Seventh Standing Committee on Delegated Legislation
Monday 16 July 2001
[Mr. David Amess in the Chair]
Draft National Minimum Wage Regulations 1999 (Amendment) (No. 2) Regulations 2001
The Minister for Employment and the Regions (Alan Johnson): I beg to move,
That the Committee has considered the draft National Minimum Wage Regulations 1999 (Amendment) (No. 2) Regulations 2001.
It is a pleasure to serve under your chairmanship again, Mr. Amess. My ears are surviving
The regulations are primarily about increasing the main rate and the development rate of the national minimum wage. I am always delighted to have another opportunity to talk about the minimum wage, which is a favourite subject of Labour Members. Workers and businesses alike have welcomed the minimum wage, which has been introduced smoothly and successfully and with none of the dire consequences that were predicted by its erstwhile opponents. Its success has converted all but the most blinkered critics into supporters of the concept.
The independent Low Pay Commission has a key role to play in the policy. The commission not only makes unanimous recommendations on rate increases and other changes to the regulations as appropriate, but monitors the impact of the policy by considering the official data and, crucially, talking to small businesses, other employers, workers, sectors, advice groups and so on that are most affected by its decisions.
The LPC submitted this year's report in two volumes. In March, it presented us with volume 1, in which it recommended increasing the main rate from £3.70 an hour to £4.10. The report contained a great deal of interesting evidence and findings on the impact of the minimum wage so far. It made it clear that far from causing the collapse of civilisation as we know it and the predicted 1 million or 2 million job losses, the minimum wage had had a mildly positive effect on job creation.
The main rate increase from £3.70 an hour to £4.10 was unanimously agreed by LPC members. It was a balanced recommendation based on factual analysis, consultations and evidence that they had gathered in the preceding year. It was not the result of an old-fashioned pay bargaining process. It also represents an increase of 5.4 per cent. a year over the two and a half years since the minimum wage's introduction in April 1999. It is roughly in line with average earnings rises over that period.
In our regulatory impact assessment, the Government noted that
``whilst its impact on the overall wage bill of employers will be small, the rise will be of significant benefit to workers on low incomes, especially those who are paid at the prevailing minimum wage rate.''
The LPC said:
``We believe we have recommended an increase . . . which will be manageable by low-paying sectors, but will still provide low-paid workers with a substantial rise in their hourly earnings.''
The LPC submitted volume 2 of its third report at the start of June. That volume covers the development rate for younger workers and adult workers who are receiving training at the start of their jobs. It considers the age at which the main adult rate should apply and the LPC's future role. The report also covers a number of detailed issues of implementation and coverage.
The LPC recommended that, on 1 October, the development rate should increase from £3.20 an hour to £3.50. The regulations effect that change, which represents an increase of about 6.7 per cent. annually since April 1999. That is a slightly higher percentage than that for the main rate because we were starting, at the outset, from the lower position of £3.00 an hour.
The regulations effect two other changes. First, in line with another LPC recommendation, we propose to increase the maximum allowable offset for accommodation, which will increase in line with the rate increases. I should briefly explain the offset. An employer who provides his worker with accommodation as part of the job is allowed to take that into account when calculating the minimum wage rate. At present, he or she is allowed to deduct from the calculation either £2.85 a day or 50p an hour, whichever gives the lower figure, up to a maximum of £19.95 a week. We need the option of both daily and hourly amounts to ensure that the measure is applied fairly to those who work for only a few hours each day or who work long hours on only one or two days.
The Low Pay Commission recommended that the maximum amounts increase to £3.25 a day, or 57p an hour, up to a maximum of £22.75 a week. That is in line with the increases in the rates and therefore preserves the real value of the accommodation offset. Some, especially in the business sector, have called for a much higher maximum offset to reflect the real market value of the accommodation provided, but there are various difficulties in trying to make an accommodation offset represent a real cost or value.
