Draft National Minimum Wage (Amendment) Regulations 2011
The Committee consisted of the following Members:
† Afriyie, Adam (Windsor) (Con)
† Barwell, Gavin (Croydon Central) (Con)
† Burt, Lorely (Solihull) (LD)
† Chishti, Rehman (Gillingham and Rainham) (Con)
Creasy, Stella (Walthamstow) (Lab/Co-op)
† Field, Mr Mark (Cities of London and Westminster) (Con)
† Green, Kate (Stretford and Urmston) (Lab)
† Griffith, Nia (Llanelli) (Lab)
Lammy, Mr David (Tottenham) (Lab)
† McClymont, Gregg (Cumbernauld, Kilsyth and Kirkintilloch East) (Lab)
† Mearns, Ian (Gateshead) (Lab)
† Murray, Sheryll (South East Cornwall) (Con)
Raynsford, Mr Nick (Greenwich and Woolwich) (Lab)
† Simpson, David (Upper Bann) (DUP)
† Stevenson, John (Carlisle) (Con)
† Swinson, Jo (East Dunbartonshire) (LD)
† Watkinson, Angela (Lord Commissioner of Her Majesty's Treasury)
† Willetts, Mr David (Minister for Universities and Science)
Judith Boyce, Committee Clerk
† attended the Committee
First Delegated Legislation Committee
Tuesday 5 July 2011
[Mr George Howarth in the Chair]
Draft National Minimum Wage (Amendment) Regulations 2011
10.30 am
The Minister for Universities and Science (Mr David Willetts): I beg to move,
That the Committee has considered the Draft National Minimum Wage (Amendment) Regulations 2011.
It is a great pleasure to consider the regulations under your chairmanship, Mr Howarth. I hope that they will be supported on both sides of the Committee. You would rightly remind us of the importance of sticking to the regulations before us, but I will begin by briefly confirming the coalition Government’s commitment to the minimum wage. I know that there has been a certain amount of controversy following the recent debate on the Employment Opportunities private Member’s Bill, when it was suggested that people with disabilities should be able to offer themselves for work at below the minimum wage. As the Committee knows, the aim of the national minimum wage is to establish fairness in the workplace, and one of its key principles is to protect the most vulnerable workers. The Government absolutely support the minimum wage and we totally reject any proposal for disabled people to be able to opt out of it.
The regulations will do three things. First, they will increase the hourly rate of the minimum wage for adults, younger workers and apprentices, and increase the maximum amount for living accommodation that is allowed to count towards pay for minimum wage purposes. Secondly, they will clarify the circumstances in which individuals taking part in some Government employment programmes are exempt from the minimum wage. Thirdly, they will reflect the changes that have been made to the names of certain pre-apprenticeship programmes in Wales.
I will deal first with the increases in the minimum wage rates contained in regulations 3, 5 and 6. The Low Pay Commission recommended the increases in its excellent 2011 report. In April, we announced that we had accepted its recommendations, and the Committee sitting today is our opportunity to act on that decision. The regulations will increase the adult minimum wage rate by 2.5% in October from £5.93 to £6.08. We believe that the increase is appropriate in the light of the continuing economic uncertainty. At the same time, it protects the lowest-paid workers from falling further behind the average.
Both the Government and the Low Pay Commission are concerned about the position of young workers in the labour market, and I am sure that hon. Members share that concern. Young people are more vulnerable than previously, as they have been hit harder by the recession. That is why we asked the Low Pay Commission specifically to consider their position in the labour market. It has continued to be difficult, and there is
evidence that in difficult economic circumstances, the minimum wage level may have an impact on their employment. That is because youth minimum wage rates have increased faster than young people’s earnings generally since 2007. As a result, the so-called “bite” of the minimum wage—the minimum wage as a percentage of median earnings—for young workers has increased, while the bite of the adult rate has remained stable. The commission concluded that it would be imprudent for that to continue and therefore recommended lower increases for younger workers than for adults. We consider that to be the right approach. The increases in the youth minimum wage are sensible and appropriate to protect the labour market position of young people.The Low Pay Commission has also reviewed the new apprentice minimum wage that we introduced last October. It found that the initial rate was cautious and that there is no evidence that it has had a negative effect on the supply of apprentice places. The commission recommended a higher increase of the apprentice minimum wage of 4%. That will apply only to employed apprentices who are either under 19, or over 19 and in the first year of their apprenticeship. Other apprentices are eligible for the minimum wage rate for their age.
