Mr.
McFadden: My hon. Friend is absolutely right. Employers
who do not pay the minimum wage know that if they are
discovered—if HMRC comes along and says, “You’re
not paying the minimum wage,”—all they will have do, in
all likelihood, is pay the arrears. The figures that I gave show that
relatively few penalties are issued, because the penalty comes at the
end of the process. The point made by the hon. Member for Huntingdon,
which was that we should look at the system as it has operated until
now and make a judgment that we may not need the new powers, does not
really hold, because the Bill will change the
system.
Mr.
Djanogly: I take the Minister’s point that the
system is changing, and we have accepted the rationale for the change,
but he needs to make the case why the mode of trial must now involve
the Crown court. I do not think that he has yet made that
case.
Mr.
McFadden: Well, I have not finished speaking yet. I shall
come to
that. The
hon. Gentleman also asked about prosecutions, numbers and so on. In
2006, discussions were held between HMRC and the Department of Trade
and Industry, the predecessor of the Department for Business,
Enterprise and Regulatory Reform, on the idea that, instead of the
system of penalty notices, we should prosecute people. There have been
five prosecutions. The fines involved ranged from £500 to
£3,500. I note that one organisation involved was called
Rascals, a day nursery prosecuted some time ago for non-payment of the
minimum wage. I make no comment on that.
Mary
Creagh: I am sorry to interrupt the Minister, but
something occurred to me while he was speaking. Is not the difficulty
of enforcing minimum wage legislation the fact that things tend to be
done quietly, secretly and in quite a close way? That does not empower
us as consumers to make choices about which companies we go to, good or
bad. For
example, if I were choosing which nursery to send my child to, I would
certainly not choose Rascals day nursery, not least because children
are priceless and I would not want somebody who was being paid less
than £5 an hour looking after the most precious thing in my
life, my young baby. The same applies in relation to hairdressers, the
security industry and the hospitality industry.
When I am
choosing which restaurant to go to for a curry, in the same way as I
choose fair trade goods, where possible, in the supermarket, I want to
know that that curry is being made by people who have decent labour
standards, are getting holidays and are not being taken for a ride.
There are a lot of benefits to such matters being dealt with in a
criminal court, particularly the fact that they will then become public
knowledge. The grapevine will be a powerful deterrent, so that people
will choose not to go to a particular firm and so that they will not be
exploited.
Mr.
McFadden: My hon. Friend makes a strong point. The thing
about prosecution in the court is that it is a public event that is on
the record.
Mr.
Djanogly: It is worth spending a bit of time on that
because it is important. The point that the hon. Member for Wakefield
makes is a fair one, but those five particular cases would have been
public knowledge anyway because they were prosecuted, I presume, in the
magistrates court, so it is not a question whether such cases become
public or not. Given the facts that we have at the moment, the question
is whether it is justifiable that we also have the ability to prosecute
in the Crown court. As yet, I see no evidence that we need that power,
but I am open to
persuasion.
Mr.
McFadden: I referred to the fact that there have been five
prosecutions, but 17 cases have been identified by HMRC as ones where
it would have liked to attempt to take a case to prosecution, but was
unable to do so because of individuals’ reluctance to testify.
That relates to our argument in respect of this clause, the next clause
and the previous one in relation to HMRC’s powers to take
evidence. I
caution against judging how the future system will work absent the
changes that we are making in the Bill. Those changes will give HMRC
more powers to take evidence and, as I have said before in our debates,
make it less reliant on the testimony of often reluctant and sometimes
fearful witnesses.
We can
overcomplicate the issue. We are not creating new criminal offences
here; there are already criminal offences under the minimum wage
legislation. The maximum fine for those, in a magistrates court, is
£5,000. The clause will enable HMRC prosecutors, in only the
most extreme cases of determined violation of the law, to make a
judgment that the offence is so serious that a fine of £5,000
will not be sufficient deterrent to the company or punishment that
meets the crime. In those circumstances, we want to give those
prosecutors the option of trial in the Crown court, where the fine is
potentially unlimited, although I do not pretend that that will be the
norm or that it will occur in a large number of
cases. The
hon. Member for Solihull is right that she and I have exchanged figures
and points on the question of inspection by rote a number of times. We
do not believe that inspection by rote is the most efficient way to do
this; we try to concentrate on cases where people report non-payment
and sectors of high risk. There are some 1.8 million employers in the
UK. As I said, in the last year, we found non-compliance in 1,650, but
targeted inspection and enforcement represent better use of what
are inevitably limited resources than simply going round companies by
rote with no regard to the evidence of
under-payment. Mr.
