Draft National Minimum Wage Regulations 1999 (Amendment) Regulations 2008

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Mr. Prisk: The hon. Gentleman is right that the growth of small companies has been at a lower rate than the overall population, so the proportion of small businesses within the country as a whole has fallen in the past 12 years. Is he also aware that the proportion of small businesses that employ people has fallen steadily over the past 10 years?
In the early days it was right to move forward on enforcement with a gentle touch. A case had been made by the Opposition and others in business that the national minimum wage might have an effect on employment. I have just argued that that was not the case, but in the early days it had to be tested in the real economy and therefore enforcement was carried out with a light touch. In fact, however, employers are exploiting the lack of enforcement that existed in the early years, for the reasons I have just given. They continue to pay people less than is justified and less than the minimum wage, either by simply paying less than the minimum wage or by making inappropriate deductions. It is time to increase the rigour of the enforcement regime, and the Government are beginning do so. Will my hon. Friend the Minister comment on those matters?
I turn to the issue of work trials, which my hon. Friend was trying to pursue when various hon. Members intervened on matters that were not relevant. It is true to say that many people, especially in areas such as the one I represent, have been trapped in a life on benefit for more than a decade, some of them for two decades, since the coal mines closed in my area. Those people would like to get back to work, but to some extent the system seems to work against them, at least in their own perception, so giving somebody the opportunity to go to work for a short period, to see whether they have the work discipline and the physical and mental capacity to hold down a job, is a good idea.
Work trials are to be welcomed, but not if unscrupulous employers begin to use them as a way of obtaining cheap labour. For the moment, I shall not argue against the increase from three weeks to six weeks because a three-week work trial is somewhat short. It is only after a period of time that someone can be confident that they can hold down a job, and the employer, too, can be confident that the person on trial is capable. If, however, the Government were minded at a later stage to come back and argue that we should go beyond six weeks, it would have to be seriously tested before many of us could say that it was justifiable. I invite my hon. Friend to say how he came to decide on six weeks, rather than any other number between three and six, so that we can test his arguments slightly.
The Chairman: Before we proceed, I remind the Committee that this is a narrow order and I have been indulgent.
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A further point for the record is that of the new employment created in the past 10 years, a large amount has gone to foreign nationals and not to existing residents and citizens of this country. Many millions of our citizens of working age are not working. In this 12th year of a Labour Government, over a time of astonishingly benign broader economic circumstances, many people in the inner cities of London, Hull and elsewhere throughout the country are still languishing on invalidity benefit and unemployment benefit.
Hilary Armstrong (North-West Durham) (Lab): The hon. Gentleman is probably not aware that most of the people on the minimum wage are in the north of England, where many fewer people from outside the UK are working—certainly in my constituency. The minimum wage and such regulations as we are discussing have been critical in getting some people anywhere near a living wage. If he really wants to have a look at the impact of the minimum wage, let him come to North-West Durham.
Mr. Stuart: I do not need to take any lessons from the right hon. Lady about employment in the north of England, because I represent a seat there.
Hilary Armstrong: It is in the midlands.
Mr. Stuart: I hardly think that east Yorkshire is in the midlands, although the right hon. Lady might. The Labour party thinks that Yorkshire is in the midlands—if that is an official statement, it shows just how out of touch Labour is with modern Britain and the feelings of people in Yorkshire, east Yorkshire in particular.
Too many jobs have gone to foreign nationals, while many existing residents have languished on the dole or various other benefits, instead of having the opportunity to develop themselves. That brings us back to the critical point, which is to understand what impact the minimum wage changes will have on the real lives of those in the north of England, whether in the right hon. Lady’s northern seat or my own.
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Mr. McFadden: I shall try to cover some of the points raised in questions and so on. I turn first to small businesses. We had a question about whether the impact on small businesses is taken into account. It certainly is. The Low Pay Commission considers all factors relating to employment and employment prospects.
There was some discussion of the rate of business and employment creation. There are, in fact, record numbers of small and medium-sized businesses in the economy. For example, from before the minimum wage began until the most recent figures, the increase was around 800,000. Employment in small and medium-sized enterprises also rose, from around 12 million people employed before the minimum wage. More recently, about 14 million people were employed in small and medium-sized businesses. Employment in low-paid sectors has increased by about 650,000 since the minimum wage was brought into being.
Those figures show that some of the predictions about the minimum wage having adverse effects on employment have proven not to be true. That is because we have taken care in operating the minimum wage. We have used the Low Pay Commission system.