There is also an exemption from the national minimum wage for workers participating in Government schemes to provide training, work experience or temporary work. Regulation 2 will correct an anomaly in the legislation. At present, workers participating in Government schemes provided under the Employment and Training Act 1973 are exempt from the minimum wage. Regulation 2 will ensure that workers participating in Government schemes provided under the Jobseekers Act 1995 are treated in the same way.
The third element of the regulations is in regulation 4. There is an exemption from the national minimum wage for a small proportion of apprentices on specified schemes, who are not employed but who usually receive an allowance paid by the state instead of a wage.
On 1 August, the Welsh Assembly Government will start two successor programmes to the scheme that is currently specified in the regulations. We are therefore making consequential changes to reflect this.
The Low Pay Commission’s 2011 report was—like the previous year’s report—prepared during a period of economic uncertainty. Its rate recommendations reflect the continued volatility of the economy, the state of the youth labour market and the uncertain prospects for the forthcoming year and, as it states in the commission’s valuable report, they
“strike a balance between caution and optimism”.
The changes to the minimum wage contained in the regulations balance the needs of low-paid workers against the challenges that remain for businesses. They reflect our commitment to the fair treatment of low-paid workers as well as to business.
10.36 am
Nia Griffith (Llanelli) (Lab): It gives me great pleasure today to serve under your chairmanship, Mr Howarth, and to contribute to the debate on this important delegated legislation, which makes the necessary amendments to ensure that annual increases are made
to the national minimum wage and that they will come into force on 1 October 2011, raising the wages of some 900,000 workers.The national minimum wage was introduced by the Labour Government in 1999 in spite of all manner of scaremongering, particularly from some sections of the right-wing press. Disgracefully, it was opposed by the Conservative party at the time, so I am glad to hear the Minister confirm that the coalition Government are fully committed to it.
When the national minimum wage was introduced, it raised pay for more than 2 million people, and thereafter the Labour Government ensured that there were regular, above-inflation increases, so that in the first 10 years of its existence, it rose by 59%. Those increases have raised the living standards of the lowest paid and helped close the gap between men’s pay and women’s pay. In 2004, some 50,000 low-paid teenagers received a boost in income when a minimum wage for 16 and 17-year-olds was introduced. The regulations introduce an increase for younger workers as well. When the Conservative party opposed the introduction of the minimum wage before 1999, it claimed that it would cost some 2 million jobs. In practice, 3 million extra jobs were created in the following 10 years. Despite the initial and determined opposition to the national minimum wage, it appears that it is now accepted by the main political parties.
Mr Mark Field (Cities of London and Westminster) (Con): The hon. Lady is giving a history lesson about the past 12 years in a partisan way, but does she accept, as the recommendations accept, that we are living in turbulent, difficult times? What happened over the past decade may not be the best guide for what will happen in years to come. My right hon. Friend the Minister’s thoughtful, nuanced approach may be a sensible route forward. We want to ensure that we maximise opportunities for the youngest. Nothing would be worse than seeing some of those individuals priced out of the market.
The Chair: Order. Before the hon. Lady resumes her speech, I want to make two comments. The first is that interventions, especially by experienced hon. Members, should be brief and not speeches. Secondly, while I fully appreciate that the hon. Lady is setting the context of her remarks, she seems to be taking a long time to get to the regulations. Perhaps she could move on to them quickly.
Nia Griffith: Indeed. In response to the hon. Member for Cities of London and Westminster, it is important to take seriously the Low Pay Commission’s recommendations. I urge the Minister, in future consideration of the national minimum wage, to look at those recommendations. At the end of the day, it is ultimately a choice for the Government as to whether they accept them. The commission will have taken all those factors into consideration when it made its recommendations.
However, it is worrying when we hear the hon. Member for Shipley (Philip Davies) spouting such nonsense. I was glad that the Minister distanced himself from those disgraceful comments, which the hon. Gentleman made two weeks ago when he suggested that some people could be expected to work for less than the minimum wage. He was particularly insulting to those with a disability.
During the first 10 years of the national minimum wage, the annual increases meant that overall, it rose above inflation. In the past couple of years, it has risen more or less in line with average earnings. However, it worries me that we are now seeing rapid rises in the price of basic foodstuffs, domestic fuel bills and vehicle fuel, which have a knock-on effect on public transport and many other products. If someone is on a low income, food and fuel make up a higher percentage of their expenditure, and therefore they are particularly hard hit by such rises.
