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Session 2001- 02
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Delegated Legislation Committee Debates

Draft National Minimum Wage Regulations 1999 (Amendment) Regulations 2002

Fifth Standing Committee on

Delegated Legislation

Tuesday 9 July 2002

[Mr. Edward O'Hara in the Chair]

Draft National Minimum Wage Regulations 1999 (Amendment) Regulations 2002

10.30 am

The Minister for Employment Relations, Industry and the Regions (Alan Johnson): I beg to move,

    That the Committee has considered the draft National Minimum Wage Regulations 1999 (Amendment) Regulations 2002.

It is always good to arrive early so that one can settle into one's slot. I am pleased to present these amending regulations—

Mr. Eric Forth (Bromley and Chislehurst): No you are not.

Alan Johnson: I am enormously pleased to present these regulations, which increase the main and development rates of the national minimum wage. The minimum wage is now recognised as a success and it has helped about 1.5 million low-paid workers without causing the economy any problems. The vast majority of employers comply with it, although Inland Revenue enforcement teams have completed 19,000 case investigations and identified almost £10 million in wage arrears among the minority of employers who have not complied since the minimum wage was introduced in April 1999. None the less, that is a good record. The Government are not resting on their laurels, however, and we are putting substantial extra funds into enforcement and increasing the number of enforcement teams from 14 to 16. We are also implementing a key Low Pay Commission recommendation by taking forward seven pilot projects in different parts of the United Kingdom. Those projects will try out different ways of tackling non-compliance in businesses and communities where workers have been reluctant to report such practices.

I believe that parties on both sides of the House now accept the national minimum wage as part of the industrial landscape and the Government can justifiably be proud of their achievements. Part of the reason for our success is our adoption of a partnership approach. That has involved setting up the independent Low Pay Commission, whose membership is drawn from people with experience of industry. The commission consults widely and takes the views of employers, unions and other interested organisations and individuals. That has ensured that its recommendations have been well judged and have made a substantial difference for the low paid, while remaining affordable for businesses.

Hon. Members may recall that the commission made its recommendations for rate increases in October 2001 and October 2002 at the same time. The

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Government implemented the first recommendation by increasing the main and development rates to £4.10 and £3.50 respectively in October 2001. We now propose to implement the second recommendation by further increasing the rates to £4.20 and £3.60 in October 2002. Those are increases of 2.4 and 2.8 per cent. respectively. Last year, the Government made it clear that they would accept the commission's recommendation for 2002, subject to economic conditions at the time.

Mr. Philip Hammond (Runnymede and Weybridge): In case the Minister misleads the Committee, will he confirm that the Government have not accepted the commission's recommendations in their entirety and will not implement those with regard to 21-year-olds?

Alan Johnson: I can confirm that that is the one recommendation that we have not accepted and I will go into the reasons for that during the debate, if the hon. Gentleman wishes.

In April, we considered the evidence across the overall economy and in the sectors most affected by the minimum wage. We saw no significant rise in general unemployment and the indications are that employment is holding up in low-paying sectors. Consequently, our judgment is that economic conditions in autumn 2002 will support the proposed increases.

Mr. George Osborne (Tatton): Can the Minister tell the Committee whether any consideration was given to the current economic uncertainty in the world markets and so on? Was that in any way taken into account?

Alan Johnson: The review necessarily takes place in April, because we need to lay the regulations before the House in July. The uncertainty was considered. Last year, when the biggest part of the two-stage increase, to £4.10, was due to come in on 1 October, the British chambers of commerce called, post-11 September, for it to be suspended because of the economic conditions. If one examines the results since then, that increase, which is the biggest single increase in the minimum wage to date, has had no discernable effect on the economy or on employment levels. Indeed, employment levels are now at their highest ever in the history of this country.

We have also calculated, in the regulatory impact assessment that accompanies the regulations, that the maximum cost to employers of the measure would be around £225 million, equivalent to an increase of 0.05 per cent. in the economy's total wage bill. In practice, the costs will be much less, because some worker's pay will have been uprated by 10p an hour in any case, regardless of the minimum wage.

Dr. Andrew Murrison (Westbury): Does the RIA assess the disproportionate costs that might fall upon smaller employers as opposed to larger concerns? In particular, has the Minister examined how the measure would affect rural areas?

