The Minister of State, Department for Business, Enterprise and Regulatory Reform (Mr. Pat McFadden): I beg to move,

The Chairman: With this it will be convenient to consider the draft National Minimum Wage Regulations 1999 (Amendment) Regulations 2007.

I call the Minister for his first outing at an event such as this, and wish him well.

Mr. McFadden: I thank you, Mr. Wilshire.

Today, I am presenting two sets of regulations. The minimum wage is established policy, and these debates take place every year. As in previous years, the rates are recommended by the independent Low Pay Commission based on extensive consultation and research, including with employers, workers and other interested parties. In making its recommendations, the Low Pay Commission has considered the macro-economic position, and taken account of what is happening in low-paying sectors and the position with annual leave entitlement.

In addition to the rates, we will also consider further and higher education and the minimum wage, and the accommodation offset in relation to local authorities and registered social landlords. I shall say a little more about that.

The first set of regulations amends section 3 of the National Minimum Wage Act 1998, which allows for regulations to be made to prevent certain classes of people from qualifying for the minimum wage. Our amendments are simple. We propose to amend an existing class of exemptions that refers to those “attending” a course of higher education so that it applies to those “undertaking” a course of higher education. The reason for the change is that the current exemption for those attending a higher education course does not cater, for example, for distance learning and e-learning when students would be in the same position as those attending a course, but doing so in a different format.

In addition, we are introducing a new category of persons in respect of whom regulations may be made to prevent them from qualifying for the minimum wage. That category is post-16 learners undertaking a course of further education requiring attendance for a period of work experience. I shall say more about that work experience. The definition of what constitutes further education is set out in the next set of regulations.

The second set of regulations will put further education students in the same position as higher education students.

Jim Cousins (Newcastle upon Tyne, Central) (Lab): I understand perfectly the difficulty that the Government are trying to address with the exemption, but my hon. Friend will appreciate that some students on further education courses might do work experience for a considerable number of hours a week. The Committee should consider whether that would bring the young people concerned into a different category requiring different treatment. Have the Government given any attention to that?

Mr. McFadden: We have considered the time issue and we have said that if the cumulative period of work experience is more than a year, the exemption would not apply. The exemption is designed for short-term courses, when work experience is part of a further education course.

The second set of regulations implements the increased national minimum wage rates that will come into effect on 1 October. The regulations also make changes to the accommodation offset, which is the maximum amount that can be offset by an employer for the provision of accommodation against the wages due to a worker for national minimum wage purposes. The regulations make changes to how the accommodation offset applies to workers who are both employed by a local authority or registered social landlord and live in accommodation provided by that local authority or registered social landlord.

I stress that the amendment will not affect situations in which an employer such as a gangmaster provides accommodation for workers. The accommodation offset will continue to apply to such employers. The Government understand that that issue is of some concern; we are actively enforcing the relevant legislation and will continue to do so. The amendment is designed instead to affect situations in which a local authority or registered social landlord employs people who are also tenants, but there is no connection between their job and the provision of accommodation.

As I said, the regulations will exempt from the national minimum wage those who are required to undertake a period of work experience as part of their further education course. Participants in certain European Union training programmes that are reciprocal between member states will also be exempt.

I shall explain briefly which regulations will make the changes. Regulation 1 provides for the regulations to come into force on 1 October 2007—that is the annual pattern. It will give employers sufficient time to prepare and plan for the rate increases, which the Government announced earlier this year. Regulations 2, 4 and 8 deal with minimum wage rates. Regulation 2 will increase the adult minimum wage rate from £5.35 to £5.52 an hour, as recommended by the Low Pay Commission. Regulation 4 will increase rates for workers aged 18 to 21 from £4.45 to £4.60 an hour, and rates for 16 and 17-year-olds from £3.30 to £3.40. Regulation 8 deals with the accommodation offset, increasing from £4.15 to £4.30 a day the amount that can be taken into account when determining whether the minimum wage has been paid in situations where an employer provides a worker with accommodation. Again, that follows Low Pay Commission recommendations.

Regulation 3 deals with the exemption from the national minimum wage of post-16 learners required to undertake work experience as part of an FE course. The application of classroom-based and theoretical learning in the workplace is an important part of education. Many further education courses include an element of high-quality work experience and/or work-based assessment provided by employers, which adds significant value to learners’ understanding. Such opportunities are a valuable and important way to help learners to gain the skills and knowledge that they need. As a result of the regulations, there should be no requirement to pay the national minimum wage to learners in the workplace taking part in such a course.