First, on a point of principle, we want the majority of the minimum wage to be paid in money, not as a benefit in kind. There is no way of establishing the right rate in market terms; for example, how do we ensure that the offset compares the value of living in a gamekeeper's lodge on an estate in Aberdeenshire with the value of a chambermaid's hotel room in London? What happens if the real market rate for the hotel room is more than the chambermaid's total pay, which is not impossible? The chambermaid would end up paying the hotel to work there. That is why we agree with the LPC that the accommodation offset should remain a token recognition of the value of accommodation, which can be applied universally to all sectors and regions.
Secondly, the regulations change the definition of ``accredited training'' to reflect changes to legislation on education and skills. That is a bit of good housekeeping or tidying up; it does not affect the policy. The development rate can be applied to adults in the first six months of their new job provided that the employer can show that they are receiving accredited training in that period. The original regulations defined accredited training as being any course that was listed in schedule 2(a) to the Further and Higher Education Act 1992. That Act has been repealed and replaced by the Learning and Skills Act 2000; the amending regulations therefore refer to sections 97, 98 and 99 of that Act. However, we have kept in a reference to schedule 2 of the repealed Act to ensure that nothing falls between the cracks in the transitional period before those sections of the new Act are brought into force.
All the changes come into force on the same day: 1 October 2001. I have no hesitation in commending the regulations to the Committee.
Mr. Alan Duncan (Rutland and Melton): I welcome you to the Chair, Mr. Amess. This is the first Committee that I have served on in which I have had the pleasure of seeing you take control of the events. So bold were you in your opening comments that the Committee Rooms on either side of this one were also brought to order.
Conservative members of the Committee see little point in rehearsing the arguments, which, as the Minister said, we have done many times before. Our position is clear: we accept the minimum wage as enacted, and the way in which it works depends on the level at which it is set. Much of what the Minister has said is right: the minimum wage has had little detrimental effect on employment prospects. However, as he knows, during the period in which the minimum wage has been operating, the economyat least the employment part of the economyhas been doing pretty well. The real measure of the proposal is what might happen to employment prospects at the margin should the economy turn down. I retain some fears that, in the next three or four years, in certain sectors, the minimum wage might yet put some people out of work if there is, as I believe there may be, an economic downturn. A downturn would therefore put a lot of pressure on those who are paid at the lower end of the wage scale.
The minimum wage has been all right in good times, but we need to see what will happen. I therefore welcome what the Minister said about it being monitored. Does he think that the rate will ever be set at a lower level than that which he announced today? It will be interesting to see whether he puts it on the record that it will not.
I think that we can accept what is being put before us today. However, we shall carefully monitor those sectors that have already registered complaints with us about some of the effects of the minimum wage, particularly in the care home and tourism sectors. I hope that the Minister will undertake to ensure that those sectors are monitored closely to ensure that people are not put out of work who otherwise would be happy to work at rates that the legislation will not permit. We do not intend to oppose the statutory instrument, but I hope that the Minister will assure the Committee on those few matters.
Brian Cotter (Weston-super-Mare): I thank you, Mr. Amess, for chairing the Committee.
The hon. Member for Rutland and Melton (Mr. Duncan) seemed half-heartedor one third heartedin his qualified support for the measure. The right hon. Member for Kensington and Chelsea (Mr. Portillo) said in February that the minimum wage was an immoral policy but, obviously, things have moved on since then. I think that it is a good policy: we have seen standards rise without any discernible effect on jobs. It is incumbent on employers to pay a decent rate. In that connection, will the Minister assure us that the annual up-rating will be a transparent process? That is what Liberal Democrat Members are looking for.
I note that the Minister did not fully present the findings of the Low Pay Commission, which expressed concerns that the age-group development rate for young adults is not equitable and, in the longer term, must be reconsidered. Certainly, the lower rate for young adults is not acceptable, and I hope that the Minister will comment on any future commitment on that issue and, generally, on the age-related development rate for 21-year-olds, about which the Low Pay Commission expressed concern.