The Minister for Business, Innovation and Skills (Mr. Pat McFadden): I beg to move,

It is a pleasure to serve under your chairmanship, Mr. Fraser.

The regulations do three things: first, they raise the national minimum wage rates from 1 October 2009. Secondly, they stop tips being used to make up pay for the purposes of the national minimum wage. Thirdly, they rectify an anomaly, ensuring that two programmes under the EU’s lifelong learning umbrella are exempted from the national minimum wage, in line with other similar schemes.

I shall say some more about those three points. This year, the minimum wage celebrates—if a piece of legislation can do that—its 10th birthday. Despite the controversy at the time of its introduction, it has become an accepted feature of the British employment landscape. It has also become a vital one, because today, in more difficult economic times than have existed for much of the minimum wage’s short history, it provides an important floor below which wages cannot fall, and a level of protection for all workers. To ensure that the rates properly take account of economic circumstances, they are reviewed annually by an independent body made up of employers, trade unions and academics—the Low Pay Commission.

This year, in the wake of the worst financial crisis in decades and other economic problems raised by the recession, the commission has been doubly concerned to make sure that it gets its recommendations right, so the Government allowed it to take extra time and consider more data than normal before making those recommendations, although we have not delayed the timing of the uprating itself, which happens in October each year.

Reporting later than usual to the Government gave the commission time to access additional data, including a further inflation report from the Bank of England, employee job figures from December 2008, gross domestic product data for the fourth quarter of 2008, and average earnings information until January 2009. The commission also conducted a further analysis of the recession and sought additional views from stakeholders.

In undertaking that work, the commission had two primary considerations. The first was to make sure that low-paid workers were paid fairly during tough economic times. It also wanted to ensure that struggling businesses could cope with any additional costs that may come their way through a rise in minimum wage rates. Taking all that into account, the commission published the recommendations in May and suggested that the adult rate rise by a modest 1.2 per cent., with the other rates rising between 1.1 and 1.3 per cent. Those increases are modest, but I think that we all understand the reasons why the Low Pay Commission would recommend modest increases this year.

The important point is that the recommendation from the LPC, which includes representatives from both businesses and trade unions, was unanimous. The CBI said of these recommendations:

The TUC said:

Nearly 1 million people stand to benefit from these increases if our regulations are passed today. The minimum wage will still be significantly higher in real terms and as a proportion of average earnings than was the case when it was introduced a decade ago.

The second purpose of the draft regulations is to deal with the issue of tipping, which is a basic principle of fairness and common sense. Under the current law, all workers are entitled to receive the minimum wage. However, the current legal situation allows employers, in some circumstances, to use tips to boost pay levels to the legal minimum. Although that is legal at the moment, and although it is used only by a minority of restaurants and other tipping businesses, I do not believe, and neither do the Government, that that is in line with customers’ expectations. When someone leaves a tip in a restaurant, they do not expect it to be used to make up basic pay—they believe it is additional to it. Most customers probably think that that is already the case, and most of the time, it is, but the Government believe that it is right to make the change so that in future, all tips, gratuities and service charges, whether left in cash or paid by credit card, cannot be used to make up the minimum wage. It will create legal clarity for employers and bring an important measure of justice to service workers.

Often, the people who wait on tables, clear our plates and look after us every day do not have the strongest voice either in politics or in the workplace, but by making the change, the Government are ensuring that they enjoy fairness at work and the measure will achieve that. It is a change I have wanted to introduce since taking up this post. I would like to place on record my thanks to all of those who campaigned for it: the trade unions; my right hon. Friend the Member for Makerfield, who introduced the minimum wage 10 years ago, and who has campaigned and supported the current proposed change; my hon. Friend the Member for Linlithgow and East Falkirk (Michael Connarty), who introduced a ten-minute Bill on the issue; the newspapers, especially the Daily Mirror and The Independent, which ran fair tips campaigns and the many other hon. Members who have spoken in favour of the change.

After all that campaigning, the regulations before us today make it clear that in no circumstances will service charges, tips, gratuities or cover charges be used to pay the national minimum wage. We conducted a 12-week consultation on the changes. We believe that the regulations have broad support—in fact, three quarters of those who replied to the consultation, including businesses and unions, welcomed the change. If we approve the regulations today, it will become law from October.

The third measure that we are introducing today is about ensuring consistent application of the rules. The European Union’s lifelong learning initiative supports member states’ policies on employability, lifelong learning and social exclusion. It gives students the chance to gain work experience in other countries. Work placements under one of the programmes under the lifelong learning umbrella—the Leonardo da Vinci scheme—are specifically exempted from the national minimum wage. However, work placements carried out in the same way under two similar programmes, Comenius and Erasmus, are not subject to the same exemption, so the regulations will ensure that work placements under Comenius and Erasmus are exempt from the minimum wage. The changes will affect a relatively small group of students coming from abroad—fewer than 2,000 per year—and the activity they do is usually learning or work experience, rather than the kind of paid work that one associates with the minimum wage. Other work experience programmes associated with study are also exempt from the minimum wage, and again that will create consistency and clarity.