Regulation 3 also deals with the exemption for European Union training programmes, such as the Leonardo da Vinci programme and Youth in Action, which allow incoming vocational trainees and young volunteers from Europe to receive EU funding to take part in training or volunteer activity in another participating country for a maximum of one year. The programmes provide a predetermined grant to cover travel and expenses during the chosen activity. Neither trainees nor volunteers take jobs from permanent workers; the activities are designed as a development tool for the individuals concerned and not to fill posts that would otherwise be occupied. The programmes are reciprocal, with UK participants travelling to other European countries on similar terms to those coming here.

Regulations 5, 6 and 7 deal with local authorities, registered social landlords and the accommodation offset. To clarify, the regulations will not affect a situation in which a caretaker in a housing block receives accommodation, for example, because that accommodation is directly linked to the job. As Members may recall, when an employer provides accommodation, they may charge the worker for it by deducting an amount from the worker’s pay or requesting the worker to make a separate payment. The maximum that the employer may charge is set by the accommodation offset, and it will be £4.30 a day from 1 October. That amendment ensures that when there is no connection between the worker’s employment and the fact that he is a tenant of his employer, who is either a local authority or a registered social landlord, the employer will not be caught by the accommodation offset policy. In such cases, the level of rent paid is set by the Government’s policy on social rents.

That is the package before the Committee: the normal annual uprating of the minimum wage and the other provisions that concern education and the accommodation offset.

Charles Hendry (Wealden) (Con): May I say what a pleasure it is to serve under your chairmanship, Mr. Wilshire, especially as your neckties always add a splash of colour to our proceedings? I welcome the Minister, too, to his role. We had our first exchange at the Dispatch Box last week during oral questions, and I wish him every success in his new role in the Department for Business, Enterprise and Regulatory Reform.

This is a complex issue about which to appear before such a Committee for the first time, but it is also one on which there will be broad agreement on the Minister’s proposals. We certainly welcome the widening of the scope of the regulations. On the distinction between attending and undertaking a course, I think that it must have always been the intention that remote learners should be covered, so we welcome that provision.

We have a number of questions, and I hope that the Minister can respond now or write to us if he cannot. How many people does he think will see their wages rise as a result of the changes? How many of those people will be employed in the public sector? It would be interesting for the Committee to have an understanding of the balance between those employed in the private and public sectors.

I am sure that the Minister will agree that the minimum wage will be effective only if it is properly enforced. We are supportive of the steps being made by the Government and Her Majesty’s Revenue and Customs to stamp out rogue operators. What success has the HMRC initiative to stamp out illegal pay deals had and how many prosecutions have there been in the year since we last discussed such upratings?

Will the Minister clarify his thinking about how this year’s increase has been arrived at, particularly compared with the rate of inflation? Over the past three years, the adult minimum wage has gone up by 4.1 per cent. and 5.9 per cent. and now it is going up by 3.2 per cent. That is an increase below the rate of inflation, which was at 4.3 per cent. in May. The comparative rate for younger people—those between 18 and 21—has gone up by 3.7 per cent. and 4.7 per cent. and is now going up by 3.4 per cent. On all occasions when the rate of inflation has increased, the rate of increase of the national minimum wage has been slower. Is that because of the pressure that the Government and the Low Pay Commission have been under from small businesses? To what extent do they take account of international competitiveness issues? Is the decision based purely on domestic factors? Are those who make the recommendations considering the increasing competition that we face from countries overseas, which have very low rates of pay, or are they considering only the comparative rates of pay in this country or the rate of inflation?

Will the Minister also clarify some matters about the comparative rates of pay? As the figures that I have given make clear, over recent years the national minimum wage for those aged between 18 and 21 has risen at a slower rate than that for other adults: at 3.7 per cent. compared with 4.1 per cent., and last year at 4.7 per cent. compared with 5.9 per cent. This year, the average rate for those between the ages of 18 and 21 is rising faster for the first time for some years. What is the Government’s intention with regard to those who are younger? Is there an intention to narrow the national minimum wage pay gap or are the Government simply correcting the situation of the past couple of years, when things have been moving in different directions?

