Draft National Minimum Wage Regulations 2015

The Committee consisted of the following Members:

Chair: Mr Dai Havard 

Blunkett, Mr David (Sheffield, Brightside and Hillsborough) (Lab) 

Clwyd, Ann (Cynon Valley) (Lab) 

Creasy, Stella (Walthamstow) (Lab/Co-op) 

Doughty, Stephen (Cardiff South and Penarth) (Lab/Co-op) 

Drax, Richard (South Dorset) (Con) 

Evans, Jonathan (Cardiff North) (Con) 

Freeman, George (Parliamentary Under-Secretary of State for Business, Innovation and Skills)  

Goldsmith, Zac (Richmond Park) (Con) 

Hoey, Kate (Vauxhall) (Lab) 

Jones, Mr David (Clwyd West) (Con) 

Lloyd, Stephen (Eastbourne) (LD) 

Loughton, Tim (East Worthing and Shoreham) (Con) 

McDonald, Andy (Middlesbrough) (Lab) 

Maynard, Paul (Blackpool North and Cleveleys) (Con) 

Mitchell, Austin (Great Grimsby) (Lab) 

Simpson, David (Upper Bann) (DUP) 

Stride, Mel (Central Devon) (Con) 

Swales, Ian (Redcar) (LD) 

Leoni Kurt, Committee Clerk

† attended the Committee

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Fourth Delegated Legislation Committee 

Monday 2 March 2015  

[Mr Dai Havard in the Chair] 

Draft National Minimum Wage Regulations 2015

4.30 pm 

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

That the Committee has considered the draft National Minimum Wage Regulations 2015. 

Before diving into the detail, I want to say a little about the current framework and explain why the regulations signify an important step in improving compliance with the national minimum wage. 

The National Minimum Wage Act was passed in 1998, and 17 years on, it directly benefits more than 1 million low-paid workers. Such workers saw their pay increase relative to average earnings during the recession, as well as their employment prospects protected. It continues to be our aim to have a minimum wage rate that helps as many low-paid workers as possible, while making sure we do not damage their employment prospects by setting it too high. The above-inflation rate increase put into effect by the Government in October 2014 means that full-time workers on the national minimum wage received an additional £355 a year in their pay packet. 

However, we are already looking ahead. The Low Pay Commission provides independent evidence-based recommendations each year on minimum wage rates that maximise the wages of low-paid workers without damaging job prospects. The LPC presented its report with recommendations for the adult, youth and apprentice rates last week. The Government will now consider the LPC’s recommendations and will respond in due course. Any changes will take effect from 1 October 2015. 

Setting the rate, however, is just a start. We must also ensure that everyone who is entitled to the minimum wage receives it. Effective enforcement is therefore key. Her Majesty’s Revenue and Customs responds to every complaint made to the pay and work rights helpline, and it undertakes risk-based enforcement as well. We have significantly increased the resources available to HMRC to undertake this work. A 50% increase in its budget this year and next will ensure that it can do even more to identify businesses that exploit workers by paying them below the national minimum wage. 

To provide a strong deterrent to employers we have introduced tougher penalties. We increased the financial penalty percentage that employers pay for breaking minimum wage law from 50% to 100% of the unpaid wages owed to workers, and we changed the law so that for any pay reference commencing on or after 7 March 2014 the maximum penalty is now £20,000, up from £5,000, and we have not stopped there. Provisions in the Small Business, Enterprise and Employment Bill will mean that this penalty can be applied on a per worker basis, significantly increasing the maximum penalty faced by the most unscrupulous employers. 

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There are reputational consequences, too. Changes to the Government’s naming scheme mean that more employers have been and will continue to be named for making underpayments. The Government have already named 162 employers. Between them, they owe workers a total of £473,000 in arrears, and they have been charged financial penalties totalling more than £181,000. Such bad publicity will be an additional deterrent to employers who would otherwise be tempted not to pay the national minimum wage. 

