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Lord Rotherwick: My Lords, we are happy to support the aims of these regulations but are less happy with the tight criteria defining the firms that qualify for a short moratorium while a rescue proposal is produced. Why have these regulations not been encompassed in the Enterprise Bill now being considered in Committee by this House?
Lord Roper: My Lords, we on these Benches also welcome the proposed regulations. Those of my noble friends who know more about these matters than I have told me of their considerable importance and use for the purposes to which the Minister has drawn attention so far as the City of London is concerned. We therefore hope that the regulations will come speedily into effect.
Lord McIntosh of Haringey: My Lords, I am grateful to both noble Lords for their responses to these regulations. I could have been asked more legitimately by the noble Lord, Lord Rotherwick, why it has taken us so long, rather than why we are not delaying it a little further. The truth is that we discovered from the high powered lawyers in the City only at a very late stage of the passage of the Insolvency Bill 2000 that there were potential problems with companies which theoretically met the definition of a small company, and therefore were eligible for a moratorium, but in fact had a very much greater importance than a similarity with larger companies.
It has taken us this length of time to negotiate with those in the City who are adept in producing new financial vehicles, including those that I have described, and it is a matter of regret that we have taken so long to do that. The Enterprise Bill will not become law until later this year. For the sake of these simple regulations, it seemed preferable to enact these measures now, in July, rather than suffer a further delay. I beg to move.
On Question, Motion agreed to.
National Minimum Wage Regulations 1999 (Amendment) Regulations 2002
11.24 p.m.
Lord McIntosh of Haringey rose to move, That the draft regulations laid before the House on 25th June be approved [34th Report from the Joint Committee].
The noble Lord said: My Lords, I am pleased to present these amending regulations to the House. They are concerned with increasing the main and development rates of the national minimum wage.
The minimum wage is now recognised as an outstanding success. The Government have helped about 1.5 million low paid workers without causing any significant problems for the economy. Businesses cannot now pay the poverty wages of £2 and £2.50 per hour that were so widespread five years ago, and the vast majority of employers are complying with the minimum wage.
The minimum wage has been successful because the Government have adopted a partnership approach, which involved setting up the independent Low Pay Commission with a membership drawn from both sides of industry as well as academic members. This has ensured that its recommendations have been well judged to make a substantial difference for the low paid while remaining affordable for business.
The commission last year made recommendations on rate increases for 2001 and 2002. The Government implemented the first part of the recommendations by increasing the main and development rates to £4.10 and £3.50 in October 2001. We are now proposing to implement the second part of the recommendation by further increasing the rates as recommended by the commission to £4.20 and £3.60 in October 2002.
Is it safe to increase the minimum wage at present? The Government looked in April at the latest evidence across the overall economy and in the sectors most affected by the minimum wage. We did not see any significant rise in general unemployment and the indications were that employment in low-paying sectors is holding up. Our judgment is that economic conditions in the autumn of 2002 will support these increases.
Are these increases too small? We need to remember that the recommendations in 2001 and 2001 came as a pair. Under our proposals, the main rate will have increased by 50 pence an hour since September 2001. That is equivalent to an extra £900 a year before tax for someone working 35 hours a week. Over the same period the development rate, which is for younger people, will have increased by 40 pence an hour, equal to an extra £725 a year before tax. These amounts will make a real difference for the low paid.
The minimum wage is only one way in which the Government are helping low income workers. We are providing additional assistance through tax credits. In April 2003 we will be introducing the working tax credit which will, on its introduction, guarantee a family with one child and one earner working full time a minimum income of £237 a week.
Finally, I want to address two concerns that have been raised in the House of Commons. First, some noble Lords may recall that the Government did not accept the commission's advice last year to extend the adult rate to 21 year-olds because of the uncertainty surrounding the possible impact on their employment prospects. The commission is free to look at this issue again if it wishes, but if it does we will want to look closely at the point about employment prospects.
We are also aware of the concerns expressed by those in the care sector. The real interest issue here appears to be funding. The Chancellor has made it clear that resources for social services will increase on an average by a further 6 per cent per annum in real terms over the next three years. The Secretary of State for Health said yesterday that an extra £1 billion would be spent on social services for older people by 2006, including additional resources to cover higher care home fees. I commend the regulations to the House.
Moved, That the draft regulations laid before the House on 25th June be approved [34th Report from the Joint Committee].—(Lord McIntosh of Haringey.)
Lord Rotherwick: My Lords, we do not oppose the rise which increases the main and development rates of the national minimum wage. The main rate increases are broadly in line with the rate of wage increases and the economy as a whole. The impact of the national minimum wage will not change significantly over time. There will not be a further step-change impact.
While considering the increase, one must bear in mind that nothing must be done to damage businesses, jobs and the economy. The national minimum wage was controversial when it was first introduced. However, time has seen it work well. We hope that that will be the case if there is a serious downturn in the economy.
Lord Roper: My Lords, we agree with the Minister that the national minimum wage has proved itself. It was pleasing to hear from the Conservative Front Bench that it shares that view on a matter which was, at the time of introduction, controversial.
It would be possible to have a longer debate today on some of the current issues of low pay and the fact that the national minimum wage is seen by some of the trade unions in the public sector as being unsatisfactory. However, in view of the hour I do not intend to distract the House too long on that matter.
