The Parliamentary Under-Secretary of State for Trade and Industry (Mr. Gerry Sutcliffe): I beg to move,
That the Committee has considered the draft Minimum Wage Regulations 1999 (Amendment) Regulations 2005.
Welcome to the Chair, Mrs. Anderson.
I am pleased to present the regulations to the Committee. The minimum wage remains one of the Government's finest achievements. Since its introduction in 1999, it has made a real difference to the lives of at least a million low paid workers, particularly women, who make up 70 per cent. of those benefiting. In August 2004, the Government asked the Low Pay Commission to evaluate the impact of the minimum wage, with particular reference to low-paying sectors and small firms, and to make recommendations for change if necessary.
The commission reported earlier this year, and the Government announced in February that we had accepted all but one of its recommendations. The regulations implement the increases recommended by the commission to the adult and development rates of the minimum wage. We have also introduced an exemption from the minimum wage for participants in the European Community's Leonardo da Vinci programme. It may be helpful if I briefly explain each regulation.
Regulation 1 provides for the regulations to come into force on 1 October. That will give employers sufficient time to prepare and plan for the rate increases which were, of course, announced by the Government in February. Regulations 2 and 4 deal with increases to the minimum wage rates. While the minimum wage rose broadly in line with average earnings for its first four years, the adult rate then increased by around 8 per cent. in both 2003 and 2004, around double the rate of average earnings.
The increases recommended by the commission equate to about a further 4 per cent. this year, which is broadly in line with average earnings, increasing the adult rate to £5.05 an hour and the development rate to £4.25 an hour. The commission concluded that the overall economic situation and employment levels remain robust, and its research did not identify any significant adverse impact resulting from the minimum wage. Unemployment is at a record low and a record 28.5 million people are now in work.
The commission proposed further increases in the rates to take place in October 2006, to £5.35 for adult workers and £4.45 for those on the development rate, but recommended that it should be invited to fine-tune those rates in early 2006, in the light of economic
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circumstances. The Government accepted that recommendation and included it in the terms of reference for the commission's 2006 report, which we announced last week. Therefore the 2006 increases are not contained in these regulations.
The commission asked to be invited to review the operation of the rate for 16 to 17-year-old workers in its 2006 report. We agreed that it should do so and this is also included in its remit. However, the Government did not accept one of the commission's recommendation—that 21-year-olds should qualify for the adult rate of the minimum wage—and therefore the regulations do not make that change. The Government are concerned that employment prospects for 21-year-olds have often been worse in recent years than those for 20-year-olds, and that to compel employers to pay 21-year-olds the adult rate might exacerbate this situation. However, we will keep the position under close review.
Regulation 3 introduces an exemption from the minimum wage for participants in the Leonardo da Vinci programme. This is a European Community training programme under which participants gain vocational work experience in other member states. This exemption has been introduced at the request of the Department for Education and Skills, which is concerned that if the minimum wage applied to the UK host organisations, the participation rate in the UK could significantly decrease, which, given that many partnerships have reciprocal projects, could have a detrimental effect on the number of outgoing UK participants.
Regulation 5 increases the amount that can be taken into account when determining whether the minimum wage has been paid in situations in which a worker is provided with living accommodation by the employer. The amount is increased, as recommended by the commission, from £3.75 per day to £3.90 per day. Regulations 6 and 7 contain some minor technical transitional provisions.
Hon. Members will appreciate that as well as raising the level of the minimum wage, we have to ensure that it is successfully enforced. It is not enough just to set some increased minimum wage rates, we need to ensure that workers receive the money that they are due. We need to be clear, first, that the great majority of employers pay above the minimum wage. In its 2005 report, the commission confirmed that the vast majority of employers support and comply with the minimum wage. The latest Office of National Statistics figures show that less than 1 per cent. of workers receive below the minimum wage, and some of those, such as those undergoing apprenticeships or recognised training are covered by exemptions.