There have been some steep rises in food and fuel prices even in the past few months, and we may well experience further increases in the next few months between now and 1 October, the date on which the increases in the national minimum wage that we are discussing today will be implemented. If such trends continue, the additional 15p per hour on the adult minimum wage, bringing it up to £6.08 an hour, which amounts to a 2.5% increase, will soon be gobbled up by price rises. Put another way, the increase of 15p per hour amounts to an increase of £6 per week for a 40-hour week, and we are seeing price rises that will soon use that up. If such trends continue, clearly the Low Pay Commission will take into account those additional costs as it conducts the complex analysis and consultation before it makes its next recommendation. Once it has made its recommendation, it will be up to the Government of the day to decide whether to accept it.
I urge the Government to accept that proportionately higher increases in the national minimum wage may be needed in future to ensure that the wage keeps pace with the inflation in the costs faced by low-income families. If we are to make work pay, it is particularly important that the national minimum wage reflects the reality of the price increases that people are encountering.
I hope that the Conservative and Liberal Democrat coalition Government will continue our policy in government of increasing the national minimum wage at or above the level of inflation. I also hope that there is no intention on their part to allow the real purchasing value of the national minimum wage to be eroded by a failure to increase it in line with the actual prices that people have to pay to meet their basic needs. I express those fears because the Conservative-Liberal Democrat coalition has already decided to use the consumer prices index instead of the retail prices index to calculate rises in pensions and benefits. One wonders if that change has anything to do with trying to introduce a cumulative cut in the real value of pensions. The cynics among us might even suggest that dressing up the cut as a technical change from RPI to CPI was an attempt to disguise it. However, I will not get distracted by that discussion now.
The work of today’s Committee is to pass the Draft National Minimum Wage (Amendment) Regulations 2011, and the Opposition will support them.
10.43 am
Kate Green (Stretford and Urmston) (Lab): I welcome the Minister’s strong assurance of the Government’s commitment to the national minimum wage. I agree with my hon. Friend the Member for Llanelli, who
referred to the importance of ensuring that the wage is set at a level that helps low-income families make work pay and meet living costs.One of the advantages of the Low Pay Commission, which makes recommendations and advises on what rate should be set, is that it can respond to the changing economic situation and the context in which the minimum wage is being applied. While in typical economic circumstances, we might expect earnings inflation to be a good basis for establishing the level at which the minimum wage increase should be set, we are now in untypical economic circumstances, whereby prices are significantly outstripping the rise in earnings for many families, particularly for the lowest-income families, as my hon. Friend said.
A couple of weeks ago, the Institute for Fiscal Studies demonstrated that price inflation for lower-earning families was 60% higher than that for better-off households. Clearly, when there is an inequity of effect that disadvantages low-income families, it is important to look at all instruments that can be used to try to compensate for such adverse effects. That is particularly the case when other Government policies are putting further pressure on low-income households.
My hon. Friend mentioned linking benefits and tax credits to CPI, and I want to highlight the Government’s changes to the support for child care costs. Reducing that from 80% to 70% of the costs faced by parents will put significant pressure on low-income families. I am therefore concerned that child care costs are likely to rise at a faster rate than the proposed increases in the national minimum wage.
Although I appreciate that the economic situation is tight for employers and businesses and that the Government are following the recommendations of the independent Low Pay Commission, it would be extremely helpful if the Committee sent the message that the commission should do its work in the context of the economic circumstances pertaining at the time.
I have two other points, one of which relates directly to the regulations. The other is a broader point about how they will work, and I hope you will forgive my making it, Mr Howarth.
The specific point is about the uprating for young people. I have long shared with other campaigners an aspiration for the rate for young people to be brought up to the same level as for adult earners. That is the concept of a fair day’s work for a fair day’s pay. If a young person puts in the same effort and produces the same outcomes, it is right that they should be rewarded for the value of their labour. I am concerned that a blanket assumption that young people should earn less is not fair to them, so I welcomed the extra increases for young people in recent years. I hear what the Minister says and I appreciate that we have to look at the advice of the Low Pay Commission, but to what degree has the evidence enabled us to disentangle the effect of young people’s pay from the other effects that make it more difficult for them to progress in the labour market? I would be very interested to hear the Minister comments on that, because we do not want a pattern of lower pay increases for young people year in, year out. We need clearly to understand the extent to which a minimum wage is an inhibitor of or, for that matter, a springboard
for young people’s progress in the labour market. I hope that the Minister will comment on that, and raise it in his ongoing discussions with the Low Pay Commission, although I appreciate that it is independent.I am especially concerned about the position of young women. If they are on the minimum wage, it is probably because other schemes to improve their earnings potential, such as apprenticeships, are often less well taken up by them. We have to be aware of a potential gender effect, as well as the overall effect on young people.
