The Minister for Employment Relations and Postal Affairs (Mr. Pat McFadden): I beg to move,

Thank you for chairing our sitting this afternoon, Mr. Key. I am pleased to present this year’s national minimum wage regulations. They do two things: provide for this year’s increase to the national minimum wage rates and make a couple of amendments to the current provisions for participants in the work trials of Jobcentre Plus and other Government employment programmes. I shall set out the position on both issues.

We have accepted the recommendations of the independent Low Pay Commission on the new minimum wage rates. The increases will benefit about 1 million workers. The commission hears from workers and business, as well as considering wider economic evidence before making its recommendations each year. That model has been in place since the minimum wage was established, and it is proving very successful. The aim in setting the rates is always to support the low-paid, while considering their wider employment prospects in the economy.

Work trials are a long-standing and successful employment programme and offer the long-term unemployed the chance to try out a job during a short, voluntary trial period with a prospective employer. They are particularly useful for those who have been away from the labour market for a long time, for one reason or another. The trials are also helpful to employers because they give them time to find out about the individual, perhaps overcoming misconceptions about the skills, experience or work readiness of those who have been away from the labour market for a long time. Both for employers and participants, there is an advantage in helping them find out that the barriers to work might not be as high as they had previously feared.

The way in which the programme has operated until now is that work trials have run for up to three weeks. During the trial period, the participant continues to receive benefits from Jobcentre Plus and is therefore exempt from the minimum wage. The regulations extend the exemption period from three weeks to a maximum of six weeks to provide for the new extended work trials. If a successful trial leads to the individual being appointed to the job on a permanent basis, they would be entitled to the national minimum wage.

The extended work trials are intended to allow more people to try going back to work, particularly those furthest from the labour market. We all know of constituents on incapacity benefit who may have been away from the labour market for a long time, who say, “I’d like to try, but I’m fearful that if I try I will immediately lose all my benefits and if it doesn’t work out for me there will be a problem”. The regulations allow individuals to try out the scheme not for three weeks, but for up to six weeks. We expect trials to go beyond three weeks probably only in a minority of cases because most of them are three weeks or less at the moment. However, in some cases, both the employer and the individual involved might want a little longer to try out the scheme.

The regulations also make an amendment in respect of participants in other Government employment programmes, which make available a range of options to provide jobless people with training, work experience or temporary placements to assist them in obtaining sustained work. Participants usually remain on benefits or receive a training allowance, but some may take up the option of subsidised employment with an employer, during which they would receive the going rate for the job, which would be at least the minimum wage.

Dr. Ian Gibson (Norwich, North) (Lab): Will my hon. Friend inform us about how the number of people on the minimum wage varies seasonally or annually, however the figures have been prepared?

Mr. McFadden: The increases that we are talking about today will benefit about 1 million people, of whom three-quarters will be low-paid women. Those are broad numbers. About 15,000 people a year are doing the work placements for which I am talking about extending the period.

Mr. Mark Prisk (Hertford and Stortford) (Con): Clearly, those are pilot tests and trials—the regulations use the word “trial”. Presumably, therefore, were the trials to be judged successful, the regulations would apply to a much wider group, as clearly 15,000 is a small number. Will the Minister confirm that if the trials were extended that would be the Government’s intention?

Mr. McFadden: Our estimate is that there might be another 5,000 beyond the 15,000 currently taking part for three weeks. However, not all the 5,000 would go for the full six weeks.

The amendments of the work experience programmes are designed to make it clear which participants are entitled to the minimum wage and which are not. The greater clarity will benefit participants and employers, but I stress the fact that we are not making a change to long-standing arrangements—we are making the regulations clearer.

Mr. Graham Stuart (Beverley and Holderness) (Con): Given the number of people on the minimum wage who are dependent on tax credits, how much material difference will the minimum wage make to the 1 million people affected by the provisions?

Mr. McFadden: The rise is worth roughly 3.8 per cent. across the different minimum wage rates. The hon. Gentleman is right to mention tax credits. Taken together, the rise and the credits would give a family with two children just under £300 a week—I think—as a guaranteed income. I will check that figure, perhaps during the debate.

