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Grand Committee

Thursday, 13 March 2008.

The Committee met at two o'clock.

[The Deputy Chairman of Committees (Lord Geddes) in the Chair.]

Employment Bill [HL]

(Third Day)

The Deputy Chairman of Committees (Lord Geddes): I will not waste the Grand Committee’s time with regard to adjournments in the event of Divisions because, it being a Thursday, there will not be any Divisions.

Clause 11 [Offences: mode of trial and penalties]:

On Question, Whether Clause 11 shall stand part of the Bill?

Baroness Wilcox: I would like to continue with my probing of this part of the Bill. Clause 11 markedly increases the penalties for offences under Section 31 of the National Minimum Wage Act 1998. Whereas before there was only a summary offence with a top level fine of £5,000, now there is an additional possibility of an unlimited fine from a Crown Court.

The Government’s consultation document on national minimum wage enforcement states that these new provisions will expect enforcement officers to issue penalties in almost all cases of underpayment. This will be a noticeable difference from the current regime, where I believe only two cases last year led to a penalty notice. Can the Minister explain what is preventing the compliance officers issuing more penalty notices now? Where in the Bill are the new provisions that will lead to such a drastic improvement in enforcement procedures?

I would also like to probe the necessity for the criminal offence. The consultation document states that only 3 per cent of cases of non-compliance would have incurred a penalty above £5,000 even on the new calculation of penalty arrears. Presumably it is to deter this 3 per cent in future that the Government have introduced the unlimited fine. How many times was the full £5,000 fine that the magistrates’ courts could levy under current legislation actually levied? If they are going to argue the need for an increased deterrent, presumably they have explored the full extent of their current powers. If not, it would seem more reasonable to assume that the lack of deterrent is a result of compliance officers not issuing penalty notices which were well within their power to levy, rather than the ability of offenders to avoid the Crown Court.

I hope the Minister will provide some conclusive statistics showing that current penalties are stretched to the limit. If not, I fail to see what possible reason there can be for implementing this clause.

Lord Wedderburn of Charlton: I wish to resist the noble Baroness’s opposition to the Question, particularly because research suggests that the current regime is far

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from satisfactory and that more needs to be done by way of enforcement of the minimum wage, particularly the enforcement of arrears and non-payment of arrears.

The research was carried out by Geoff White of the University of Greenwich and Richard Croucher of the Cranfield School of Management. I have given the Minister notice of their work and I am sure his advisers will have knowledge of it. That survey suggests that something more needs to be invented by way of an enforcement agency. The Revenue does not have sufficient resources to follow up non-payment of the minimum wage and, in particular, non-payment of arrears. I take the opportunity to put that on record and hope that the Minister will resist the noble Baroness’s arguments.

The Minister of State, Foreign and Commonwealth Office & Department for Business, Enterprise and Regulatory Reform (Lord Jones of Birmingham): Welcome back. I hope that the changes that we are introducing in the Bill show how seriously we consider non-compliance with the national minimum wage. As well as considering how we needed to strengthen the enforcement regime with penalties under the civil law, we also considered whether the sanctions for criminal offences under the National Minimum Wage Act 1998 were sufficient, or whether they needed to be enhanced in line with the penalties imposed for non-compliance.

Clause 9 provides that the maximum financial penalty that can be imposed for non-compliance with the national minimum wage by way of a statutory notice of underpayment is £5,000. Currently, criminal offences under the National Minimum Wage Act 1998 can be tried only in the magistrates’ court, where the maximum fine that can be imposed is £5,000. However, there is no such limit on the fine which can be imposed by the Crown Court. In those rare cases where the criminality involved makes it appropriate, it is important that the potential fine available to a criminal court when sentencing for an offence under the Act is greater than the maximum penalty which can be imposed by a notice of underpayment. I say to the noble Baroness, Lady Wilcox, that there is a distinction between the two—non-compliance and greater criminality—for underpayment.