Alan Johnson: The Low Pay Commission has made such an assessment, which is the kind of thing that it was set up to do. It conducts extensive consultation,

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discussion and analysis all around the country and is particularly concerned to visit rural as well as urban areas. It considers specific sectors, particularly low-paying sectors such as textiles, the hospitality industry and tourism. Its report examines those issues and analyses them and that analysis forms the basis of its carefully framed recommendations.

This year's increase of 10p an hour does not sound like a great deal of money, but we should remember that, as the commission intended, its recommendations for 2001 and 2002 were taken together. Taking into account those two increases shows that the main rate has increased by 50p per hour since September 2001, which is equal to an extra £900 a year for someone working a 35-hour week. During the same period, the development rate will have increased by 40p an hour, which is equal to an extra £725 a year. Those amounts are substantial, particularly for low-paid workers, and will make a real difference.

Mr. Hammond: Does the Minister by any chance have to hand figures for the increased burden of taxation on those same low-paid people as a result of this Government's increase to record levels in taxation on the lowest-paid 20 per cent. of the population?

Alan Johnson: I do not have the figures to hand, but I was just coming to the point that we need to remember, which is that the minimum wage is only one of the ways in which the Government are helping low-paid workers. We are also providing additional targeted assistance through tax credits. We will be introducing a new working tax credit from April 2003 to help tackle poor work incentives and persistent poverty among working people. On its introduction, the working tax credit will guarantee a family with one child and one earner working full time a minimum income of £237 a week.

Mr. Osborne: The Minister will be aware that the Government are among the largest employers of low-paid workers in, for example, the health service. Has he assessed the impact of the uprating in the regulations on the Government's wage bill?

Alan Johnson: I have not made such an assessment. I do not have any figures to hand, but that is another consideration of the Low Pay Commission in making its recommendations. It is also, understandably, very much a consideration of the Government in deciding whether to accept those recommendations.

Regulations 4 and 5, together with the schedule, make a technical amendment to the wording on pay reference periods. I am aware that every time I use the phrase ''technical amendment,'' my colleagues doze off, which I quite understand. The amendment revokes redundant provisions. Although the amendment is alarmingly referred to as a revocation provision, I reassure the House that it makes no difference to the rates that people are or were entitled to be paid. It simply tidies up the wording of the regulations.

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Mr. Hammond: The Minister said that he would deal with the Government's rejection of the Low Pay Commission's recommendation on 21-year-olds.

Alan Johnson: I said that I would deal with that during debate.

10.40 am

Mr. Hammond: I am pleased to see the Minister here this morning, as I had a horrible fear that he would not make it. I understood from the usual channels that, although the Minister responsible for employment protection had signed all the papers, another Minister would respond to the debate. I am delighted that the Minister's exertions in the Chamber last night did not tire him so excessively that he could not be with us this morning.

This Committee is a reunion of the National Minimum Wage Bill Standing Committee, on which I was happy to serve in 1998 and whose debates I enjoyed. We vigorously opposed the Government's introduction of the national minimum wage. Our reasons for doing so were entirely sound and intellectually consistent and would apply equally today, if the Government asked us to debate the national minimum wage in a vacuum, without giving a clue as to the level at which it would be set. Ministers who comment about those 1998 debates conveniently ignore the fact that we were required to debate the abstract principles of a minimum wage, which could have been set at a level of £5—as the unions pressed for at the time. It could have been set by reference to a fraction of median earnings. We were forced to consider the question in the abstract.

Since that time, the Government have introduced the national minimum wage at a modest level; indeed, some trade union leaders used slightly more flamboyant language about the level when the announcement was made. Our position during the passage of the Bill was not wrong; it was the position that had to be taken by a responsible Opposition, given that the Government were not prepared to give any clue to the Committee about the level that would be set. It was our duty to draw attention to the potential that a minimum wage set at the wrong level could have had to damage business, jobs and the overall economy.

The minimum wage was introduced at a sensible level in 1999, but we must be careful that similar caution prevails now, when we uprate it. Nothing must be done to damage businesses, jobs and the economy, and I am sure that the Government would not want that to be the result. The increase that we are considering is modest, at only 2.4 per cent. on the standard rate and 2.85 per cent. on the development rate. We do not oppose that rise.


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