Session 2010-11
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General Committee Debates
Delegated Legislation Committee Debates

Draft National Minimum Wage Regulations 1999 (Amendment) Regulations 2010

The Committee consisted of the following Members:

Chair: Mr Philip Hollobone 

†Alexander, Heidi (Lewisham East) (Lab) 

Campbell, Mr Gregory (East Londonderry) (DUP) 

†Coffey, Dr Thérèse (Suffolk Coastal) (Con) 

†Davey, Mr Edward (Parliamentary Under-Secretary of State for Business, Innovation and Skills)  

†Dowd, Jim (Lewisham West and Penge) (Lab) 

†Field, Mr Mark (Cities of London and Westminster) (Con) 

†Flint, Caroline (Don Valley) (Lab) 

†Freeman, George (Mid Norfolk) (Con) 

†Freer, Mike (Finchley and Golders Green) (Con) 

†Fullbrook, Lorraine (South Ribble) (Con) 

†Fuller, Richard (Bedford) (Con) 

†Garnier, Mark (Wyre Forest) (Con) 

†McFadden, Mr Pat (Wolverhampton South East) (Lab) 

†Newmark, Mr Brooks (Lord Commissioner of Her Majesty's Treasury)  

†Rotheram, Steve (Liverpool, Walton) (Lab) 

†Roy, Lindsay (Glenrothes) (Lab) 

†Spellar, Mr John (Warley) (Lab) 

†Swinson, Jo (East Dunbartonshire) (LD) 

Joanna Dodd, Committee Clerk

† attended the Committee

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Fourth Delegated Legislation Committee 

Tuesday 20 July 2010  

[Mr Philip Hollobone in the Chair] 

Draft National Minimum Wage Regulations 1999 (Amendment) Regulations 2010 

4.30 pm 

The Parliamentary Under-Secretary of State for Business, Innovation and Skills (Mr Edward Davey):  I beg to move, 

That the Committee has considered the draft National Minimum Wage Regulations 1999 (Amendment) Regulations 2010. 

It is a great pleasure to serve under your chairmanship, Mr Hollobone; I believe it is the first time that I have done so. 

Members of the Committee will be aware that the coalition Government are committed to the national minimum wage. It gives valuable protection to employees on low pay and provides incentives for people to look for work and to work. These regulations implement the recommendations in the Low Pay Commission’s 2010 report, published in March. They are designed to achieve three objectives: first, they increase the hourly rate of the minimum wage for adults and younger workers, and the maximum level of accommodation costs that can be taken into account when setting the minimum wage; secondly, they reduce the qualifying age for the adult rate of the minimum wage from 22 to 21, with effect from 1 October 2010; and, thirdly, they remove the existing minimum wage exemption for apprentices who are under 19 or for those who are older but in their first year of apprenticeship. A new apprenticeship minimum wage rate replaces that exemption. I shall cover those three areas in more detail now. 

First, I shall deal with the increases to the minimum wage rates in regulations 3, 5 and 6. The Low Pay Commission recommended that the minimum wage for adults should rise by 2.2% from October this year. We agreed that that strikes the right balance between ensuring fair treatment for low-paid staff on the one hand and avoiding damage to the economy on the other. The Low Pay Commission consulted widely, and it based its recommendations on sound evidence and thorough consultation, taking into account the difficult economic circumstances that we face. 

Mr Mark Field (Cities of London and Westminster) (Con):  Given the economic situation, to which the Minister referred, were there representations that suggested that the 2.2% increase was excessive and, perhaps, over-generous? Can he give some indication of the representations on variability at 21 and 22? We are obviously looking at very high unemployment in that age group, particularly among graduates. 

Mr Davey:  I do not know what specific detailed consultations and representations the Low Pay Commission had, but the 2.2% increase from October is below the

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2.4% increase in average earnings growth for 2010, which is the average of the independent forecasts collected by Her Majesty’s Treasury. Moreover, average weekly earnings growth, including bonuses in arrears, was 5.0% in retail and 2.5% in hotels and restaurants, which are the two largest low-paid sectors; the figure in the proposal is lower than that. In case my hon. Friend is still not happy, I can tell him that the retail prices index inflation rate for May 2010 was 5.1%, and this proposal is significantly lower than that. We do not know what the RPI will be in October, but most people suspect that it will be above 2.2%. The proposal is reasonable. 

On my hon. Friend’s other point, the commission also scrutinised the fortunes of young people in the labour market, and its conclusions make sobering reading. It found that employment prospects for younger workers have got worse over a number of years, with a more substantial decline during the recession. Consequently, it recommended an increase to the youth rates that is slightly lower than the increase to the adult rate—1.9% for 18 to 20-year-olds and 2.0% for 16 to 17-year-olds—and we consider that to be the right approach. 