Without the possibility of the Crown Court imposing an unlimited fine, there may be a perverse incentive for a criminally minded employer to prefer prosecution because the outcome is likely to be less serious from a purely financial point of view. We cannot have the criminality side being out of kilter with the penalty for a civil breach. We do not believe that the sentencing powers available to magistrates would be suitable in the most serious and exceptional cases where employers refuse or contrive not to pay the national minimum wage and do not co-operate with a compliance officer’s investigations. That is where the distinction to which the noble Baroness referred is highlighted. For example, where an employer owes Her Majesty’s Revenue and Customs £50,000, say, in deliberately evaded tax, the maximum penalty available is seven years in prison or an unlimited fine. However, where an employer owes his workers £50,000 by deliberately underpaying the national minimum wage, the maximum penalty currently

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available is £5,000. The courts should be able to deal with the deliberate exploitation of the low-paid more strongly than at present.

In addition, the strengthening of the investigative powers of Her Majesty’s Revenue and Customs proposed in Clause 12—which we shall discuss shortly—could not be used if the national minimum wage offences remained triable only as summary offences. The power to impose an unlimited fine for criminal offences under the National Minimum Wage Act means that rogue employers could be fined to the total extent of any profits gained from underpaying of the national minimum wage, and ensures that the balance of the enforcement spectrum is preserved.

At the moment, notices are issued only when an employer does not comply with a civil enforcement notice, not a criminal one. Clause 9 replaces that with a notice of underpayment that applies the penalty for non-compliance with the national minimum wage. The criminal prosecution regime is totally separate from the civil one and, as required in Clause 9, will apply only in the small minority of cases where there is criminal conduct. The specific answer to the noble Baroness’s question is two.

Lord Campbell of Alloway: I did not wish to speak until I had heard what the Minister was going to say. How grateful we are that he is not in the Caribbean or somewhere, because some rather important amendments require his attention.

This business of the minimum wage has become a kind of mantra—a tiny one, not of great importance—in the Bill. I wonder whether it should be there at all, particularly having listened to the speech about criminality. The Bill is not about putting people in prison, or keeping them out of it. I support my noble friend in opposing the clause.

Lord Jones of Birmingham: The thrust of my argument is that we have to get the—I hope, rarely pursued—criminality provisions in kilter with the current, successfully working civil aspect of the National Minimum Wage Act. By the way, I was not in the Caribbean, but Saudi Arabia. I got back yesterday morning, and I am off to Thailand next week.

There have been two criminal prosecutions, both successful. The first prosecution was against Teresa Aguda, sole director of Rascals Day Nursery. Ms Aguda pleaded guilty before Walthamstow magistrates’ court in August last year to a single offence of obstruction, contrary to Section 31(5)(a) of the NMW Act. She was fined £2,500 and ordered to pay costs of £500—this was for a criminal, not a civil, offence. The second case was against Torbay Council. The council pleaded guilty before Torquay magistrates’ court on 1 October 2007 to a single offence of neglecting to furnish information contrary to Section 31(5)(b) of the Act. The council was fined £1,000 and ordered to pay costs of £500. The Act is trying to bring into sync the civil side, where the financial aspect is taken more seriously, and the criminal side, which has fallen behind.

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Baroness Wilcox: I thank the Minister for his reply. The noble Lord, Lord Wedderburn, threw me slightly, because I did not know whether he was answering for the Government or whether I should wait for the Minister. The Minister has not repeated what the noble Lord, Lord Wedderburn, said. I would like clarification from one or both of them. Was the noble Lord, Lord Wedderburn, saying that the Revenue does not have the resources to pursue the cases? If it does not, that must be the answer to the question about why so few penalties were imposed. It would not be a question then of the ability of the offenders to avoid the Crown Court, but one of not having the people to carry out their duties properly. If that is the case, why does one not just make sure that one has the right amount of people to do the right job and leave it as it is?

Lord Wedderburn of Charlton: I cannot answer the noble Baroness’s question to me. My stress was not so much on the penalties for what is plainly a criminal offence as on the worker, who needs to have their arrears paid to them. I support the Bill—of course, there must be heavier penalties and better enforcement through criminal procedures—but I asked that the Minister tell us what more can be done to enforce payment of lost wages to the worker.

2.15 pm

Baroness Farrington of Ribbleton: For the record and for the noble Baroness, Lady Wilcox, I should say that the Minister is replying on behalf of the Government. There will be confusion if the noble Baroness raises the question of whether my noble friend Lord Wedderburn has become a member of the Government.