An important element of ensuring compliance is clarity and accessibility of information. People need to understand what the law requires and what their rights and responsibilities are. Since their introduction 17 years ago, the minimum wage regulations have been amended numerous times, resulting in 27 separate sets of regulations. For such important legislation that is directly relevant to so many workers and their employers, lack of clarity could result in people not being paid what they are legally entitled to. That is why the Government concluded, as part of the red tape challenge, that the time was right to consolidate the 1999 regulations into a single set. The draft instrument being debated today does exactly that; it consolidates the 1999 regulations and subsequent amending regulations with the aim of making the rules clearer and more workable for employers and workers alike. 

So what did we do? We changed the structure of the detailed rules of the national minimum wage to regroup regulations so that like-measures sit together. For example, the details about different exemptions all appear in the same place, making it easier for employers to find the information that they need. We have also included the use of shorter and more focused provisions to make it easier for the reader to navigate, and we have made changes to reflect modern drafting practices so that the provisions are now gender-neutral. 

A key element of the exercise was consolidating without changing the agreed policy behind the rules. This was a complex exercise that we undertook with great care. The public consultation was crucial for this purpose; it helped to ensure that, by improving the clarity and accessibility of the regulations, we did not inadvertently change the policy behind the national minimum wage. We conducted an eight-week consultation on the draft regulations between July and September last year, which drew 22 responses, mostly from care providers, but also from employment law specialists and employers, among others. The restructuring of the national minimum wage regulations was welcomed, and most considered that it made the rules easier to navigate and their order more logical. 

However, respondents said that even greater clarity would be welcome, particularly in the guidance. As the Low Pay Commission told us, it is clarity of the guidance that is most relevant as a source of information for employers and workers on the national minimum wage, and we agree. Once the regulations take legal effect, we will review the guidance during 2015 to improve the information available to individuals and employers on the detailed rules on the national minimum wage. I hope that hon. and right hon. Members will therefore support this statutory instrument. 

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4.35 pm 

Stella Creasy (Walthamstow) (Lab/Co-op):  May I take this opportunity to wish you, Mr Havard, and the other Members from the Principality a belated happy St. David’s day? If you will forgive me, I will leave it to my hon. Friend for Cardiff South and Penarth to express that sentiment in Welsh, because I fear that my pronunciation is not what it should be. I am pleased that we are discussing the national minimum wage with you, Mr Havard, in the Chair, and my right hon. Friend the Member for Cynon Valley— 

Ann Clwyd (Cynon Valley) (Lab):  It is pronounced “Cainon”. 

Stella Creasy:  Exactly. I stand corrected on my Welsh pronunciation, which is almost as bad as my French. I have been to Wales, but I would not dare to suggest that I speak the language. What is important about Mr Havard and my right hon. Friend is that they represent constituencies that were previously represented by Keir Hardie, who was one of the first politicians to promote the idea of a minimum wage, and the importance of tackling low pay. 

The Opposition are extremely proud of the national minimum wage and of the fact that it was Labour Government who brought it in. Its success has been undeniable, and it has given 1 million workers an average pay rise of between 10% and 15%, and nearly 2 million now directly benefit from a national minimum wage, which is equivalent to one worker in 10. For those of us whose political lives were born from reading the works of Keir Hardie and the idea of a “sunshine of Socialism”, and who, in former days, argued with the Minister about the merits of a minimum wage, I will never tire of hearing the coalition Government celebrate it. I never thought that I would attest to such a day. 

One of the challenges of implementing the regulations is to consider how the picture of pay has developed in the past 15 years. The Opposition support the consolidation of the 1999 regulations, but I was struck that the Minister spoke about how the Government want to help the low-paid. It is therefore worth putting it on the record that the Opposition are concerned that we are now a nation where poverty is more the preserve of those in work than of those out of it. Specifically, for the first time, we are a nation in which there are more people in poverty and on a pay-roll than there are in poverty in retirement or looking for work. It gives me no pleasure to know that we are among the bottom of the OECD list of countries for the number of employees on low paid—we are listed 25th out of 30. 