Mr. Prisk: My question was what the impact would be if pay differentials were maintained. I understand that the small firms test does not include that, so what estimate has the Minister’s Department made to understand the impact on those businesses?
Mr. McFadden: Before the minimum wage was brought into being, some people said that it would result in great wage inflation, because of differentials—we heard all that. Even on our side, some people were sometimes unsure for that reason. There have been no adverse impacts on wage inflation because people were seeking to maintain differentials between themselves and the minimum wage. We have not seen those effects.
The hon. Member for Hertford and Stortford said that enforcement was an issue close to my heart—he is absolutely right. My hon. Friend the Member for Hemsworth also mentioned that. We are doing much on enforcement. It is important that the legislation is properly enforced. In his last Budget as Chancellor, the Prime Minister increased the resources for enforcement by about £3 million per year. That money has been used to employ more people to enforce the national minimum wage and to advertise the rates better. There is a continued need for awareness of the raise so that the minority of employers who may be tempted to be unscrupulous and not pay people the minimum wage, will not get a chance to do so. If they do, people should know where to report it so that it can be properly corrected.
On corrective action, some £29 million in arrears has been recovered on behalf of people who were underpaid or not paid the minimum wage. In the most recent year for which figures are available, the number was £3.9 million. The number of prosecutions is small—five over the last couple of years—because the emphasis is on recovery, and prosecution happens only in more extreme circumstances. However, the story does not end there; the House will shortly consider the Employment Bill, which has finished its stages in the other place. The Bill proposes to increase the penalties on employers who underpay the minimum wage, and gives a better system of awarding arrears to the employee who may be underpaid. I agree with hon. Members on both sides of the Committee who have stressed the importance of enforcement—it is a matter that we take seriously.
A regional minimum wage is raised every year in this Committee—perhaps by the hon. Member for Solihull. We are not attracted to the idea. The simplicity of the national minimum wage is part of its strength and helps when it comes to enforcement, so I am not tempted to follow her down that road. She asked about the time cycle during the course of the year of the Low Pay Commission’s work. The rates were recommended in March this year. There is a familiar cycle; the Low Pay Commission makes its recommendations in March, the House considers those recommendations formally around this time of year, and the uprating is in October. There is a constant process of assessing the economic circumstances.
I will say a little more about work trials. My hon. Friend the Member for Hemsworth asked why they are for six weeks and whether the period would be longer. The trials are part of a more active welfare to work policy. The Department for Work and Pensions talks about active and inactive benefits—jobseeker’s allowance is active, while some other benefits are inactive. In the past, Government policy may have been tempted to concentrate on people in receipt of active benefits when it came to welfare to work, but we must do more for those who are in so-called inactive benefits.
The programme is geared to that. It has been in place for a long time and goes back to work trials in the 1990s. It has a high success rate—50 per cent. or more of those who take part in such a scheme end up getting into work. The DWP wishes to extend the period from three to a maximum of six weeks, because experience on the ground and in trying to pursue a more active welfare to work policy shows that three weeks is sometimes not long enough for the employer or the person involved to make a judgment about going back to work, while six weeks is better. That is not a recipe for exploitation, but an important expansion of opportunity and I hope that the Committee will support it.
The hon. Member for Hertford and Stortford asked an interesting question about the accommodation offset and I hope that I can answer him by explaining how it works. It is where accommodation is provided in association with a job. There is an issue of exploitation in that people could be charged for accommodation, transport or similar matters, which would take them beneath the minimum wage, and we are very alive to that. The one area where it is allowable for people to be paid less than the minimum wage, and where such deductions are lawful, is the accommodation offset. However, it is capped at £4.46—I think that is the correct figure. That is in cases where accommodation is provided and some deduction can be made. We do not want a situation where the deductions are so large that people end up working only to pay the rent. That is how the offset works and what it is geared towards. I hope that helps the hon. Member for Hertford and Stortford.
How much people will benefit from tax credits depends on circumstances. Not everybody on the minimum wage receives tax credits, it depends on whether they have children and so on. In terms of making work pay, the Government believe that we do not need a single policy. The minimum wage is important, but so are tax credits, which have given real increases for those on low incomes for whom work may be less attractive and for whom moving from benefits to work may lead them into a poverty trap.
In conclusion, the minimum wage has been one of the Government’s most successful policies. The predictions of those who opposed it have been unfounded. We want to build on it; it is an important part of labour market policy and we want to do more and better in enforcing it. The regulations are part of that process.
Question put and agreed to.
That the Committee has considered the draft National Minimum Wage Regulations 1999 (Amendment) Regulations 2008.
Committee rose at twelve minutes past Three o’clock.
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