Employment Bill [Lords]

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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.
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 12

Powers 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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