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Second Standing Committee
on Delegated Legislation
Monday 14 July 2003
[Mr. Roger Gale in the Chair]
Draft National Minimum Wage
Regulations 1999 (Amendment)
The Chairman: Good afternoon, ladies and gentlemen. For the convenience of hon. Members, they may remove their jackets if they wish to do so. Our proceedings may be disrupted soon because of a Division in the House on the timetable motion. When that happens, I shall suspend the Committee immediately.
The Parliamentary Under-Secretary of State for Trade and Industry (Nigel Griffiths): I beg to move,
That the Committee has considered the draft National Minimum Wage Regulations 1999 (Amendment) Regulations 2003.
Without doubt, the minimum wage is one of the Government's finest achievements. The regulations are concerned with increasing both the main and the youth rates of the minimum wage. They also make minor, but helpful, changes to the rules on accommodation costs as part of our drive to simplify regulations and cut red tape. We introduced the minimum wage to fulfil our 1997 manifesto commitment. We were absolutely determined that the minimum wage should be a success, raising people out of poverty wages and confounding our opponents and other doom merchants who predicted that it would increase unemployment and damage the economy. We have succeeded in both goals.
The minimum wage has made an enormous difference to more than 1 million low-paid workers in the United Kingdom. At the same time, we have generated an extra 1.5 million new jobs. We have tackled the low rates of pay that were so prevalent in the 1980s and 1990s, as trade union membership fell and workers' rights were eroded. Now, a record number of people are in work. We have lower unemployment than America, Japan, France and Germany, a fast-growing economy—faster than in most other European Union countries—and more people are joining trade unions. The minimum wage has been widely recognised as an outstanding success, and I am especially pleased that parties on both sides of the House now accept it as a permanent fixture of the labour market. The Government can be proud of their achievement.
In June last year, the Government asked the Low Pay Commission to produce its fourth report on the minimum wage. It reported in February 2003, and in March the Government announced their intention to implement several key recommendations. The regulations achieve precisely that, and implement increases to the adult and youth rates, as well as making adjustments to the rules on accommodation
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costs that have been agreed with the commission. I shall explain the adjustments.
Sitting suspended for a Division in the House.
Nigel Griffiths: Before we were interrupted, I was about to outline the changes that the regulations would bring about and ask the Committee to accept them. I shall deal first with the increases to the minimum wage rates.
In preparing the report, the Low Pay Commission was able to analyse the first four years of the operation of the minimum wage. It found little or no evidence of any adverse impact on the employment prospects of the low paid. I am pleased to report that the commission concluded that the minimum wage could be increased at a higher rate than average earnings without producing damaging effects. I agree with that.
The commission recommends that the adult rate, which is paid to workers aged 22 or over, be increased in October to £4.50 an hour, and that the youth rate, which is paid to workers aged 18 to 21, be increased to £3.80 at the same time. Those substantial increases are well ahead of inflation and average pay rises. The proposed increase to the adult rate is around 7 per cent., which is about double the present rate of average earnings and three times the rate of inflation. At least 1.3 million—and up to 1.6 million—low-paid workers should benefit.
The commission believes that its recommendations are affordable for business and will not have any significant effects on the level of employment. The Government accepts the increases, and paragraphs 2 and 3 of these regulations will introduce those with effect from 1 October 2003. The commission has also proposed further substantial increases in the rates in October 2004, when the rate for adult workers will be increased to £4.85 and the youth workers' rate will rise to £4.10. Accordingly, there will be substantial increases in the minimum wage for a second successive year—around 8 per cent. in the adult rate—and a further extension of the coverage of the minimum wage, which should benefit around 1.7 to 2.4 million workers.
The commission has recommended that it should be invited to fine-tune the 2004 upratings in early 2004 in light of economic circumstances. We believe that that is sensible, so the 2004 increases are not contained in the regulations.
I want to make it clear what is being proposed. In the first four years, the minimum wage increased almost exactly in line with average earnings. We are now proposing successive substantial increases to the adult rate of around 7 per cent. in 2003 and around 8 per cent. in 2004. The commission is confident that that will not produce damaging economic effects.
The Committee will want to hear of the progress that we intend to make in other areas of the minimum wage. We tackled an unfortunate tribunal ruling last August, which involved an injustice to former workers
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who were denied the minimum wage. The ruling meant that our enforcement officers were not able to issue enforcement notices on behalf of former workers. However, former workers are entitled to the minimum wage in the same way as current ones, so we recently introduced the National Minimum Wage (Enforcement Notices) Act 2003 to make it clear that our enforcement officers have the power to issue enforcement notices on behalf of former workers.
We have agreed that the Low Pay Commission should consider the advantages and disadvantages of a minimum wage rate for 16 and 17-year-old workers. It is collecting evidence and will report within seven months. We also issued a consultation paper earlier this year, proposing the introduction of a system of fair piece rates for home workers, which should ensure that an average or ordinary home worker can earn the minimum wage. That paper received a favourable reception, and we intend to issue draft regulations for key parties to consider shortly. I hope that that makes it clear that the Government are not complacent and will not hesitate to take action to improve minimum wage legislation when necessary.
The regulations under consideration also implement changes to the accommodation offset, agreed with the commission. When an employer provides accommodation for a worker, that is the only benefit in kind that can be counted towards the minimum wage. However, an employer cannot charge an arbitrary sum for accommodation to reduce the worker's net pay, because the regulations set a limit on the value of accommodation that can be counted towards the minimum wage. That limit is known as the accommodation offset, and at present it is set at 57p per hour worked or £3.25 for each day that accommodation is provided, whichever is the lower. The maximum possible accommodation offset is therefore £22.75 a week.
The commission has reported that the two-tier system was unnecessarily complex and created confusion for employers and workers alike. I am concerned about problems that additional red tape or complications to a mechanism might pose for businesses, especially small firms. The commission recommended that the hourly and daily rates should be abolished and replaced by a weekly offset. It also recommended that the offset should be increased in line with the increase in the adult minimum wage rate, to £24.40 per week.
The Government agree with the commission to make the following minor adjustments. First, we agreed that it would be preferable to have a daily rather than a weekly rate, as that will make it more straightforward to calculate the offset when a worker is paid monthly rather than weekly or every four weeks. Secondly, we have agreed to increase the amount by a further 10p a week to £24.50, because that figure is divisible by seven and gives a daily offset of £3.50, which makes it much easier for employers and employees to calculate. I hope that Members accept the regulations, which have been agreed with the commission, and accept that they are sensible and entirely in line with the spirit of the commission's original recommendations.
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Paragraph 4 of these regulations introduces those changes to the rules on the accommodation offset.
Lastly, I shall explain the remaining provisions of the regulations. Paragraph 6 contains a transitional provision so that the changes to the rules on the accommodation offset will apply only to pay reference periods beginning on or after 1 October 2003. Paragraph 5 is a technical provision that will remove the need for further transitional provisions if the accommodation offset is increased in future years. Paragraph 7 revokes previous provisions relating to the rates of the minimum wage and the level of the accommodation offset. I commend the regulations to the Committee.
Mr. Henry Bellingham (North-West Norfolk): I welcome the Minister to the Committee. I am sorry that the Under-Secretary of State for Trade and Industry, the hon. Member for Bradford, South (Mr. Sutcliffe), is absent. His mother is ill, and we send our thoughts to his family at this difficult time.
Over the weekend, the hon. Member for Bradford, South was speculating about a new category of minimum wage, which would affect 16 and 17-year-olds. Why did he brief the press at the weekend, rather than wait until today's sitting? That would have been the logical and obvious place to discuss the matter.