The Minister may cite the recent increase in earnings data, but those of us with a keen eye are worried to note that that increase has been recorded only because of the bonuses paid to a small minority. Yes, there has been an ease on the squeeze on many people in our communities, but only because inflation is falling rather than because real wages are rising. In fact, real wages have been falling since 2010—the longest period for 50 years. That matters for two reasons, and the Government and the country need a low-pay policy that addresses them. First, while prices may be falling, debt is rising. Members will be familiar with my specialist “Mastermind” subject, and it is worth putting on record just how worrying that trend is. We know that half of all households in this city

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alone cannot make it to payday and that for a third of those households that is because of debt repayment. Household debt is rising four times faster than household wages, and it is clear from Office for Budget Responsibility figures that the Chancellor is relying on that for the economic recovery. The OBR figures show that the Government predict a 42% increase in household debt by 2019, but only a 19% increase in wages. 

The Chair:  Order. May I stop you, Ms Creasy? Context is very helpful in this debate, but this is a very narrow order that consolidates a number of different things, some of which are to do with levels and rates. May I ask you to narrow your remarks to the instrument before us? 

Stella Creasy:  I apologise, Mr Havard, not least because once I get started on household debt, it is very difficult to stop me. The reason why it matters is that we have to raise the wages of the millions of people in our country on low pay, precisely because they are now paying the price of having had the current Chancellor for the past five years. That is why it matters what the Low Pay Commission does and what our minimum wage rate is. That is why it matters that we have a clear Government strategy, attended by these regulations, on people on low pay. 

I want to ask the Minister some specific questions about how the Government intend to help those on low pay, and on how the regulations feed into that. First, the Opposition have made a commitment that we will halve the number of people on low pay. That number is currently around 5 million, which is up from 3.4 million in 2009. Can the Minister set out clearly what his Government are going to do proactively to cut the number of people on low pay in this country? 

Secondly, we have set a target for the national minimum wage of reaching £8 hour by 2020 at the latest. Does the Minister accept that more needs to be done to raise low pay in this country, and that that is a reasonable target? If not, what does he think is an acceptable target for the national minimum wage? I am struck by the fact that he talked about the Low Pay Commission and the role that it could play. We think that the Low Pay Commission can play a very clear role in making recommendations across different sectors and in looking at the range of pay rates within those sectors. For example, do we think that the current rate, £7 an hour, is adequate in the banking sector as opposed to the hospitality sector? Can he talk more about— 

The Chair:  Order. Sorry, I am going to have to stop you again. The rates that are applied and the question of the Low Pay Commission and so on are useful in terms of context, but not germane to the regulations. We are talking about the efficiency of the process, and about bringing elements of that process together to be more efficient. May I ask you to talk about those elements, rather than the broader context? 

Stella Creasy:  I apologise, Mr Havard. I had understood that the 1999 regulations set out detailed rules for determining whether work was paid the national minimum wage; therefore I thought it was apposite to consider whether the national minimum wage was appropriate or acceptable. 

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The Minister talked about enforcement. The Opposition have talked about increasing enforcement action, with a tenfold increase in the penalties for rogue companies that do not pay the national minimum wage. What does he think is an acceptable rate of enforcement? Does he have any concerns that we need to do more to directly enforce the national minimum wage, and does he think that local government has a role to play in that? 

I am conscious of your concerns, Mr Havard, but I think it important to see the regulations as but a small part of that wider question. Therefore it is absolutely right that Opposition Members, who are ruthless about the importance of tackling low pay, challenge the Government about whether they are really doing enough. We see the consequences of the failure to do so. 

4.43 pm 

George Freeman:  Thank you, Mr Havard, for that chance to listen to the Opposition’s wider economic policy, as well as their response to the regulations. 

Let me try to deal with a couple of the points that were made. I was struck by hearing the hon. Member for Walthamstow speak about poverty being the preserve of those who work, and about the perniciousness of debt. It takes just a little bit of cheek for her to say that, as this Government inherited a car crash in public finances—a bonfire in the basement of the public finances, and a massive pernicious debt legacy that we are struggling to pay off. The best way to take people out of poverty is to take them out of welfare and get them into work, and to create jobs and a growing economy. 

Stella Creasy:  I thank the Minister for making that point. Is he not concerned, therefore, to see that household unsecured debt in this country will outstrip 2008 levels under his Government’s watch? 

