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11 Jun 2008 : Column 111WH—continued

3.25 pm

Dr. Vincent Cable (Twickenham) (LD): Not just formally, but genuinely, I congratulate the hon. Member for Edinburgh, North and Leith (Mark Lazarowicz), on introducing an important subject through a combination of serious policy argument and some powerful anecdotes to support his case. He has been well supported by his colleagues—particularly the hon. Member for Linlithgow and East Falkirk (Michael Connarty), who had direct experience of low-paid work in his younger life, and the hon. Member for Hayes and Harlington (John McDonnell) and the right hon. Members for Oxford, East (Mr. Smith) and for Makerfield (Mr. McCartney), all of whom have been involved in the trade union movement.

The starting point of the speech by the hon. Member for Edinburgh, North and Leith was that the minimum wage has been a success—I think that that is right; it has
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been a success, despite great scepticism when it was introduced. I own up to being one of those who was somewhat sceptical about how it would work, but it has worked well because it is well designed and because it is supported by the independent Low Pay Commission. For that reason, certainly in the eight years for which I have been my party’s spokesman on Trade and Industry and then Treasury matters, I have been happy to support the national minimum wage and the upgrades to it.

We can see the products of the minimum wage’s success at several levels. One, although I know that the hon. Member for Linlithgow and East Falkirk is sceptical about it, is the clear evidence that for people at national minimum wage level there has been a much more substantial increase in earnings in the past eight years; I think the figure is 53 per cent. as against 40 per cent. with respect to average earnings. The differential, therefore, between people at the bottom and people in the middle has narrowed. Of course, there is the problem of the people at the top, but that is an argument for another day. Large numbers of workers are now less dependent on benefits—they earn a decent income, or at least a survivable one, based on their own labour. It has also been important—this was the issue on which much of the scepticism centred—that unemployment has not been a consequence of the minimum wage, as it was with badly designed systems in, for example, France. All those elements make a successful policy.

The debate, however, is about enforcement, and it is important to set out why an effective enforcement regime is important—it is obviously important for the workers concerned. The hon. Member for Edinburgh, North and Leith has mentioned that £27 million has been retrieved for workers who were being cheated out of their wages. The problem is increasing: as I understand the Government’s figures, the arrears on minimum wage cases now average £214 in the past financial year, as against £130 in the previous year. A lot of money is at stake for the people concerned.

Enforcement is also important for employers. We tend to forget that large numbers of employers, however reluctantly, comply with the law, and there is nothing worse than a competitor down the road who is cheating. It is for their sake, as well as for the workers’, that we need an effective enforcement regime.

Mr. McCartney: That is an important factor in relation to compliance; businesses, small or otherwise, who have to compete in an open market do not want to be undercut by another employer either on wages or other conditions. That is why compliance is an issue not only for employees, but for maintaining the support of the employers who comply.

Dr. Cable: That is my point, which the right hon. Gentleman has made trenchantly and correctly.

Compliance is also of importance to the Government because, as the right hon. Member for Oxford, East has hinted, if many companies are not willing to comply with the law, including criminal sanctions on the minimum wage, they are probably not complying on many other matters. He has mentioned health and safety regulation in particular, but that applies to paying tax and complying with immigration rules. I understand that there is now an integrated enforcement system involving the former Department of Trade and Industry, Customs and Inland
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Revenue, and I should like to know whether there is a systematic way of looking at companies that are flagrantly in breach in terms of their overall compliance with the law. Is information pooled between Government agencies? It would be a much more effective deterrent to companies than a £200 fine, however necessary that is, to know that Government agencies will come down on them like a ton of bricks regarding their other obligations—in particular, tax. How effectively do agencies co-ordinate regarding companies that do not comply?