I was pleased that the Minister referred to the impact on the care sector and drew attention to the statements made by the Chancellor of the Exchequer in the spending review and yesterday by the Secretary of State in his Statement. Clearly, there has been a serious problem and it would be more serious if it were aggravated by any increase, however small.
Lord McIntosh of Haringey: My Lords, I hope that the noble Lord, Lord Roper, will not be offended if I extend a particular note of thanks to the noble Lord, Lord Rotherwick, for his support. I know that the Liberal Democrats have supported these policies since
the beginning, but it is fair to say that there were those who said when we first introduced the minimum wage that there would be—I shall not say "mass unemployment"—considerable economic problems.It is a tribute to the Low Pay Commission and those who worked on this over the period before and during the introduction of a national minimum wage that there have not been those problems. The national minimum wage is now a non-party issue. After all, a national minimum wage exists in almost all European countries and has existed for many years in the United States. It is an accepted part of public policy. We propose a logical and rational extension and updating of that accepted public policy. I commend the regulations to the House.
On Question, Motion agreed to.
Directors' Remuneration Report Regulations 2002
11.31 p.m.
Lord McIntosh of Haringey rose to move, That the draft regulations laid before the House on 1st July be approved [34th Report from the Joint Committee].
The noble Lord said: My Lords, the regulations before the House today are concerned with the legislative framework for the setting of directors' pay. The subject is at the centre of the debate about effective corporate governance. On this issue directors face an obvious conflict of interest.
The Government have made it clear that they do not support high rewards for mediocre or poor performance. Too often there continue to be cases—particularly with the financial results of the past few weeks and months—where directors are seen to have been paid excessive amounts when a company has not performed well. That is a matter of concern to shareholders and to employees who may lose their jobs in such circumstances. It is also damaging to the reputation of business within the wider community.
That is why the Government have decided to take this action to strengthen the corporate governance framework. There is a clear need for shareholders to be fully informed so that they can make their own judgments and play their role effectively. These new regulations will increase transparency through greater disclosure on remuneration policy and strengthen the accountability of boards to their shareholders by a shareholder vote.
The Government recognise that it is also very important that our major companies are able to attract, retain and motivate directors of high calibre to sustain and improve the UK's productivity and competitiveness in the global economy. We have consistently made it clear that we are not in the business of becoming involved with the setting of directors' pay in individual companies. What we wish to do is to create an open and effective framework within which pay can be set and disclosed, given the conflict of interest that directors face.
More than six years ago now, the Greenbury report set out three fundamental principles in this area—accountability, transparency and performance linkage. The Government believe these to be the right principles, but they do not believe that the best practice framework has been successful in achieving adequate levels of compliance to these principles.
The purpose of these regulations is to improve transparency, accountability and the linkage of pay to performance, in the setting of directors' remuneration. This will be achieved by amending Schedule 6 to the Companies Act 1985 to require companies to produce an annual directors' remuneration report; and by giving shareholders the right to vote on that report through the adding of a new section—241A—to the 1985 Act. Some of this is not new. It involves transposing existing listing rules requirements into the Companies Act. What is new is the improved disclosure of remuneration policy, linkage to performance and the annual vote by shareholders. The regulations will apply to quoted companies. These are companies which are incorporated in the UK and listed in the UK or in an EEA state, or on the New York stock exchange or NASDAQ.
I shall now give a little more detail of the regulations. The specific requirements were arrived at after a detailed consultation on draft regulations. That was published in December last year and closed on 15th March this year. We received a substantial response to that consultation, which included—your Lordships will not be surprised to hear—a wide range of differing opinions. Balancing those opinions has proved difficult, but the Government believe that the changes we have made to the draft regulations as a result of the consultation has led to better balanced legislation.
The regulations require companies to publish for each financial year a directors' remuneration report. This report will be divided into two main parts: a policy section and a report section looking at directors' pay in the recent financial year in question. The policy section must include a statement on the company's future policy on directors' remuneration including details and an explanation of performance criteria or the lack of them for share options or long-term incentive schemes. It must also include an explanation of company policy on service agreements, their duration, notice periods and termination payments with an explanation of any significant award to a director whose services were terminated in the previous year.
Remuneration committee details must also be provided: names of members, who advised them, and the nature of any other services provided to the company by those advisers. Finally, this part of the report must include a performance line graph which shows how the company has performed in comparison with an appropriate share market index.
The review section must include full details of each director's pay package set out in tabular format broken down to show the amount of each element which forms the package. This includes full details of any share options and long-term incentive schemes and details of any significant award made to a director whose service agreement was terminated in the most recent financial year.
The regulations also require that a resolution to approve the directors' remuneration report be moved at the annual general meeting. This vote will be advisory; in other words, it will not require companies to amend contractual entitlements. The Government nevertheless believe that the result of the vote will send a very strong signal to the directors and that the directors will wish to take notice of the shareholders' views and to respond accordingly.
Overall, these regulations reflect a balanced approach to creating an appropriate framework for the setting of directors' remuneration. I beg to move.
Moved, That the draft regulations laid before the House on 1st July be approved [34th Report from the Joint Committee].—(Lord McIntosh of Haringey.)
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