Baroness Wilcox: I thank the noble Baroness for that most helpful steer. If she had had the pleasure of being in the earlier days in Committee in this Room she would have found that the informality has led to all sorts of conversations. I want to be very sure that I am getting the official view. I have to remember all the time that the Minister is not a member of the Labour Party, and I am therefore not sure if I am hearing the Government’s view or his.

Noble Lords: Shame!

Lord Jones of Birmingham: If anybody is to shout “Shame” for that, it would be me, but I move on. I was going to say that my noble friend Lord Wedderburn does not speak for the Government. He knows that, and I know that. As far as I am concerned, there is sufficient resource for Her Majesty's Revenue and Customs to enforce the new regime. BERR, HMRC and the RCPO are working through the details to ensure that the penalty regime will be a success. Her Majesty's Revenue and Customs has already recruited an additional 20 people this year, and we are working with it to establish the best process to allow it to work effectively operationally.

HMRC has been hampered by its inability to investigate some alleged national minimum wage offences to a criminal standard of proof—that is why

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we need these two distinctions—as it does not have the necessary coercive powers. The issue is not that it does not have the people or the resources, but that it does not have the power to take a case to a criminal court. It has therefore been difficult to prosecute an employer unless employees are willing to testify. That has been problematic because of the vulnerability of some of those employees, and HMRC has been forced to abandon some potential prosecutions as a result. The situation has led to the problem, not a lack of resource. I sincerely hope that the noble Baroness, Lady Wilcox, is certain that I am speaking for the Government.

Clause 11 agreed to.

Clause 12 [Powers to investigate criminal offences]:

On Question, Whether Clause 12 shall stand part of the Bill?

Baroness Wilcox: Like my probing stand part debate on Clause 10, this debate is to explore whether it is necessary to endow HMRC compliance officers with such extensive powers. As noble Lords know, the recent changes that saw Her Majesty’s Customs and Excise and the Inland Revenue formed into one organisation have led to a complex array of different powers for HMRC officers investigating different areas of their remit. The Commissioners for Revenue and Customs Act 2005 was right to ring-fence what powers HMRC inherited from its predecessors. However, it is noticeable that only three years later the Government are attempting to extend those powers into a new area. PACE powers, which are set out in the Police and Criminal Evidence Act 1984, are considerable. They were extended to HMRC’s fiscal functions by the Finance Act 2007. This small Bill extends them beyond that. I believe that this is the first time that such extensive powers of investigation and enforcement have been awarded to HMRC outside fiscal areas. Can the Minister confirm that when he responds?

Do the Government have any plans for adding to this regime any other matters that HMRC currently enforces with a lighter touch? I am aware that these provisions have been widely welcomed by outside lobby groups, but in this House we have the privilege of being more immune to the pressures of short-term expediency than might be the case elsewhere. Such large increases in powers should not be passed without scrutiny and should certainly not be welcomed without a real body of evidence to show that the new powers are both necessary and proportionate. I hope that the Minister will be able to reassure the Committee that there is a very real need for this massive extension of investigative power and that this is not the start of an inexorable expansion of HMRC’s powers over more and more matters.

Lord Campbell of Alloway: I support my noble friend. On this occasion, I do not have to hear what the Minister says. If one looks at the Long Title, one sees that the Bill has absolutely nothing to do with the criminal law. I know that the noble Lord has to alter the Title for one of his amendments, but surely he does not have to—

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Lord Wedderburn of Charlton: Has the noble Lord omitted to notice that the Long Title says,

That legislation is the National Minimum Wage Act 1998, if I am not mistaken, which includes criminal proceedings.

Lord Campbell of Alloway: I should be very careful not to trespass into too many arguments with other sides of the Committee. This clause has nothing to do with what the Bill is about. As I said before, the Bill has nothing to do with criminal offences—it should have nothing to do with that at all—and I object to it on those grounds.

Lord Borrie: A substantial chunk of the Bill is headed “National minimum wage”. As my noble friend Lord Wedderburn has quoted, the middle of the Long Title says,

No one can deny that “enforcement” may include criminal offences and the detailed provisions of the Bill make it clear that they do. I fear that the noble Lord, Lord Campbell of Alloway, with all his experience, has missed a trick on that.