On enforcement, I want to ask about a particular issue. My hon. Friend the Member for Brent, East (Sarah Teather) has obtained information on the number of closed cases in which non-compliant companies had arrears. I think that the number was more than 14,000 cases for 2006-07, of which only three cases have been prosecuted. No cases have been prosecuted since the new system of inter-agency co-ordination was introduced in 2006. Why have there been only three prosecutions? It could be because the system is so brilliantly successful that the authorities have no need to enforce prosecutions, as everything has been done happily and voluntarily, but I suspect that there is a reluctance to bring prosecutions. Why have so few prosecutions ever been taken to the final stage?

The right hon. Member for Makerfield has said that the Government are coming forward with new powers under a Bill. We should discuss some of the ideas in that package, most of which seem very sensible. They include the proposed £200 statutory fine per worker for abuses of the regulation—that is a civil penalty—and a proposal, which has not been discussed yet, that workers who have lost their minimum wage entitlement should be compensated at current, and not historical, pay rates, which would make a substantial difference.

Another proposal from the right hon. Member for Makerfield, which the Government have not accepted, is that compensation should be paid. There has been some discussion about whether there should be interest payments on arrears, because otherwise employers are effectively obtaining interest-free loans from their workers. The trade union side has proposed that interest should be paid, which seems right in principle, and I am not sure why the Government are reluctant to accept that. I know that we are in a consultation process, but will the Minister say a little more on why the Government are so reluctant to go down that road?

My final point on enforcement illustrates some of the difficulties. I saw from a table that the Government produced in response to a parliamentary question that the number of enforcement officers in Wales is eight, which is the number in Northern Ireland, whereas the number for the whole of London is nine. There are seven times as many people in London, which also has a concentration of ethnic minority employees and employers, and it is unclear how the allocation of enforcement officers is decided. Is it decided by accident, or as a result of the difficulties of recruiting people in London? Perhaps the Government should focus on how effectively to allocate the scarce resources at their disposal to ensure that people who are deprived of the minimum wage can claim it.

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3.34 pm

Mr. David Gauke (South-West Hertfordshire) (Con): It is a great pleasure to have you in the Chair, Dr. McCrea. I think that you also participated in the last debate that I attended in Westminster Hall, on HMRC matters. It is a pleasure to congratulate the hon. Member for Edinburgh, North and Leith (Mark Lazarowicz) on securing the debate, which has been useful and passionate at times, and which has helped to flush out one or two important issues.

Several hon. Members have mentioned the position of the Conservative party. We have supported the principle of the minimum wage for eight years, and the concerns that we had before its introduction were widely held. Indeed, the hon. Member for Twickenham (Dr. Cable) expressed some scepticism, as he has said. We were concerned that a minimum wage set at a high level would endanger jobs. It is difficult to argue against the proposition that the minimum wage endangers jobs at some point, but the independent Low Pay Commission has been successful in balancing those dangers against the ability to increase pay for low-paid workers.

The hon. Member for Linlithgow and East Falkirk (Michael Connarty) argued for a substantial increase in the minimum wage. If he were still in his seat, I would suggest to him that there would be difficulties in doing that. None the less, recognising the principle behind the minimum wage, the fact that the legislation exists is, in itself, a reason why it should be enforced. People should abide by the law as a matter of course, but it does benefit employees whose wages have increased.

I am pleased that the hon. Member for Twickenham raised an issue that I was going to raise. Enforcement and compliance with the law are important for employers who abide by the law, who would be undercut and faced with unfair competition if rogue employers were flouting the law and were therefore able to undercut those other employers. That is an important issue. The Conservatives support calls for effective enforcement of the existing national minimum wage.

We have heard that there have been few prosecutions regarding the national minimum wage. I expect that the Minister will say, by way of explanation, that when employers are found not to have complied with the national minimum wage, they rectify the position and pay money in arrears, so there is no need for prosecution. Today is not the day to debate the detail of the Employment Bill, which the hon. Member for Hayes and Harlington (John McDonnell) has mentioned. The Minister and I have just spent the best part of two days debating HMRC’s powers more generally and we have not finished yet, so I do not want to go through a detailed analysis of the proposals that might be in the Employment Bill. However, I ask the Minister to consider whether the low number of prosecutions is in any way due to HMRC’s lack of power to enforce the national minimum wage.

