon. Friend the Minister for Competitiveness here. I know of his commitment to issues affecting the rights of those at work, and I hope that he will give a sympathetic response to the debate.

We all have days when we wonder why we wanted to be Members of Parliament in the first place, and it is easier to find the reason on some days than it is on others. When I was appointed as a member of a Committee that considered a statutory instrument about daylight saving hours, I did not feel--important as that matter is--that such matters were a motivating factor in my having become a Member of Parliament. However, when I was appointed as a member of the Standing Committee that considered the National Minimum Wage Bill, I felt that I was dealing with one of the major reasons why I got involved in politics, because it was an issue of fairness and equality.

During the 1997 general election campaign, the Conservatives claimed that the minimum wage was one of 10 good reasons not to vote Labour. On that basis, during the next campaign they will probably say, "Don't vote Labour because it will spend money on schools and hospitals." We believed the minimum wage to be economically and morally right. The Tory party believed that it was wrong and predicted gloom and doom for the economy. It is worth spending a few minutes assessing which of those two views was accurate. Someone recently said that in theory, theory and practice should be the same, but in practice they rarely are. In this case, the Tory theory certainly did not work in practice.

In Basildon and East Thurrock more than 1,400 people have benefited directly from the national minimum wage. In reality, the figure is probably much higher, because many employers, when they realised that the legislation was about to be introduced, raised their wage rates to the amount that they expected the minimum wage to be--or, indeed, higher than that. Low pay is more widespread in Essex than it is in the south-east as a whole, and my constituency has benefited significantly.

One of the biggest fears was that the minimum wage would cost jobs. The scaremongering story was put out that creating a floor in wages would price the low-paid out of employment. We were told by the right hon. Member for Richmond, Yorks (Mr. Hague) that it was the height of irresponsibility, and the hon. Member for Buckingham (Mr. Bercow)--I have notified him that I am quoting his comments--confidently asserted:

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The Committee that considered the National Minimum Wage Bill has the distinction of having had the longest sitting of this Parliament, and probably of other Parliaments. It sat throughout the night more than once, on one occasion until 1 pm the next day. Conservative members of the Committee left us in no doubt that they were appalled and horrified by even the suggestion of fair pay. They argued against a minimum wage for pensioners, the disabled and those in the voluntary sector--all tactics to try to prevent anyone from benefiting from something that they now cannot say that they would do away with. They argued late into the night, through the night, into the next day, through to the next day and into the next.

That was not merely token opposition but full-blown opposition to the minimum wage, based on the deep-rooted belief that it was wrong. Their acceptance of the policy must be one of the biggest U-turns in history--although I admit that my experiences on the Committee give me some cause for doubt. However, they were right to make the U-turn. The evidence is there for all to see. The minimum wage was welcomed by businesses across the country that had previously been undercut by cowboy workers. Before the introduction of the legislation, a man who owned a private security firm that employed quality workers was a regular visitor to one of my surgeries. He was desperate to see the national minimum wage introduced because he feared that cowboys would undercut him and his business would go bust. I am pleased to say that he has not felt the need to come and see me since the introduction of the legislation.

Fears that enforcement would be too difficult were unfounded--only six enforcement orders have been needed in the eastern region. The Low Pay Commission thinks that the majority of businesses have met their obligations on the minimum wage.

What of the other predictions? There has not been a sharp upwards step in earnings and inflation has not soared--in fact, it has gone down. Unemployment was the issue that caused the most worry. Tory scaremongering that the national minimum wage would cost more than 1 million jobs was unfounded. Since its introduction, we have more than 1 million extra jobs in the UK economy, so by any standards--even Tory standards--it has been a success.

The Minister will agree that the rate will continue to be debated. I support an increase in the overall rate, but the issue that I want to address today is the youth or developmental rate. When the national minimum wage was introduced, workers aged 18 to 22 were covered by a lower developmental rate. Last year, the adult rate increased by 10p an hour, while the developmental rate increased by 20p to £3.20, which narrowed the differential from 60p to 50p. That was welcome, but the time has come to consider removing the developmental rate to ensure that workers aged over 18 are covered by the adult rate.

My hon. Friend the Member for Wentworth (Mr. Healey) will recall a debate on the subject when the National Minimum Wage Bill was in Committee. The proposal would not mean that everybody was paid the same, but it would ensure the same floor under everybody's wages, which would prevent poverty pay. The then Minister of State, Department of Trade and

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Industry, my right hon. Friend the Member for Makerfield (Mr. McCartney), stated that the clause allowing for a lower rate for those aged under-26 was

It was made clear that there should be no differentials for location or type of employment. The Government wanted the opportunity to listen and take account of the specific recommendations of the Low Pay Commission on younger people. The commission feared that the national minimum wage would price younger workers out of the employment market. Therefore, it was right to be cautious and monitor the employment market to see what occurred. I understood the fear that there would be problems in the youth job market, but those fears proved to be groundless. Youth unemployment has fallen to levels that many doubted were possible. In my constituency--the new deal has played a great part in this--youth unemployment has fallen by 94 per cent. The figures sound unreal, but the evidence is clear if one talks to young people in Basildon, where employment has risen to record levels.