This debate is an annual affair in the parliamentary calendar and today, as in previous years, I ask the Committee to approve the regulations, which will give an important, if modest, pay increase to nearly 1 million workers and, importantly, extend justice to service workers. They will guarantee fairness for workers, put legislation in line with public expectations and create a level playing field for employers. For those reasons, I commend the regulations to the Committee.

Mr. Jonathan Djanogly (Huntingdon) (Con): We shall not oppose any of the regulations this afternoon. Taking the easy one first, we have no problem with workers who participate in the Erasmus programme not qualifying for the national minimum wage.

As for the increase in the national minimum wage, as I have said, we are not opposing it today. However, we are currently experiencing deflation in this country, and I noted that the Minister referred to the need to keep struggling businesses in mind. He therefore needs to put on the record why the national minimum wage is being increased at all at this time, albeit to a modest extent.

We agree with the Low Pay Commission that these are unprecedented times for the national minimum wage and that a cautious approach is the only option. The Low Pay Commission says that pressures on average earnings are on the down side and that the forecast on earnings in the fourth quarters of both 2009 and 2010 could prove optimistic. With that in mind, will the Minister justify how any increase in the national minimum wage is correct at this time?

As for the exclusion of tips and service charges from the national minimum wage, we have long argued that the national minimum wage should be paid to staff with no deductions made for tips, service charges and gratuities, so we are pleased that the Government have at long last recognised that that is the sensible thing to do. When members of the public go to restaurants, they believe that the tips that they leave go directly to the staff who served them their meal or drinks. We have long believed that employers should not be able to use tips to “top up” wages to the level of the national minimum wage. Any tips that workers receive should be in addition to the national minimum wage.

In general, the CBI supports the principle that tips should not be included in the national minimum wage, but it believes that a delay in amending the regulations is desirable. That is not a view that we share, but would the Minister tell us what representations he has received on the timing of this amendment to the regulations? Are the Government confident that businesses can afford the change at this time?

We are sorry that the Government have not gone further in this area. We accept that it is for individual companies and not the Government to dictate their own policies and to decide how tips should be shared, preferably after staff consultation. However, we would have introduced a requirement for individual companies to be transparent by issuing their own policies on tipping and service charges, and to ensure that the policy is made clear to patrons in writing so that customers can make an informed decision as to whom their tips are paid. Should tips go to the individual waiters who served the customer, should they be shared more widely with the whole team, or should they be retained by the company?

I would say that tips should go to the staff, but these are not questions that the Government should be answering; they are questions for individual companies to answer. What concerns me is that customers should know what companies decide, so that they can decide themselves if they like the policy or not. The British Chambers of Commerce supports a mark or standard that could be awarded to those restaurants where all of the tips go to staff. Has the Minister considered that idea as an additional measure that could be implemented, perhaps outside the regulations?

Lorely Burt (Solihull) (LD): Like the hon. Member for Huntingdon (Mr. Djanogly), we will not oppose these measures. In fact, we will go a little further and say that we support them.

The national minimum wage increase is very modest and I take the Minister’s word that the way in which these modest figures of 4p, 6p and 7p for the three age ranges have been arrived at is fair and appropriate. It is important that, at each anniversary of the national minimum wage, the levels are reviewed in one way or another, because it is important that we keep the national minimum wage moving in the eyes of parliamentarians and, more importantly, in the eyes of those low-paid workers who look on Parliament as an organisation to protect their interests, because if Parliament will not protect their interests, very often there is nobody else who will.

Regarding the third measure, the Erasmus and Comenius programmes seem to be absolutely fine, fair and appropriate. As for tips, services and gratuities, we have strongly supported the proposal in that area and we are delighted to see that, from October, this injustice will be rectified. It is important, not only for the staff, who will now receive their tips, without their going towards their national minimum wage, but also for customers. I have been to restaurants and hesitated over whether to put the tip on a credit card or to leave the cash. I have found myself asking staff, “Will you actually receive the money if I put it on my credit card?”, and the answer has very often been, “No”. There should be a level playing field for all restaurants, so a restaurant that has been subsuming the tips into the national minimum wage will not gain a competitive advantage through what I would describe as meanness. The measure is therefore important for the customer and for the general competitive environment.

I am intrigued by the comments from the hon. Member for Huntingdon about whether company policy should be that tips are distributed among all staff, even those whom the customer cannot see, or among customer-facing serving staff only, and about whether that policy should be published. I am interested to hear how the Minister feels about that.

Mr. Ian McCartney (Makerfield) (Lab) rose—

Mr. Nicholas Soames (Mid-Sussex) (Con): Stand up.