That brings me to the treatment of 21-year-olds. The Low Pay Commission has consistently said for a number of years that they should be entitled to the adult minimum wage, rather than waiting to turn 22 before receiving it. That has not been accepted in previous years, but the commission has looked at the evidence once again, and again called for the adult rate to begin at 21. I believe that the previous Government were minded to accept that recommendation, and I confirm that we have accepted it in these regulations. 

It is vital that any changes should not harm the employment prospects of 21-year-olds, and I am sure that is what my hon. Friend the Member for Cities of London and Westminster was concerned about. Having looked at the recommendations from the Low Pay Commission, I do not consider that entitlement to the adult rate would harm employment prospects. Some 90% of 21-year-olds are already paid at or above the adult minimum wage rate. Earnings and employment data suggest that 21-year-olds are already far more closely aligned to 22-year-olds than to their younger counterparts. 

In addition, research for the commission concluded that cutting the entitlement age to 21 would do little harm to that group’s employment prospects. I believe that this has been thoroughly researched. On the plus side, 85,000 21-year-olds will benefit from the change. Although there will be an increase in total labour costs of about £48 million, we believe that, in view of the small differential in earnings between low-paid 21 and 22-year-olds, the businesses affected will be able to absorb those limited additional costs. 

Overall, the Low Pay Commission’s report reaffirmed its belief that lower minimum wage rates for younger workers are still justified in order to protect employment and to reflect employers’ investment in training for younger workers. We agree, therefore, that there is little point in putting up wages if it reduces the jobs available. Young people will not be able to gain the skills and experience they need to climb the career ladder if they are out of work. 

Finally, these regulations change the treatment of apprentices in relation to the minimum wage. At the moment, certain apprentices are not eligible: employed

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apprentices who are under 19, or those who are older but still in the first year of their training, do not qualify, and nor do the small proportion of apprentices who are not employed but who receive an allowance paid by the state instead of a wage. The commission examined whether the treatment of waged apprentices was appropriate and concluded that the answer was no, calling for a new apprentice minimum wage rate of £2.50 an hour for employed apprentices. We have accepted that recommendation. 

In designing the minimum wage for apprentices, the commission used four guiding principles: it should support a competitive economy, be set at a prudent level, be simple and straightforward, and make a material difference. We believe that the proposed rate will do that. The new rate will apply only to employed apprentices aged under 19 and to those still in the first year of their apprenticeship. Those individuals are either employed under a contract of apprenticeship or engaged in certain Government-funded apprenticeship schemes. 

The current exemptions will continue to apply to non-employed apprentices, including those who are receiving an allowance from the state instead of a wage. We believe that the new apprentice minimum wage is measured and practical, providing protection for apprentices without compromising the willingness of employers to offer them training. 

The regulations before us are underpinned by the Government’s commitment to fairness and responsibility. We are proceeding with caution and have carefully analysed the outcomes of the regulations. The changes that they enact to the minimum wage will strike the correct balance between the rights of low-paid workers and a proper recognition of the substantial challenges many businesses still face. For those reasons, I commend the regulations to the Committee. 

4.38 pm 

Mr Pat McFadden (Wolverhampton South East) (Lab):  Thank you, Mr Hollobone; it is a pleasure to serve under your chairmanship. 

I am glad that the coalition Government say that they support the national minimum wage. We remember, of course, that that was not always so, but we welcome their statement today. Of course, the Opposition welcome the proposals to increase the main rate of the minimum wage by 2.2% and the youth rate by 1.9%. Those are modest increases, as recommended by the Low Pay Commission, but they still represent a well deserved rise for just under 1 million people who will benefit from the uplift, come October. 

We also support the acceptance this year of the Low Pay Commission’s recommendation that the adult rate for the minimum wage should kick in at 21, rather than 22 as in the past, which is something that we said we would do before the election. As the Minister pointed out, the regulations also set out exemptions for people involved in apprenticeships and training schemes. They also introduce an apprenticeship rate for the first time, and I have few questions for the Minister about that. How will the apprenticeship rate be monitored and how do the Government propose to avoid the reclassification of workers in order to pay them less than the full rates of the national minimum wage? Will the Minister also

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tell us a little more about the Low Pay Commission’s remit over the next year? What changes have been made to it compared with previous years, and why? 

As I have said, we support the minimum wage. We introduced it and it has been a great success. It now commands a broad consensus. Its opponents, of course, made dire warnings about its impact, but we faced those warnings down and pressed ahead with its introduction. We were determined to end the scandal of people working for as little as £1 or £1.50 an hour before the introduction of the minimum wage. I very much hope that this consensus holds, and that the Government will say clearly that they oppose the private Member’s Bill introduced by the hon. Member for Christchurch (Mr Chope), which would water down the legislation and allow an opt-out from the minimum wage. 