The Low Pay Commission reported:

Modern business trends show a move away from age-related and time-served pay scales towards those based on performance and competence. In 1996, 51 civil service organisations abolished age-related rates--including the Cabinet Office and the Foreign and Commonwealth Office, neither of which is known for being ahead of its time. Even McDonald's does not make a distinction on pay for those aged over 18.

The Trades Union Congress has found isolated examples of employers cutting their rates of pay for young adults as a result of the new law. The practice is not widespread, but it is not in the spirit of the law. The British Youth Council has said that workers should be paid equally for work of equal value. They do not want to encourage the employment of young workers on short-term contracts as cheap labour, displacing more expensive, older workers. The youth forum of the Trades Union Congress has taken an active role and it has described the national minimum wage as a landmark achievement. We all concur with that. The youth forum welcomes the right to a minimum wage, but believes that it stops short of delivering for younger people. Its argument is simple and based solely on

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fairness: to introduce a blanket exemption from the full minimum wage, based solely on an individual's age, is discriminatory.

Many organisations, including trade unions, understand the purpose of a training rate, but in this day and age it is not only young people who undertake training in their employment and there is no reason to use the need for training to justify a differential youth rate. The suggestion that age and training are linked is not necessarily true. An 18-year-old in a burger bar--we are back to McDonald's--is less likely to receive training than IT workers in their late 50s. The Government's skills task force found that employees in the hotel and catering industry were less likely to have training programmes, although that is the largest employer of younger people.

The youth rate has not worked as a development rate and the Low Pay Commission found that a quarter of 18 to 24-year-olds were in jobs without formal training. Its latest report states that there is

What do young people think about the differential rate? I held a youth forum in my constituency and invited young people from Basildon and East Thurrock and sought the views of young people throughout my constituency on this and other issues. I have also received views from the TUC's youth forum, the British Youth Council and the General, Municipal, Boilermakers and Allied Trades Union. It is clear that the view of younger adults, many if not most of whom are already receiving the higher rate adult minimum wage, is that everyone aged 18 and over should receive the same rate. Even those who are already receiving the higher rate believe that everyone should be covered by it. It is interesting that the new earnings survey states that the median earnings of those aged over 18 is above the adult rate of the national minimum wage.

One reason for having one rate instead of differential rates is the cost of living. Young people, whether in full-time education or on a low wage, must pay the full price for services. Transport costs in particular hit young people hard and there are no bus passes for younger people as there are, rightly, for pensioners. Young people who try to live independently often have the same housing, transport and food costs as older people, but for those on a low rate of pay, the transition to adulthood can be more difficult and delayed because they cannot take on the same responsibilities.

The lower rate also means that younger workers may have to work longer hours, damaging their chances of continuing education in out-of-work hours. The Government are committed to extending and encouraging lifelong learning, but it is more difficult for young people on the lower youth rate. At the age of 18--not 21--people are entitled to vote, marry without parental consent, serve in the armed forces and are deemed in law to have reached the age of complete responsibility. I believe strongly in linking rights with responsibilities and if young people have those responsibilities, they should also have the right to the basic rate of national minimum wage.

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I believe that 16 and 17-year-olds should all be in full-time education or a combination of work and training that allows them to continue to gain skills and education. However, the reality is that many 16 and 17-year-olds have part-time and holiday jobs, as I did and as have many of my constituents. My hon. Friend the Member for Gravesham (Mr. Pond) recognised that in his excellent Bill to introduce stricter regulations and tighter controls on the working conditions and hours of young workers. Some hon. Members believe that it is always wrong for 16 and 17-year-olds to work. However, that is not realistic because approximately two thirds of 16 and 17-year-olds work and 60 per cent. of them are in full-time education.

If we accept that younger people will work and that it is right to provide protection in terms of working hours and conditions, it is also right to offer some protection against exploitation in pay. Whereas employers in a high proportion of high street retail stores pay those over 16 adult minimum rates and more, rates of pay for 16 and 17-year-olds have been recorded of as low as £1 an hour. We must close a loophole that allows employers to take on younger workers at the expense of the over-18s, and we must not condone exploitation. We do not want to tempt 16 and 17-year-olds away from full-time education into full-time employment.

A sixth form in Suffolk that conducted a survey about the employment of sixth formers gave me some interesting information. The survey found that some employers sought to replace full-time adult staff with part-time teenage staff to reduce overheads. Many employees are under pressure from employers to work more hours during free study periods and after school, and they worry that if they refuse to do so they will lose their jobs. They feel pressured because of their low rates of pay. I recognise that the issue of 16 and 17-year-olds in work is complex, but I hope that consideration can be given to providing some wage protection to that age group.