When compliance officers visit employers to check whether the minimum wage has been paid, a great majority of the cases in which arrears are found—around 95 per cent.—are settled without any formal enforcement action. So, almost all employers pay above the minimum wage, and most of those that do not settle their cases very quickly when challenged. The number of seriously non-compliant employers is very small. None the less, we are absolutely determined to tackle difficult employers, and I would
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like to outline two initiatives that we are taking to help to improve further the effectiveness of minimum wage enforcement.
Everyone would agree that we should address the main focus of our enforcement effort at seriously non-compliant employers in low-paying sectors, and we are. But I want to go further. We have therefore decided to proceed with a new approach called ''targeted enforcement'', under which we will target publicity and enforcement at each of the key low-paying sectors in turn. That approach will allow us to meet the main employer groups and unions in each sector to discuss their concerns about the minimum wage, to stress that our purpose is not to tackle the great majority of good employers, but to tackle the minority of bad employers, and then to mount an enforcement drive encouraging workers paid below the minimum wage to come forward.
We believe that that approach will enable us to raise the profile of the minimum wage in each sector in turn, and address concerns and improve compliance at the same time. For the first year of the programme, we have chosen the hairdressing sector. While it is a relatively small sector, Her Majesty's Revenue and Customs' minimum wage complaint figures for 2004–05 show that on it receives proportionately more complaints than any other low-paying sector. I am pleased to say that the key federation has told us that it would have no difficulties with being the first selected for targeted enforcement and, indeed, has welcomed it.
As I mentioned, the great majority of minimum wage cases are settled without the need for any formal enforcement action. However the National Minimum Wage Act 1998 also provides for criminal prosecutions as a longstop where employers are regularly or deliberately non-compliant. In addition to failure to pay the minimum wage, the criminal offences include obstructing officers, failing to keep adequate records and producing false records. Although the maximum fine for each offence is fairly small—up to £5,000—the details of the court case can be made public, which should maximise the deterrent effect.
To date the Government have not taken forward any criminal investigations, but I believe that there is now a case for using that route, particularly where lesser sanctions alone are not producing compliance. We have therefore agreed a criminal investigations strategy in principle with HMRC, and it will start to identify cases with the aim of identifying a small number of employers for prosecution. Obviously all the public interest and evidential tests will need to be met, and I stress that we anticipate criminal proceedings in relatively few cases, focussed on the very worst cases. That is a scalpel, if we like, but I believe it will be a useful additional enforcement tool to deploy, which, together with the targeted enforcement initiative that I mentioned a moment ago, will help us to raise the profile of the minimum wage and improve compliance. I commend the regulations to the Committee.
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4.37 pm
Charles Hendry (Wealden) (Con): May I say, Mrs. Anderson, what a pleasure it is to serve under your chairmanship and to be in this Committee Room again with the Minister.? Scarcely a day once seemed to go by without us facing each other across the Committee Rooms of this House, and I have been missing it all terribly so it is a great joy to be here again.
The Minister's catchphrase in the Standing Committee on the Consumer Credit Bill was ''I can see where the hon. Gentleman is coming from''. I hope that that will be the case again today. As before, my approach will be to ask him quite a few questions, which I hope he can answer today rather than our having to wait a couple of weeks for the reply and forests being cut down to provide the required reams of paper.
The Opposition support in principle the increases that are being outlined. We certainly accept that if the minimum wage is to be relevant, it must reflect the current situation in the real economy. Can the Minister confirm that the increases proposed represent an increase in the adult minimum wage of 4.1 per cent. this year and 5.9 per cent. next year? How does that relate to the rate of inflation and the rate of wage increases and the expected rate of inflation and wage increases in the coming year? Can he confirm that, between 1999, when the minimum wage was introduced and 2005, it will have increased by 40.3 per cent? How does that compare with the rate of inflation over that period and the general rate of wage increases?