I am sure that the Minister agrees that legislation is one thing, and enforcement is another. It is important that the minimum wage is properly enforced. Will he therefore tell the Committee what is happening to the extra funds that the previous Government allocated to providing information for vulnerable workers about their basic rights at work? Has the £6 million programme that we put in place for that information survived the recent cutbacks announced by the Government? 

We support the regulations and welcome this October’s rise. I should like the Minister to comment, however, on how the regulations relate to the Government’s proposed new approach to regulation. The national minimum wage represents a floor of decency in relation to wages. It ensures that there is a level below which pay cannot legally fall, apart from certain exemptions announced in the regulations. The impact of the 2.2% rise is modest in individual terms, but it represents a pay rise for just under 1 million people. In our view, the pay rise is a beneficial impact of regulation—we support the rise for those people—although it could also be viewed as a cost to the businesses that pay it. 

The Government have outlined a new approach to regulation. The coalition agreement said that there should be a one-in, one-out rule, whereby no new regulation is introduced without another one being cut by a greater amount. How does that approach apply to the regulations under discussion? The Government’s impact assessment states that the regulations will have no impact because the rise is less than average earnings, which I am sure will be of interest to the businesses that pay it. Perhaps that gives us some insight into how the Government’s mind will work in relation to the one-in, one-out rule. 

However, the impact assessment states that the cost of the regulations in relation to 21-year-olds will be £48 million. I stress again that we support the increases, including that for 21-year-olds, but which regulation with an impact greater than that proposed will the Minister abolish—that is, after all, the Government’s position—in order to pave the way for the regulations under discussion, which we all support? To help him, I shall remind him that his colleague, the Minister of State, Department for Business, Innovation and Skills, the hon. Member for Hertford and Stortford (Mr Prisk), told the House last month that 

“if a Minister wishes to bring forward a new regulation, they must show that they have removed a regulation and that that will reduce the overall burden of regulation, ensuring that businesses see a net reduction. That is an important change. It is…something that we will deliver on.”—[Official Report, 3 June 2010; Vol. 510, c. 575.] 

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The definition could not be clearer: if a new regulation is to be introduced, Ministers must show that they have removed a regulation with a greater cost. 

I stress for the third time that we support the increases, but I would be interested to know exactly how the Government’s new regulatory approach applies to them. It is their rule—not ours—which they have set themselves, so I should be grateful if the Minister could tell us which regulation will go to make way for these minimum wage rises. I am sure that he has come along prepared for this question, as the Government made such a fanfare of their new approach to regulations. So if he just tells us which one it is, I am sure that we can conclude the debate quickly and that we will all happily support this and go. If the Minister cannot tell us, however, an inference will be drawn as to the worth of these statements about one in and one out for new regulations. With that, I am happy to support the instrument. 

4.45 pm 

Mr Davey:  I thank the right hon. Member for Wolverhampton South East for that helpful speech. I am delighted that he has acknowledged that the coalition strongly supports the minimum wage and that he has welcomed the fact that we have confirmed and supported the Low Pay Commission’s recommendations. 

Caroline Flint (Don Valley) (Lab):  Could the Minister remind me how the Liberal Democrats and the Conservatives voted when we took the minimum wage legislation through the House? 

Mr Davey:  I am sure that the right hon. Lady has as much skill and talent at consulting the record as any other member of the Committee, but may I remind her of what the Prime Minister said at Prime Minister’s questions on 14 July? He said: 

“We support the national minimum wage, we support its regular updating and that is one of the many good things set out in our coalition agreement.”—[Official Report, 14 July 2010; Vol. 511, c. 948.] 

That answers one of the right hon. Gentleman’s questions—namely, on the Government’s position with respect to the private Member’s Bill introduced by my hon. Friend the Member for Christchurch (Mr Chope). We will not be supporting that Bill. 

Mr John Spellar (Warley) (Lab):  I am surprised that the Minister cannot answer the perfectly straightforward question from my right hon. Friend the Member for Don Valley on how Liberal Democrat and Conservative Members voted on that legislation. They can say that they have revised their opinion, and they can say that it has worked out better than they thought, but will he tell us how they voted last time? 

Mr Davey:  The right hon. Gentleman asks a rhetorical question, and I strongly support his use of rhetoric. Let him be absolutely clear: I have no problem in saying that the Liberal Democrats had concerns about the way the national minimum wage legislation would work. I am delighted to see that many of those concerns have

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been addressed. That is why I would hope, as the right hon. Member for Wolverhampton South East suggested, that there is cross-party consensus on the need to protect low-paid workers and to strike a balance through the Low Pay Commission. I would expect him to welcome that and I am surprised that he seems not to want to do so. 