It was a major step forward in April 1999 when we introduced the national minimum wage, giving protection to workers for the first time. On the night that the final Bill was passed in the House of Commons, some guests from America were having dinner with me. I was nipping back and forth to the Chamber, and they said, "What is the fuss about? Are you uprating the national minimum wage?" It was beyond their comprehension that, before the Labour Government came to power, we had no floor under wages. They could not understand that we had never introduced such legislation. Those days have gone, and everyone now accepts that it is right to have such a floor. The Government should be proud of their record. It is also a foundation on which to build.

I hope that I have outlined the reasons why I consider that the current exemptions and different rates are unfair and do not fulfil our commitment to balancing rights and responsibilities. Many 18-year-olds are already receiving a higher rate, so employers are moving in that direction. The higher rate will have little or no impact on jobs, and I ask the Government to consider moving that rate to offer all adults the same legal wage protection. I know that the Minister has an excellent record on such issues. I hope that he will be sympathetic, and I welcome his comments.

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1.17 pm

The Minister for Competitiveness (Mr. Alan Johnson) : I am grateful to my hon. Friend the Member for Basildon (Angela Smith) for providing a further opportunity for us to debate the national minimum wage in this Chamber. As she said, it is one of the Government's most popular policies, and a manifesto commitment that has been carried out with--it is not an exaggeration to say--spectacular success. That success was by no means universally predicted. My hon. Friend was one of the shock troops, as was my hon. Friend the Member for Wentworth (Mr. Healey), when the Bill was considered in Committee. She explained eloquently the kind of opposition that the Government faced in introducing a minimum wage.

Although it is fair to say that I have an excellent track record on the issue--as my hon. Friend the Member for Basildon was kind enough to say--I am afraid to admit that I went to TUC congresses year after year in the 1970s and, with my colleagues, voted against a national minimum wage. The success of its introduction must be seen in that context. The last time that we were in power, it was not only employers that were opposed, but the trade union movement as well, with one or two honourable exceptions. We were worried about jobs and concerned to preserve our precious differentials. When we look back at those arguments now, a blush should come to our cheeks. Nevertheless, it is important to recognise the context in which we introduced a national minimum wage, as my hon. Friend says, for the first time in the United Kingdom, whereas other countries such as Japan, America and some in Europe have had one for many years.

My hon. Friend the Member for Basildon is also right to point out that the issue has become a positive U-turn zone for members of Opposition parties. It was not only Her Majesty's official Opposition who went through a policy process known as the Portillo process, in which, immediately before Treasury questions, the shadow Chancellor decides whether any policies should be changed, and immediately changes them. I have pointed out many times, including during the debate on the statutory instrument that increased the minimum wage last year, that the Opposition are not wedded to a national minimum wage with no regional variations. They have spoken on several occasions about small firms being exempted from the national minimum wage. My hon. Friend is right to say that the national minimum wage would not be completely safe in their hands.

Let us not forget that the Liberal Democrat party has made a spectacular U-turn on the issue. When the Bill was going through the House, the Liberal Democrats argued that there should be a regional minimum wage, not a national minimum wage. Such a concept was so bizarre that it would have led to so many problems throughout the country and place genuine burdens on business. It would have been extremely difficult and bureaucratic for a company to operate a different minimum wage from a company a few yards down the road. Indeed, the Liberal Democrats now agree with a national minimum wage.

The national minimum wage has been extremely successful, as has been the influence of the Low Pay Commission, which is monitoring the impact of the national minimum wage. Its job is to consider it not on

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the basis of formulae or headline figures, but of movements in earnings, the impact on the economy and the effect on some low-pay sectors. The fact that it is a minimum wage, without sectoral and regional variations, makes the commission's job more important. It must carry out a careful analysis, as it has done in all the reports that it has submitted thus far. It announced in its press release of 31 January that it intends to produce its third report sooner than its terms of reference proposed, which is early March this year rather than July.

The Government have already announced that we will implement changes to the rate in October 2001, so that businesses have plenty of notice of a new rate. Businesses have argued consistently that they need the longest possible warning period. Having collected all the evidence that it requires to recommend a new main rate, which will be volume 1 of its report, the commission's recommendations should be made public at the earliest moment. We welcome that decision. We can expect the rest of the report, which is particularly relevant to the arguments advanced by my hon. Friend, by May. That second volume will deal with the youth rate and the effect of the minimum wage on young people generally.