There are other indications that there might be problems. We have heard about the level of arrears, and we have statistics from the Office for National Statistics on the number of people who are not receiving the national minimum wage. To what extent does the Minister think that the absence of adequate powers at HMRC has caused the problem? Has it been more to do with HMRC’s resources?

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I shall not speak at length about the problems that HMRC faces—we debate them fairly regularly—but clearly there are issues of low morale in HMRC. It faces very challenging budgets and, as a whole, it is suffering from a tightening of the belt. We heard reference to the increased expenditure announced in the 2006 pre-Budget report for tackling failure to comply with the national minimum wage, but to what extent has that aspect of HMRC’s expenditure been immune from any Gershon savings, or is it not possible to analyse it in that way? To what extent has the expenditure been ring-fenced, and have the pressures that undoubtedly have been felt in HMRC in general also been felt with regard to enforcing the national minimum wage?

We should not consider the HMRC issue in isolation. Whether in this Room or elsewhere, we have debated VAT repayments, tax credits and other important issues, in respect of which there is serious concern about HMRC’s performance. One reason why I am grateful to the hon. Member for Edinburgh, North and Leith is that he has highlighted this issue as needing to be addressed.

I seek from the Minister more information on the difficulties in enforcing the minimum wage. For example, have any particular groups been affected? Other hon. Members mentioned migrant workers. Anecdotally, we often hear about eastern Europeans doing agricultural work who are being exploited. My hon. Friend the Member for Shrewsbury and Atcham (Daniel Kawczynski) would not want me to highlight eastern European migrant workers in particular. I am referring to migrant workers from throughout the world. Are particular sectors, locations or migrant groups especially affected?

I would be grateful if the Minister touched on an issue that “Panorama” highlighted—accommodation or transport costs being deducted from the wages of migrant workers in particular. The employers are apparently complying with the national minimum wage, but in reality what ends up in the pockets of the workers is substantially below it. Can the Minister provide guidance on that?

I return to the rate of the national minimum wage. As I have said, the Low Pay Commission has worked well, partly because of its independence. It takes representations and then makes an assessment of the level of the minimum wage. However, we saw in the debate about the 10p rate of income tax that one proposal that was clearly considered by the Government was using the minimum wage as a way of trying to compensate those who had lost out as a consequence of the Government’s policy. That would appear to be an interference with the way in which the Low Pay Commission works. It would appear to be the Government setting the agenda or giving instructions to the commission, which would be a departure from previous practice.

I cannot help but observe that the trade unions, entirely understandably—this is part of their role—are very strong in calling for substantial increases in the national minimum wage, and the influence of the trade unions on the Labour Government appears to be increasing. I think that 92 per cent. of the funding for the Labour party now comes from trade unions. Therefore, to respond to demands from the trade unions, will the Government put pressure on the Low Pay Commission to increase the national minimum wage above the level that would otherwise be determined?

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Mr. David Hamilton: I was getting a bit lost at the end of the hon. Gentleman’s argument. Can he provide clarification? Is his party committed to continuing the above-inflation increases—minimum wage though it is—that the Government are putting forward? Is his party in favour of that, or is it moving towards a position from which that will be taken away?

Mr. Gauke: We have no particular desire to change the system. We believe that, over 10 years, the Low Pay Commission has acted in a responsible manner that has not endangered jobs and has benefited low-paid workers. We have no particular desire to change that. I am merely pressing the Government on whether there will be any change in their policy—today of all days, the Government are listening to their Back Benchers—whether it be with regard to the Employment Bill or a range of other matters. I would be grateful if the Minister responded on that point. To conclude, enforcement is important. Particularly at a time of rising fuel bills, food bills and taxes, the national minimum wage should be enforced properly.