The Chair:  Before you respond, Minister, may I make the same comment to you as I made earlier? Doubtless it is very tempting to respond to generalities about economic policy, but in the context of the efficiency changes being made to a mechanism for enforcing and setting the minimum wage, can you please curb your enthusiasm and restrict your remarks to that? 

George Freeman:  It is a pleasure to restrict my enthusiasm for you, Mr Havard, even though we must discuss this matter in the wider context of economic growth, and the fact that this Government have created three jobs in the private sector for every one lost in the public sector, as well as introducing welfare reforms and the measures before us. I have set out very clearly our ambitions to make sure that the national minimum wage continues to help those who are at the bottom in pay terms. I have set out our position very clearly. 

As to the targets that the hon. Member for Walthamstow asked me to look at, the first and most important point is a growing economy. I am proud that Britain’s economy is now the fastest growing in the west. It is growing at a rate of 2.8%, as opposed to France at zero and Germany at 0.6%. We are doing something very right in terms of creating jobs and opportunities. The Chancellor has

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also been very clear in setting out the most important target of all: full employment. We want to get people into work. 

Andy McDonald (Middlesbrough) (Lab):  Will the Minister give way? 

George Freeman:  I think I must take your steer, Mr Havard, and try to restrict my comments to the matter before us. 

I thank the hon. Member for Walthamstow for her contribution. The national minimum wage is a success story, and I am proud to say that this Government feel that the fundamental framework of the wage should be retained in its current form. True supporters of the national minimum wage know that it is a partnership between business and society—something that it is particularly crucial in the role played by the independent Low Pay Commission in advising the Government about the level of the wage. The minimum wage relies on the support of employers and workers, and the Low Pay Commission’s recommendations reflect the views of both employers and trade unions, and are unanimous. 

Recently we have seen calls that the minimum wage should be rising faster and we should set a target, but just announcing a particular level of the minimum wage that sounds ambitious— 

Andy McDonald:  What does the Minister make of the fact that the number of people earning less than £20,000 a year has gone up by 1.5 million, whereas the number earning more than £20,000 has gone up by 800,000? How does that fit with the mantra of commitment to those on low pay? 

George Freeman:  I have set out the broader numbers relating to the national minimum wage—the fact that we have increased it and that, through the regulations, we are enforcing compliance and ensuring that companies pay properly. [Interruption.] We are operating in a broader economic context in which we are having to clear up a disaster. I heard the hon. Member for Middlesbrough use the word “disastrous”, and it is a disastrous legacy. 

Stephen Doughty (Cardiff South and Penarth) (Lab/Co-op):  Will the Minister give way? 

George Freeman:  I think I should return to the specifics of the regulations, as I do not think we have your permission for a wider economic debate, Mr Havard. 

Stephen Doughty:  This is very specifically on the minimum wage. Can the Minister tell us how many prosecutions there have been for non-payment of the national minimum wage while his party has been in government? 

George Freeman:  Well, I have heard that question and I will try to ensure that I get a proper answer for the hon. Gentleman before I sit down; he will understand that I do not have the numbers at my fingertips. 

A political target risks causing job cuts if the economy does not grow strongly—cuts that will be most badly felt by young, unskilled workers and the unemployed. If the economy performs well, what looks like an ambitious target may no longer look ambitious, leaving millions of workers with less money in their pockets. 

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I wanted to touch on the remit of the LPC. Our current vision for the national minimum wage is clear. We want to ensure that the proceeds of a growing economy are shared through higher wages, and particularly through securing higher wages for the lowest paid, without compromising their employment opportunities. Right now, let us be clear: that plan is working and the minimum wage is increasing faster than earnings. [Hon. Members: “What?”] If Opposition Members listen, they will hear the figures. The 3% rise of the adult rate to £6.50 per hour last October means that low-paid workers will enjoy the biggest cash increase in their pay packets since 2008, and the first above inflation since 2007. The recent LPC recommendations show that trend continuing. 