Hugo Swire (East Devon) (Con): Will the Minister inform
the Committee of the size of some of those companies that have been
fined? Cannot the law be more flexible and proportional on the matter?
It seems to me that a serial offender such as a large multinational
company should be fined proportionally more if it is serially abusing
the minimum wage, whereas it would be disproportionate to fine a
smaller company a similar amount for erring once or
twice. Why
cannot flexibility be introduced to the scheme? A fine is a fine, and a
punishment a punishment, but we do not want to over-prescribe against
small offenders and make them reduce their work force to meet such
fines.
Mr.
McFadden: The size of the companies involved in
prosecutions so far has varied from small firms to a local authority,
which employed thousands of people. On the hon. Gentleman’s
point about fines damaging small companies, all businesses can ensure
that they do not incur any extra costs as a result of the Bill’s
introduction by abiding by the law and paying the minimum wage. That is
the point we are trying to
make.
Mr.
Binley: Nobody objects to proper measures being taken
against people who wilfully break the law—that is not the issue
of debate—but I would find it helpful if the Minister gave me a
couple of examples from the Revenue in which sizeable companies that
employ large numbers of people wilfully broke the law in that way, and
also provided a case for going to Crown court. That would help us to
recognise whether there is a situation that we need to deal
with. Until
I have that information, I shall find this matter difficult. The
Minister might say that I should have discovered the information
previously, which is a reasonably fair point, but he might help me
here.
Mr.
McFadden: I am glad that the hon. Gentleman has spoken
again, because he has reminded me to thank him for paying tribute to
the Government’s strong economic record, which has made it
difficult for his firm to recruit staff because employment has grown so
much. His comments about effective enforcement being in the interests
of good business are right. The CBI has
said: “Effective
enforcement of the NMW is crucial to ensure its continuing legitimacy
and support amongst both employers and workers. CBI members therefore
support the government’s decision to re-examine the enforcement
regime for NMW to ensure a level playing field for employers as well as
to ensure that all workers benefit from their rights under the 1998
National Minimum Wage
Act”. I
am sure that we all agree with that
sentiment. The
hon. Gentleman asked about the size of the employers involved. As I
have said, small employers and a local authority are among those that
have been prosecuted so far. The size of employer varies, and the
clause allows prosecutors to judge whether the severity of the offence
is such that they should opt for trial at the Crown court, which can
levy a fine of more than £5,000.
Barry
Gardiner: Does the Minister agree that if one were to
combine the comments of the hon. Members for Northampton, South and for
East Devon, who said that it is reasonable to consider making larger
companies pay greater fines, one would have a response to the hon.
Member for Huntingdon? A case such as the one to which the Minister
alluded—that of a large local authority—is precisely the
sort in which the fine that might be paid would rightly exceed the
penalties that could be imposed by magistrates, thus providing the
reason for going to Crown court that the hon. Member for Northampton,
South
requests.
Mr.
McFadden: It depends through which end of the telescope
one looks. The first question that we should ask is about not the size
of the employer, although that is a legitimate factor, but the severity
of the offence. If a large employer with many hundreds, or thousands,
of employees makes a mistake, there is a new penalty regime and we
should not lose sight of the fact that the vast majority will be dealt
with under that reformed penalty regime, which is civil, not criminal.
That will be so for large and small
employers. The
clause gives prosecutors the power to opt for trial in a higher court,
and it should be seen in relation to clause 12, which provides
increased powers on documentation and so on relating to trial by
indictment in the higher court. To some extent, the two go
together. 5pm
Mr.