My general point is about enforcement. Some employers continue to get round the regulations. Some openly flout them, which is relatively unusual, but others have found ways of manipulating pay and reward packages, so that some low-paid workers do not receive the minimum wage. In my view, the resources deployed by Her Majesty’s Revenue and Customs are very limited. The analysis of employers who fail to comply with their legal obligations and the ability of HMRC regulators to support workers in such workplaces seem to be pieces of the policy landscape that have not been sufficiently explored and attended to. Although that matter is not strictly within the ambit of the regulations, they will obviously be meaningless if they are not underpinned by good enforcement. I would welcome the Minister’s comments on what steps he is asking HMRC to take to ensure that that is the case.
10.49 am
Mr Field: As a senior parliamentarian, it is an honour to be dealing with such a senior Chairman, Mr Howarth. I have a brief comment arising from those made by the hon. Member for Stretford and Urmston, who rightly said that not only this Government’s but the previous Government’s policy was to try to ensure that work pays.
I ask the Minister to comment on my main concern, which is that all too often what we regard as a minimum wage becomes a maximum wage. Particularly with young and relatively unskilled individuals, employers take the view that they do not need to pay any more, because the Government will end up paying a little extra through a range of welfare benefits. I wonder whether there is any evidence in recent years of the proportion of people who are on the minimum wage for whom that is a maximum wage.
Will the Minister keep an eye on that in future? It would be wrong for employers to feel that, by putting an increasing number of employees on the minimum wage—I accept there is an issue with the skills gap, which my right hon. Friend is doing a lot to try to address—they can wash their hands of the matter and think, “We’re paying the minimum wage, so we’ve done our bit”, leaving the Government to pay the extra £3, £4, £5 or £6, depending on the particular circumstances of an employee getting the minimum wage. It would be a retrograde step for the minimum wage to be misused in that way, as the hon. Member for Stretford and Urmston pointed out in her comments.
10.51 am
Mr Willetts: I will take this opportunity briefly to comment on the points that have been made. I welcome the general endorsement of the Government’s approach, which rests on the 2011 Low Pay Commission report.
There are, of course, different measures of inflation. It is worth recording, as we had a brief historical account from the hon. Member for Llanelli, that the October 2011 adult minimum wage, if the Committee endorses the order, is estimated to be some 28% higher in real terms based on the consumer prices index and some 17% higher in real terms based on the retail prices index, than when it was introduced in 1999. We are talking about a minimum wage that has moved substantially ahead of prices over the past decade.Nia Griffith: Does the Minister accept that a substantial part of that increase occurred in the first 10 years of the existence of the national minimum wage?
Mr Willetts: I accept that that is when the increases occurred. Those were boom years where, when looking back, we may think we were living in a world where we all felt richer than we really were, because our houses were increasing in value and things were booming. That was financed, as we now know, by high levels of personal borrowing and public borrowing. We are taking these decisions in a tougher and more realistic environment, where we are trying to sort out the economic mess that we inherited. In the proposals, we have carefully drawn the right balance in much tougher circumstances.
I want briefly to touch on a couple of other questions that were asked. I recommend to all hon. Members the Low Pay Commission’s report, which investigates these
issues thoroughly. There is a discussion specifically on young people. The report states that there is evidence that employers are making—this is relevant to the intervention by my hon. Friend the Member for Cities of London and Westminster—greater use of youth minimum wage rates for those under 21. More young people than ever are falling within the coverage of the minimum wage. It appears to be happening, so the question is: what lesson do we draw from that? The lesson that the commission draws is that, because of the tough labour market conditions facing young people, youth rates should rise by slightly less than the adult rate.It is important that the minimum wage is properly enforced. We need to do some strategic thinking on the best regime for that. It has to be intelligence driven, focusing on abuses that are identified to the authorities. We will need to set priorities for enforcement carefully, given the Government’s limited resources. We are committed to the enforcement authorities having the tools that they need to do the job. In the light of those comments and the general support for the principles of the minimum wage, I hope that the Committee feels able to endorse the regulations.