After this increase, by how much will the national minimum wage have increased in comparison with wages generally? The Forum of Private Business tells us that since the national minimum wage was introduced, general average wages have gone up by 17 per cent., yet the national minimum wage has gone up by 27.4 per cent. Will the Minister confirm whether those figures are correct? What is his longer-term intention in respect of that issue?

As the Minister will be aware, about 1.25 million businesses in this country employ between one and 250 employees; in total, such companies account for a third of UK employment and 40 per cent. of UK turnover. The percentage of people paid the minimum wage in small and medium-sized enterprises is higher than in any other section of the economy: the figure is 4 per cent. for small businesses, and 2.5 per cent. for medium-sized businesses. Some 1.5 per cent. of people in larger firms receive the minimum wage. How are the smaller companies and their representative bodies being consulted?

The Minister may have seen the reaction of the Forum of Private Business to this year’s announcement of the increase. Nick Goulding, the forum’s chief executive, said:

and he welcomed that. He added:

he said this a month or two ago. He went on:

Mr. Goulding therefore welcomed the fact that this year’s increase in the minimum wage would be that much lower. Will the Minister clarify the extent to which such organisations are involved? What meetings did his predecessor have, has he had or is he planning to have to discuss such issues? Alan Tyrrell, the chairman of the Federation of Small Businesses employment group, said:

It would be helpful to know the Minister’s thinking on the future direction of the issue.

Will the Minister also comment on the issue in respect of unemployment? I understand from information given by the Forum of Private Business that we are beginning to see the employment situation deteriorating, particularly among those on low wages. Is that also the Minister’s understanding? Is there any correlation between the growing joblessness in that sector and the fact that the minimum wage is beginning to bite harder than in the past?

I hope that the Minister can respond to my questions, although I realise that I have asked quite a number; I will totally understand if he wants to write to me about them after this sitting. In general, we support the direction in which he has taken us today.

Susan Kramer (Richmond Park) (LD): It is a pleasure to serve under your chairmanship, Mr. Wilshire. I also welcome the Minister to his position. I think that this will be the last thing that I do under the trade and industry portfolio, before I move to transport.

Obviously, we are very supportive of a number of the measures in this statutory instrument: moving from “attending” to “undertaking” makes sense, and we are comfortable with the idea that work experience and further education should be put on the same basis as higher education. That seems logical, given the general direction in which I believe everybody wants to take vocational education. We also welcome the various adjustments to the accommodation provision and the provisions for European work experience.

Our primary concern is about the growing differential between the minimum wage for younger people and that for adults. Once again, the gap has expanded—particularly for 16 and 17-year-olds. We have always been concerned at the lower minimum wage for young people who do the same work as adults. At present, more than 600,000 young people are earning less than their older counterparts who do exactly the same task. Will the Minister give the Committee an idea of any recent reviews that he has done that suggest that that has made a difference to the employment of young people?

A number of trade associations have told me that when they put out a job advert, they do not specify an age and therefore do not consider whether additional jobs might be available because a lower wage would be involved. They simply hire the best person who responds to the application. They have told me that knowing that there is a lower wage for a young person does not make any difference to long-term business planning: a business plans the number of jobs and gets the best person to do them. It may then suddenly find that some people are cheaper than others, and that can create tension in the workplace.

Hon. Members will know that the British Youth Council has been extremely concerned that many young people feel that their work is not valued and recognised, even when it is efficient and effective, because they are handed a lower wage. Many young people have exactly the same cost responsibilities as older people; they may be parents, they may be living on their own or they may be the breadwinners in a family where others find work difficult.

We are exceedingly concerned about the situation. Will the Minister enlighten me a little more about any recent thoughts he has had on lower wages, particularly in respect of the 18 to 21 group? Perhaps an argument could be made on the basis that there is a larger element of training in the 16 to 17 group, but we would say that questions have to be answered about that entire group. Perhaps he would explain why he is allowing a widening differential; it has widened again this year. An increase of a few pennies—about 7p—in the differential may not seem significant to him and me, but it starts to add up to serious money for someone on a low wage.

Mr. McFadden: I will endeavour to deal with as many of the points as I can. I am happy to respond to the hon. Member for Wealden in writing about any that I do not address. He asked a number of questions, the first of which was how many people’s wages would increase because of these regulations. We think that about 1 million people’s wages will increase, the majority of whom will be young women in work. I am not sure what the balance would be between the public and private sectors.