I shall quickly go through the regulations. Regulation 1 provides an increase to the minimum wage. Rates will apply from 1 October 2008, in a well established pattern that is operated annually. The provision on work trials and employment programmes will take effect from the day following the date on which the regulations are made, to ensure that individuals can benefit as soon as possible. Regulation 3 increases the adult rate of the minimum wage from £5.52 an hour at present to £5.73 from October. Regulation 5 increases the rate for workers aged between 18 and 21 from £4.60 to £4.77 an hour and the rate for workers aged below 18 from £3.40 to £3.53 an hour. The accommodation offset is increased from £4.30 to £4.66 per day under regulation 6—that is the maximum daily amount that an employer may deduct from a worker’s pay for accommodation provided by the employer.

Regulation 4 clarifies the circumstances in which the Government employment programmes that I spoke about qualify for the national minimum wage, also making an extension from three to six weeks for the exemption from the national minimum wage for those taking part in such a work trial. The hon. Member for Hertford and Stortford talked about pilots; it is not a pilot, but an established programme. We are extending from three to six weeks the period for people to try it out before the minimum wage or a decision about their continuing the trial will kick in.

Mr. Prisk: I welcome you to the Chair, Mr. Key, to keep our deliberations to the point and effective. I thank the Minister for his opening remarks on an important piece of legislation; as he said, 1 million people will be affected by the changes.

The changes will come into effect on 1 October, when adult wages at the national minimum level will rise to £5.73. The Government’s regulatory impact assessment shows an estimated cost of about £62 million, of which direct wage costs are about £54 million. As we know, these are difficult times for many businesses, so it is important to understand the impact of the regulations on small and medium-sized businesses. I hope that the Minister will answer one or two questions.

What estimate has the Minister’s Department made of the impact on small businesses with five employees? What percentage rise of the costs would that represent, particularly—this is important—if pay differentials are maintained? Similarly, what estimate has been made of the impact on a medium-sized business, perhaps an engineering firm or a local hotel, where there might be 50 employees? More than 95 per cent. of businesses are small or medium-sized, and we must understand how the regulations will affect such organisations and their ability to continue employing people in the current circumstances.

Equally, the impact on the public sector is important. How many people in the public sector does the Minister estimate will be affected, and what will be the cost to the Exchequer, assuming—as I am sure he wants to do—that pay differentials are maintained? On the problems of enforcement and rogue traders, will the Minister tell me what success Her Majesty’s Revenue and Customs has had in stamping out illegal pay deals? I know that matter is close to his heart. Will he tell me, for example, how many prosecutions there have been in the year since the last upratings were discussed by the House? How does the number of prosecutions compare to the year before? I appreciate that he may not have such detailed figures on the tip of his tongue, but perhaps he can respond in due course. If not, it would be helpful for such matters to be put on the record either orally or in writing.

The Minister rightly said that regulation 3 increases the principal rate for adults from £5.52 to £5.73. Under regulation 5 there are differential rates for other workers. For those aged between 18 and 21 the rate rises from £4.60 to £4.77 an hour, and for those below 18, from £3.40 to £3.53. There may be the potential for conflict with proposed legislation. Has the Minister discussed with the Leader of the House whether the differential rates proposed on the basis of age will fall foul of the equalities Bill? If age discrimination is to be outlawed, one might assume that would include pay.

Regulation 4 puts in place the matters we have touched on in respect of Jobcentre Plus and the six-week trial. There is considerable merit in what the Government seek to do, but it would be helpful for the Committee to understand what discussions the Minister has had with his opposite number in the Department for Work and Pensions. Just as important, what discussions has he had with business and trade union representatives on the impact of the regulations?

As members of the Committee know, regulation 6 sets the per-day value of the accommodation amount applicable where an employer provides a worker with living accommodation. The regulation increases the amount from £4.30 to £4.46 per day that the accommodation is provided.

Mr. McFadden rose—

Mr. Prisk: I am happy to take the Minister’s intervention.

Mr. McFadden: I think that I may have given the wrong figure. I may have said £4.66—the hon. Gentleman is right, it is £4.46.

Mr. Prisk: I am grateful to the Minister for helpfully correcting the record. Can he tell me whether, if someone with a full-time job independent of the landlord is provided with free accommodation in return for a few hours free work in the week, the landlord will, de facto, be in breach of the regulations? There is a potential conflict. [Interruption.] The Minister asks me to try to explain that again. It is a complex issue. If a worker has a full-time job, independent of their landlord although they have free accommodation in return for a few hours of work for that landlord, is the landlord de facto in breach of the regulations? I suspect that point may not have come up in his discussions, so it would be helpful to put the answer on the record. I hope that he will be able to provide us with some useful answers to the questions I have raised.