I welcome the debate. It is not about whether we should have a national minimum wage. We have gone well beyond that. It is about the level at which it should be set, whether there should be a separate youth rate for 16 or 17-year-olds and some other elements that I shall try to cover today. It is customary to ask whether hon. Members want the good news or the bad news. Unfortunately for the balance of the argument, there is nothing but good news. The latest figures from the Office for National Statistics confirm that between 1.2 million and 1.5 million low-paid workers and their families have benefited from the national minimum wage. It was introduced only in April 1999. Women have been particular beneficiaries of it. In its first year of operation, the gender gap closed by 1 per cent., and that cannot be put down to anything other than the national minimum wage. The gap is now narrower than ever before.

Part-time workers have seen an improvement in their position, with the national minimum wage having been at least partly responsible for stronger growth in average part-time weekly earnings. The regional pay gap is also closing, a point that is close to the hearts of my hon. Friend the Member for Wentworth and myself. For example, earnings increased by 4 per cent. in Wales, by 4.7 per cent. in the north-east of England and by about 4.3 per cent. in Yorkshire and Humberside compared with the national average increase of 2.3 per cent. That is almost the first change in many years to what has been referred to sometimes as the north-south divide. We must ensure that people throughout Britain share in the country's economic prosperity. More than £3.2 million worth of underpayments have been secured for workers since April 1999 as a result of our enforcement orders.

My hon. Friend the Member for Basildon was right to say that we have had huge success in enforcing the national minimum wage. All that has been achieved without the slightest evidence of any damaging effects on the economy. It was said that the national minimum wage would lead to job losses. A million more people are

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in employment now, and we have a national minimum wage. It was said that the national minimum wage would increase inflation. Inflation is at its lowest level for 30 years. Long-term interest rates are at their lowest since England won the World cup. More importantly, it was argued that the minimum wage would feed through into price increases. Price rises are at their lowest since 1974. Wherever we look for the evidence, it suggests that the national minimum wage has had a positive impact on poverty pay without affecting the economy. Indeed, many arguments suggest that it has been extremely beneficial to the economy--not least the argument made by my hon. Friend. Companies are ringing our hotline number--0845 6000 678--to have the collars felt of some of their competitors who, they believe, are still paying less than the minimum wage and thus unfairly competing with them on poverty pay. That has certainly been an issue in the fish processing industry in my constituency.

It was evident both to us and to the Low Pay Commission from the start that setting minimum wage rates for young people was the aspect that presented the greatest risk of an adverse impact on employment. As the minimum wage had been introduced over many years in many other countries, we could analyse all the information about how it had worked. That demonstrated that the effect was most keenly felt for younger age groups and gave us reason enough to proceed with caution. We are also anxious that the minimum wage should support rather than hinder training and education.

My hon. Friend the Member for Basildon says that it was right to be cautious in introducing the measures. It is right to continue to be cautious, because we must continue to ensure that the minimum wage is not only established but grows roots, and that no political party, whether on the right or the left of the spectrum, will ever dare interfere with it again.

It is in that context that we asked the Low Pay Commission to reconsider the matter. Its first report pointed out the dangers of setting one rate for everyone over the age of 18 and of setting a rate for 16 and 17-year-olds. That was not merely a Government argument; it was the Low Pay Commission's argument, based on its analysis.

We increased the minimum rate for young people by 6.7 per cent. in June last year. We shall be cognisant of evidence and analysis from the Low Pay Commission, which consists of representatives of the Confederation of British Industry, the TUC and several academics led by Professor Bain, who has done a remarkably good job.

Although our actions are based on the Low Pay Commission's recommendations, we are not obliged to accept its suggestions. For example, the commission's advice was that 21-year-olds should receive the adult rate. At present they count as young people. There are good reasons for our decision, which was not motivated by any animosity towards 21-year-olds; we were all 21-year-olds once. However, we shall await the commission's next report to decide whether our position needs revising in the light of that report.

Our fear was that there was a spike, or peak, of youngsters coming through the system. Lots of evidence suggests that if young people lose a job at 22 or 23 years

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of age and experience unemployment, that has a long-term effect on their future employment prospects. In taking a cautious approach to the matter, we wanted to see how that blip in the population developed through the system and to be absolutely sure that employment prospects would not be damaged. That is why we decided not to implement that part of the report.

All those issues are being re-examined. It is a specific part of the Low Pay Commission's job in its next report to consider young people, including 16 and 17-year-olds, who we believe should be in full-time education. We have a tremendous problem--which other countries do not have--of 16 and 17-year-olds leaving school to go to work. That is what the educational maintenance allowance is all about; that is the right priority, and there is definitive evidence to show that giving the minimum wage to 16 and 17-year-olds would militate against our priorities.

We will consider the matter again; we understand the arguments. The Low Pay Commission's report will inform our decisions, and I welcome the debate generated by my hon. Friend the Member for Basildon this afternoon.

Mr. Nicholas Winterton (in the Chair) : The Minister finished exactly on time. I congratulate him.

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