I welcome what the hon. Gentleman said about enforcement, because it is important not only that the minimum wage rate exists, but that people have recourse to mechanisms for having it enforced when it is not being followed. He will be aware that the then Chancellor announced an extra £2.9 million for enforcement earlier this year. That will be used to employ more staff at Her Majesty’s Revenue and Customs to work on this specific area and to provide people with more information about their minimum wage rights. I have been told that since the introduction of the minimum wage there have been 36,000 investigations, resulting in the repayment of £23 million in minimum wage arrears.

The hon. Member for Wealden asked a number of questions about what is taken into account when setting the rate. The Low Pay Commission tries to take a number of factors into account. It will discuss the matter with business and trade union representatives, and will have an eye on a number of factors in the wider economy. It will try to set a rate that takes all those factors into account and that puts a decent floor under the labour market while not having other adverse effects on the economy. I think that it has been successful in doing that.

The adverse consequences that were predicted before the minimum wage was introduced have not come to pass. Initially, it was set at a relatively cautious rate, and has increased since by about 20 per cent. in real terms. It is now set at about 50 per cent. of median income rates. The Low Pay Commission rightly consults small businesses in its deliberations, because they are an important voice in this matter and in the economy, and they are important employers. It is right that the Low Pay Commission consults them when making its recommendations to Government.

With regard to any increase in unemployment over the last year, compared with other G7 countries we are in a healthy employment position; our employment rate is among the highest in the G7. It is higher than the EU average and our unemployment rate is lower than the EU average. If there has been any change over the last year, I certainly do not think that it is because of the national minimum wage.

I shall turn to the questions raised by the hon. Member for Richmond Park, particularly about the youth rates and the differentials between the three rates before us today. The rate for 16 and 17 year-olds, which we only introduced in 2004, is a complex matter because of the interface with educational allowances and apprenticeships, which is why the rate is set cautiously. We want to set a minimum wage at a level that avoids the exploitation of young people in work. I think that we have done that. The rate was put up between 2005 and 2006 and will go up again in October this year. However, we also want to ensure that people of that age have the right incentives in that interface between work and education.

Since the minimum wage was introduced in 1999, there has been what we call a development rate for workers aged 18 to 21. That has been the case throughout the operation of the minimum wage, and the Government’s view is that it will remain the case certainly for the coming year. A question was raised about our long-term intentions for the minimum wage. At this stage, we are approaching the matter on a year-by-year basis, which we think makes sense and is sensitive to wider economic changes. The Low Pay Commission makes its recommendations early in the year, after which, normally, the Government announce their response around March, and the rates change in October. I do not want to predict the long-term future of the minimum wage. It probably makes sense for us to concentrate on the rates for the next year and to consider the commission’s recommendations as they come in.

Susan Kramer: Will the Minister confirm that there is a widening differential, in pounds, shillings and pence, between the various rates? Sometimes the percentages do not look that different, but because they are starting from a different base point, the effect—in terms of the pounds in someone’s pocket—is that the differentials between those three benchmarks are growing. Perhaps he could comment on that and on the decision that was made to allow that gap to continue to widen this year.

Mr. McFadden: Ever since pay negotiations came in, there has been a perennial debate about whether we should consider them on a cash or percentage basis; that debate concerns not just the minimum wage but most wage negotiations. Normally, wage negotiations, other than those on the minimum wage, are considered on a percentage basis—usually that is the way in which people make their pay claims and so on. That point about a percentage and cash sum can always be made, but it applies not just to the minimum wage, but to wage negotiations in general.

Charles Hendry: The question that I put to the Minister was about whether he would set out his long-term intentions not for the minimum wage, but for the differential. I think that he needs to be slightly clearer with the Committee than he has been so far. Does he believe that the gap between the adult rate and the development rate should widen or narrow? In most recent years it has widened, although this year the percentage gap narrowed slightly, but does he believe that, as a matter of policy, it should be widening or narrowing?

Mr. McFadden: Neither. I do not believe that, as a matter of policy, the Government have a view on whether it should be widening or narrowing. The Government consider the recommendations of the Low Pay Commission when they are submitted. We do not take a policy position that says that the gap should widen or narrow. We consider that on an annual basis, which I think is the right way in which to do it.

Question put and agreed to.

Resolved,

Resolved,

Committee rose at Five o’clock.