Djanogly: The Minister has gone half way to answering my
queries, and I understand his point that the system is changing and
that that is partly the reason for the lack of criminal prosecutions to
date, although I do not believe that any hon. Member would say that the
existing policy has been successful, which is presumably why we are
changing it. I have still not seen proof that Crown court prosecutions
will be required. The Minister is saying that they may be required, and
on the basis of what “may” be required, we would
certainly have 42 days’ detention without trial, and a draconian
criminal system. We will give the matter further thought, and perhaps
return to it on
Report. Question
put and agreed
to. Clause
11 ordered to stand part of the
Bill.
Clause
12Powers
to investigate criminal
offences
Mr.
Djanogly: I beg to move amendment No. 16, in
clause 12, page 14, line 9, leave
out subsection
(1). This
amendment has a similar rationale as that of amendment No. 15 in that
it concerns the balance between enforcement powers and the freedoms of
business. As the Minister said, it is tied in with clause 11. This is a
probing amendment to seek clarification of the clause and its proposed
effect. HMRC
has extensive powers as a result of the amalgamation of the Inland
Revenue and Her Majesty’s Customs and Excise, not least those
under the Police and Criminal Evidence Act 1984, which were provided
for HMRC’s fiscal functions by the Finance Act 2007. I agree
with my noble Friend Baroness Wilcox and reiterate
her concern that there must be a real need for the massive extension of
investigative powers proposed in the clause. More concerning perhaps is
that it could represent the proverbial thin end of the wedge. I would
not wish to hamper HMRC’s good work in enforcing the national
minimum wage, but I am hesitant about freely handing it a hammer to
smash a nut when it may have a perfect adequate nutcracker in its box
of
tools. I
would be interested to hear from the Minister what tools the clause
provides to HMRC that it does not already possess, and in what
circumstances it may feel it necessary to use them. For example, in
what circumstance do the Government envisage HMRC using the
investigative powers? Will they be used for all offences, or just for
indictable offences? My understanding is that the clause is permissible
only on the basis that the offence is now indictable, but will the
Minister confirm that that is
so? Given
the discussion in the other place about the scarcity of indictable
offences, which the Minister confirmed during our previous debate on
clause 11 stand part, we must ask whether the powers are necessary
given the resulting reduction in civil liberties? In other words, the
clause 12 power is dependent on clause 11, which has not been proved to
be necessary. I am as yet unconvinced that HMRC has found itself in a
situation in which those new proposed powers were necessary, and I
should be grateful if the Minister would point me to specific evidence
of that
need.
Mr.
McFadden: It is important that HMRC has the power
effectively to investigate allegations that offences have been
committed under the National Minimum Wage Act 1998, and particularly
the more serious offences of systematically refusing or locally
neglecting to pay the national minimum wage. As I have said several
times on this group of clauses, we should remember that we have to deal
with the fact that vulnerable workers are often reluctant to come
forward.
The intention
behind the clause, and the reason why we oppose the amendment suggested
by the hon. Gentleman is that HMRC investigators are currently hampered
in obtaining evidence of offences to the requisite standard, as we do
not have the necessary powers on search and, to a lesser degree, the
production of evidence. Investigators therefore have to rely on worker
testimony to prosecute employers.
I have
referred before to the Government’s vulnerable workers forum,
which has been meeting over the past year. It has heard from
representatives of business, trade unions, citizens advice, enforcement
agencies and so on. Time and again we have heard of workers being
reluctant to come forward because they fear that they could lose their
jobs, albeit low-paid jobs, often leaving them with a marginal
existence.
Based on
investigations, we know that securing worker testimony can be
difficult, as workers can face intimidation and threats, and sometimes
the loss of employment. HMRC has been forced to abandon some potential
prosecutions as a result of such factors. The hon. Gentleman asked how
many. Between 2005 and 2007, HMRC identified 17 cases in which the lack
of powers of the kind outlined in clause 12 hindered its investigations
of non-payment of the minimum wage.
We cannot have
it both ways. We cannot say that the enforcement effort to date has
resulted in too few prosecutions and that it is not tough enough, and
then say that we are not convinced that we need tougher powers. None
the less, HMRC is able to identify cases in which, if it had had those
powers, it believes that it could have gone further.
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