The
Committee consisted of the following
Members:
Chairman:
Mr.
David
Wilshire
Barlow,
Ms Celia
(Hove)
(Lab)
Baron,
Mr. John
(Billericay)
(Con)
Burt,
Lorely
(Solihull)
(LD)
Cousins,
Jim
(Newcastle upon Tyne, Central)
(Lab)
Cruddas,
Jon
(Dagenham)
(Lab)
Cryer,
Mrs. Ann
(Keighley)
(Lab)
Evans,
Mr. Nigel
(Ribble Valley)
(Con)
Fisher,
Mark
(Stoke-on-Trent, Central)
(Lab)
Hendry,
Charles
(Wealden)
(Con)
Kramer,
Susan
(Richmond Park)
(LD)
McFadden,
Mr. Pat
(Minister of State, Department for Business,
Enterprise and Regulatory
Reform)
Moffat,
Anne
(East Lothian)
(Lab)
Palmer,
Dr. Nick
(Broxtowe)
(Lab)
Redwood,
Mr. John
(Wokingham)
(Con)
Seabeck,
Alison
(Plymouth, Devonport)
(Lab)
Strang,
Dr. Gavin
(Edinburgh, East)
(Lab)
Stuart,
Mr. Graham
(Beverley and Holderness)
(Con)
Alan
Sandall, Committee
Clerk
attended the Committee
Fifth
Delegated Legislation
Committee
Monday 9 July
2007
[Mr.
David Wilshire
in the
Chair]
Draft National Minimum Wage Act 1998 (Amendment) Regulations 2007
4.30
pm
The
Minister of State, Department for Business, Enterprise and Regulatory
Reform (Mr. Pat McFadden):
I beg to
move,
That the
Committee has considered the draft National Minimum Wage Act 1998
(Amendment) Regulations
2007.
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 2007that 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 workers 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 workers 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
Governments 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.
4.40
pm
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 Ministers 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 Majestys 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 years 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 peoplethose between 18 and
21has 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 Governments
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 years
announcement of the increase. Nick Goulding, the forums chief
executive, said:
a sense
of reality is
intruding,
and he
welcomed that. He
added:
In
recent years, the 25,000 private businesses that the FPB represents
have been bombarded by escalating costs due to red tape, the rise in
National Insurance contributions and higher fuel costs. Next month,
they will have to cope with the administrative costs associated with an
increase in maternity leave and the ban on
smoking
he said
this a month or two ago. He went
on:
In future,
smaller businesses are also likely to face new pensions obligations and
longer employee holiday
entitlements.
Mr.
Goulding therefore welcomed the fact that this years 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:
Inflation-busting
increases in the national minimum wage are beginning to hit some small
businesses hard...The situation may become critical if the NMW is
geared towards average earnings instead of
inflation.
It would be
helpful to know the Ministers 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
Ministers 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.
4.48
pm
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
expandedparticularly 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
penniesabout 7pin 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.
4.51
pm
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 peoples wages would
increase because of these regulations. We think that about 1 million
peoples 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 Majestys
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
Governments 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
commissions 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
effectin terms of the pounds in someones
pocketis 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
basisusually 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,
That
the Committee has considered the draft National Minimum Wage Act 1998
(Amendment) Regulations
2007.
Resolved,
That
the Committee has considered the draft National Minimum Wage
Regulations 1999 (Amendment) Regulations
2007.
[Mr.
McFadden.]
Committee
rose at Five
oclock.