The simplicity of the national minimum wage has been key to its success, and we want to keep it that way. We do not want to distract the Low Pay Commission from the important and complex task of reviewing and recommending the level of the rates. Rather than interfering with this key task and changing how the rate of the national minimum wage is set, we have rightly been concentrating resources on compliance and enforcement. A strong minimum wage must be properly enforced. That is why we are committed to increasing compliance with the legislation and to effective enforcement of it. Everyone who is entitled to the national minimum wage should receive it. Where a person is concerned that they are being underpaid, they should complain to the pay and work rights helpline, on 0800 917 2368. 

Stephen Doughty:  The Minister was just talking about prosecution and compliance. I was wondering whether he had had any inspiration on this point yet, given that it goes to the fundamentals of what we are discussing—laws about enforcing the national minimum wage. How many prosecutions have there been, if he has such a strong track record? 

George Freeman:  I did run through some of those numbers earlier. We do not think that that is the best way—[Interruption.] We take all the actions needed to get workers their money back, levy civil penalties and name and shame the employers concerned. So far we have named and shamed over 162. I repeat that since the minimum wage was first introduced in 1999, more than £54 million in arrears for over 229,000 workers has been identified, during more than 65,000 employer interventions. I repeat—this is important—that we have increased the enforcement budget, which I know the hon. Gentleman will care about, from £8 million at the start of 2014-15 to £12.2 million in 2015, which is a 50% increase. That is an important measure if we are serious about clamping down on non-compliance. The money will be used to increase further the number of HMRC inspectors working to enforce the national minimum wage across the UK. 

The stakes will be higher for employers who try to avoid their legal obligations towards their workers. We have already increased the maximum penalty from £5,000 to £20,000 and we intend to increase the scope of the penalty from £20,000 per employer to £20,000 per worker. However, we must not forget the importance of ensuring and encouraging compliance in the first instance. Most employers just want to be confident that they are compliant with the national minimum wage regulations. Regrettably, there are some employers that are less scrupulous. That is where clear laws make it more difficult for the minority of employers who try to argue their compliance by using

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the complexity of disparate sets of regulations to their own advantage. That is why the consolidation of the 27 sets of national minimum wage regulations is so important. 

Improved legal clarity in the regulations will also make it easier to focus enforcement efforts on situations where workers are deliberately being paid less than the national minimum wage. 

Stephen Doughty:  I am very interested in what the Minister has to say, but again I ask him how many prosecutions there have been for non-compliance with the law. That goes to the heart of whether the legislation is being used effectively, and his claims about what the Government have been doing. Anecdotally we hear every week of companies that are not behaving as he set out. The Minister said that 163 have been named and shamed, which seems a low number. 

George Freeman:  As I understand it, the number of prosecutions formally brought and completed is nine, and the number of named and shamed employers is 162. What I want to highlight is the track record and compliance level—the level at which national minimum wage enforcement is being complied with. That is the key figure. Ultimately we want a world with no prosecutions because there is total compliance. 

Stella Creasy:  Will the Minister talk us through the consequences to companies of not following the regulations? If the number of prosecutions is so low, and those who are named and shamed can bear the brunt of not being popular, is there really any consequence of not paying all those low-paid workers? 

George Freeman:  As I set out in my opening remarks, there are very heavy penalties. The hon. Lady may not ever have run a business, but I assure her that for people who do so fines and reputational damage are a major force for compliance. Prosecutions may satisfy the politics of envy of the Opposition, but they are not the best mechanism to drive compliance. The fact is we are trying to drive a system in which employers, the vast majority of whom are responsible, comply properly. 

Stephen Doughty:  Will the Minister give way? 

George Freeman:  No, I think we have exhausted the point. 

To wrap up, as I said at the beginning of the debate, the consolidation of the 27 regulations into one step, which is the principal purpose of the Committee’s sitting, is an important step, effecting compliance with and enforcement of the national minimum wage, which the Government are proud to be behind. 

The next important step in 2015 will be to improve the guidance for the rules on the national minimum wage. We will consider the suggestions for improvements, made in response to the consultation by those affected by the legislation; we will take account of recent case law; and we will include more practical examples in the guidance for different working arrangements. That will help individual employers and workers. 

Question put and agreed to.  

4.53 pm 

Committee rose.  

Prepared 3rd March 2015