The shadow Minister asked me some detailed questions. He made the valid point that we need to ensure that the apprenticeship rate is monitored properly and that employers are not able to reclassify workers in order to escape it. I asked that question of the officials myself. The Low Pay Commission will in the first place monitor how the apprenticeship minimum wage works, both through consultation and through the use of data sources such as the annual survey of hours and earnings. It will apply only to those apprentices who have the apprentice contract in which the rights are fully set down. That is a clear legal undertaking with respect to Government schemes, and the Government will therefore be much more able to ensure that good monitoring takes place. 

Mr McFadden:  The Low Pay Commission does not carry out enforcement duties for the minimum wage. It is responsible for monitoring the labour market data and recommending the rates, but that is a different point. My point relates to enforcement: how do we ensure that there is no reclassification by employers? That is not a task for the Low Pay Commission. 

Mr Davey:  The right hon. Gentleman used the word “monitoring” and I responded to that. Enforcement of the payment of the national minimum wage will be done in the usual way, using the data and the monitoring information collected by the Low Pay Commission. He asked about next year’s remit for the Low Pay Commission. We have given it its remit, which is to focus on the labour market position of young workers, including the role of apprenticeships and internships, to reflect our concerns about the position of young people in the labour market. I want to be absolutely clear that we have no preconceived ideas about what that might mean for rates, but we have asked the commission to look at the matter. That follows the right hon. Gentleman’s previous point about ensuring that the new national minimum wage for apprenticeships is effective. 

The right hon. Gentleman’s other questions related to enforcement. He was concerned about what we are doing regarding support for vulnerable workers. We are clear that all workers, including the most vulnerable, should benefit from the legal framework of protections that exist in the law, be they national minimum wage or other employment rights. It is not in the interest of reputable employers for them to be subject to unfair competition from the minority of businesses that are prepared to flout the law. Funding for the vulnerable workers’ campaign is under review, and we will announce the exact figures on that in due course. I believe that that is the right way to go. We have the spending review ahead of us, and we need to ensure that the decisions on the funding of important campaigns, such as the one to which he referred, are part of the review. 

The right hon. Gentleman asked about how the regulations fit with our one-in, one-out approach. I understand that the general regulatory impact of increasing the national minimum wages is being assessed in exactly

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the same way as it was under the previous Government. Regarding the part of the regulations that impose an additional cost on employers who currently pay 21-year-olds less than the adult minimum wage, the regulatory costs will be offset by other employment law simplification measures, which we will introduce to the House in due course. However, nothing in the speeches that the right hon. Gentleman quoted suggested that it was incumbent on Ministers to bring those measures to a Statutory Instrument Committee at the same stage. That would be an abuse of the procedures of the House, and I am sure that he would not want to encourage me to do that. 

Mr McFadden:  The Minister’s colleague, the hon. Member for Hertford and Stortford, was very clear and helpful to the House when he explained how the policy would work, saying that 

“if a Minister wishes to bring forward a new regulation,” 

which means before it is done, 

“they must show that they have removed”— 

meaning that it is already gone— 

“a regulation…that will reduce the overall burden of regulation, ensuring that businesses see a net reduction.” 

That is different from what the hon. Member for Kingston and Surbiton just said, which was, “We will bring in regulations and at some time in the future we will look around to see if we can find something to offset them.” The hon. Member for Hertford and Stortford could not have been clearer in saying to the House that 

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“if a Minister wishes to bring forward a new regulation, they must show that they have removed a regulation…that will reduce the overall burden of regulation”.—[Official Report, 3 June 2010; Vol. 510, c. 575.] 

I must say to the hon. Member for Kingston and Surbiton that that is his Government’s rule. How will they apply it? 

Mr Davey:  I think the right hon. Gentleman has misunderstood the process that we have adopted. My hon. Friend the Member for Hertford and Stortford sits on the Reducing Regulation Committee, which has to review all proposals such as this one, to ensure that they are taken in the round and that we are taking forward his one-in, one-out policy and remaining mindful of the regulatory burden that we place on business. As my hon. Friend sits on that Committee and is aware of the many other measures that we are taking—whether they involve employment law simplification or other measures in the Department—I know that he strongly supports the regulations and believes that they are completely in line with the approach that he has asked the Government to adopt. 

The measures are welcome and sensible. They seem to have Opposition support and I commend them to the Committee. 

Question put and agreed to.  

5.54 pm 

Committee rose.