Lorely Burt (Solihull) (LD): Welcome to the Chair, Mr. Key, for what may turn out to be a brief, although important, debate. It hardly seems a year since we were here last time. From memory, the increase that we are contemplating this year is slightly more modest than the one last year.

The hon. Member for Hertford and Stortford has referred to the current economic situation and the way in which the minimum wage particularly affects small businesses. The Liberal Democrats do not believe that is an excuse not to have some form of minimum remuneration. However, given that the Low Pay Unit works hard to try to balance severely rising prices against the employer’s ability to pay, to try to find an amount that is fair to everybody, will the Minister tell us how long ago the Low Pay Unit considered the economic factors? The situation seems to have worsened considerably in the last month or so, and I wonder whether its deliberations took place when it was able to take into account the worsening economic situation.

The problem with the minimum wage is that it is a blunt instrument. Although it is a reasonable amount in some parts of the United Kingdom, in others it is nowhere near sufficient to allow anyone to have a living wage. Have the Government any plans to look at the possibility of calculating the minimum wage on a regional basis, whereby a more just and equitable amount might be devised in relation to local economic factors, rather than national economic factors?

Turning to the work trial situation, it seems clear that six weeks is a reasonable period—much more so than three weeks—for the employer and employee to judge whether they will be able to rub along together and form an effective economic partnership, so I support that. I was not aware of the work trial before today; it seems a splendid idea. How widespread is knowledge of the work trial among employers? I am sure that work trials would make many employers, particularly those in small businesses, feel a lot more confident about taking on someone who might not naturally fit the bill, rather than having to take a risk with someone who looked like a more suitable bet on the face of it. Will the Minister tell us how much the work trial has been publicised, both among employers, particularly those in small businesses, and among those seeking work, particularly those who have been unemployed or in receipt of disability benefit for a long period?

Jon Trickett (Hemsworth) (Lab): I apologise for being a couple of minutes late, but I think that I grasped the general thrust of the Minister’s arguments. However, there are some thoughts that I should like to raise with my hon. Friend and test him on, if I may. First, I am very proud of our Government’s achievements in establishing the national minimum wage. As he said, the uprating will affect about 1 million people, 100,000 of whom will be in my home area of Yorkshire and Humber. Many people in my constituency may have forgotten that our Government introduced the national minimum wage and lifted them out of poverty.

We are hitting a moment of economic turbulence, the cause of which need not trouble us here, but I heard voices in the House at business questions suggesting that we look again at the rate of increase of the national minimum wage. Allegedly, the increase might have a detrimental effect on employment. I want to test that argument a little, and I invite my hon. Friend to comment.

I draw attention to the fact that the national minimum wage would guarantee a person on a 37 and a half hour week, 52 weeks a year, an income of £10,700 per annum. The Committee might think that is not a large amount and it certainly is not, but it is about £3,000 more than the figure for the absolute poverty line that has been established by authoritative sources, so it is a good thing. None the less, the Joseph Rowntree Foundation released a report the other day suggesting that a person would need to earn at least a minimum of £13,500 a year to survive in a way that would be regarded as acceptable in this day and age. Clearly, none of us—given the controversial votes the other day—could manage on such a low income. There is a gap between what the national minimum wage gives an individual and what Joseph Rowntree at least regards as acceptable.

I press my hon. Friend to continue proudly with our policy of gradually and carefully, yet steadily and remorselessly, increasing the national minimum wage in the years of our Administration to come. I want to draw a comparison between ourselves and the Opposition. The argument used by some hon. Members is that employment may be threatened by the increase in the national minimum wage, which has increased steadily beyond inflation—rightly so. There are two points to make about that. Not only did the Labour party establish the national minimum wage, but we have achieved more or less full employment and, at the same time, increased the small business sector substantially. There has been a massive increase in the number of small and medium-sized enterprises—certainly in my constituency, and throughout the nation.

If there were a functional relationship between the national minimum wage and levels of employment or the number of people employed in the small business sector, we would not have expected a time when the national minimum wage increased beyond inflation. We would not have expected both an increase in the number of SMEs and an increase in the level of employment. Simply because we are hitting a moment of economic turbulence that will affect the poorest people—those on the national minimum wage and perhaps at other levels of employment—it would be wrong to deny the lack of a causal relationship between the level of the national minimum wage on the one hand, and the level of employment on the other.