3.45 pm

The Financial Secretary to the Treasury (Jane Kennedy): It is a pleasure to serve under your chairmanship, Dr. McCrea. I do recall the occasion on which we were discussing issues close to your heart. I am sure that we will return to those—perhaps not in an Adjournment debate but certainly in other exchanges.

I congratulate my hon. Friend the Member for Edinburgh, North and Leith (Mark Lazarowicz) on securing the debate; I genuinely mean that. I agree that it is a very important debate. I have been studying with a lot of interest the answers that I have been invited to give to questions, and asking of HMRC many of the questions that have been asked in this Chamber today. Before I give detailed responses to the questions that I have been asked, I just want to say that although my hon. Friend the Member for Telford (David Wright) sits silently through hours of debate in proceedings on the Finance Bill, he did say that he had had a discussion with our hon. Friend the Member for Dudley, North (Mr. Austin) about low pay and the national minimum wage and they recalled an advert from the Express & Star, which I understand is a newspaper that is widely read in the midlands. The advert, from the early 1990s, was for a security guard and it said:

I make that point to show how far we have come since employment conditions were of that nature.

I endorse everything that was said about the role that my right hon. Friend the Member for Makerfield (Mr. McCartney) played in taking the National Minimum Wage Bill through the House of Commons. My right hon. Friend the Member for Oxford, East (Mr. Smith) also played a role, as indeed we all did in bringing in that legislation. I have been in politics a long time and I recall when I was a member of the National Union of Public Employees and we and the Union of Shop, Distributive and Allied Workers were in splendid isolation in the TUC in support of a national minimum wage, so from the early 1980s onwards this cause has been dear to my heart. I am delighted that we are here today,
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asking questions. I am rightly being scrutinised about the implementation and enforcement of this very important measure.

The national minimum wage benefits millions of workers, as has been said. The increase in the rates every year benefits more than 1 million people, who see their pay increase as a direct result of the increase in the national minimum wage. I am pleased, but not surprised, that despite the dire predictions of 10 years ago, the minimum wage has become an accepted feature of our labour market and is supported by the majority of employers. That is a welcome sea change in attitude.

Of course, the success of the minimum wage is not just about the fact of it or its level; it depends largely on effective enforcement, as non-compliance undermines its objective—a point that the hon. Members for Twickenham (Dr. Cable) and for South-West Hertfordshire (Mr. Gauke) reinforced. The objective of the minimum wage is to enable workers to see real benefits from their labour in their wage packets. That is why we introduced it, and it is important, therefore, that compliance be policed effectively and non-compliance dealt with rigorously.

Since the national minimum wage was introduced in 1999, HMRC has identified more than 4,000 employers, and compliance teams found compliance in only 1,649 of those cases. I beg your pardon, Dr. McCrea, that was wrong; I shall put it right for the record. HMRC has identified more than £30 million in wage arrears since 1999. Last year alone, more than 4,000 employers were looked at. I am glad that I spotted my mistake; it was a major understatement of HMRC’s work. HMRC found non-compliance in 1,649 of those cases, which represents nearly £3.9 million in arrears for more than 19,000 workers. HMRC is identifying non-compliance and punishing it, but I realise that there is more to do. That is why the funding available for enforcement has been increased. My hon. Friend the Member for North-West Leicestershire (David Taylor), who is not in his place—I see that he is speaking in the main Chamber—spoke of the 50 per cent. increase in resources over four years.

It is important that I outline HMRC’s approach to enforcement and respond to a number of issues raised during the debate. We have heard that enforcement is based on 16 regional compliance teams. There is also a helpline, based in the north-east, that workers or third parties can call. Employers who might not be paying the minimum wage are generally identified through complaints to the helpline or through risk assessments. Last year, the helpline received more than 46,000 calls, of which more than 2,800 were complaints about possible underpayment.

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