Lord Jones of Birmingham: One often reads in newspapers about my purported or suggested, and highly erroneous, views on the national minimum wage. It is always said that I was against it when it came in. I was not actually at the CBI when it came in, as I often say. I was not asked for my opinion, and if I had been, I would have said that it is a very good thing, but only if set at the appropriate level.

The dignity of work is what is important, and the right to have a safety net. What damages the economy is if the minimum wage is set too high or if one vested interest gets its way in an unbalanced manner. I have never been against the minimum wage, but I have been against it being set at too high a level. Why do I repeat that? Because to be successful it needs, as with all legislation, to win the respect of those whom it affects. In that respect a successful implementation has to have, on the one side, the proper level and, on the other side, the ability to enforce it. Very few people flout the legislation, but when it is flouted the people who are hurt are the employees. The Committee will notice that I do not use the word “workers” as I do not understand why that word should be attached to one group of people who contribute to the economy and not to another. Not only do employees suffer from flouting of the legislation, but so do all the very good employers in the country who behave themselves, but who see others down the road in a competitive environment not behaving themselves. They deserve protection from equality enforcement, as do the employees who are also being ripped off. At the end of the day, a system of regulation or law cannot work if you cannot resort to the enforcement of criminality.

It is important that Her Majesty’s Revenue and Customs has the power to investigate effectively allegations that offences have been committed under

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the Act, particularly the most serious offence of refusing or wilfully neglecting to pay the national minimum wage.

During the early years of national minimum wage enforcement, non-compliance was dealt with by civil sanctions, such as enforcement notices, rather than by prosecution of the offences under the Act. That worked well but, over time, a tougher line was needed to deal with those—I repeat, there are few—who continue to flout the law. The then DTI agreed a policy on national minimum wage enforcement and prosecutions with HMRC and the Revenue and Customs Prosecutions Office in May 2006. Additional resources were then allocated so that appropriate cases could be investigated with a view to prosecution.

However, we are concerned that HMRC is being hampered in its ability to obtain evidence of any criminal offence—

Lord Henley: This is very important. As the Minister knows, the Revenue already has pretty extensive powers. I remember when with other colleagues I was taking the Child Support Act—dare I mention it?—through the House many years ago, and we tried to give similar powers to child support officers as the Revenue already had. It was pointed out that those powers were very excessive indeed, but historically that the Revenue and Customs had always had those powers. The noble Lord is trying to extend the powers that the Revenue has in terms of entering properties without magistrates’ consent, and all that. Would not existing powers that, for example, the Inland Revenue used to have, which were slightly less than those the Customs and Excise had, be more appropriate?

Lord Jones of Birmingham: I am very grateful to the noble Lord, Lord Henley, for using his crystal ball. If he had sat down for one more moment I would have got to precisely that point. Let me take the Committee to Leicester, to an employee who was threatened with excommunication from her own community if she continued to assist Her Majesty’s Revenue and Customs with its inquiries. HMRC, with its current powers, could do nothing without her testimony. Somehow it had to get to the powers the Bill seeks. It had to be able to use those powers to get the evidence because, frankly, for very shameful but nevertheless real practical reasons on the ground, it was not going to get the help it needed from the employee in question. I repeat: if we are going to get good-quality employers to understand that this is important for them as much as it is for employees, HMRC needs those additional powers.

The noble Lord, Lord Henley, asked whether the powers will be used often. I very much doubt it, but they have to be in the box of tools available.

Based on investigations conducted so far, securing employee testimony in these areas is problematic. Employees face intimidation, physical threats and loss of employment, and in some cases they simply cannot afford the risk. What is the point of having this type of legislation if, at the end of the day, the very people it is designed to protect are the very people who cannot avail themselves of that protection? That is

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why there have been so few actions and why so many potential prosecutions have been abandoned, not because of a lack of resource and not because these new powers would end up increasing them.

The noble Baroness, Lady Wilcox, raised a valid point. I am grateful she raised it because I also feel that it is a worry. She asked whether this was the thin end of the wedge—the slippery slope—and something where we will give the taxman the right to get a foot into the door and then end up seeing the whole body go through the door for other stuff. I assure her and the Committee that we have no plans whatever to increase the powers of Her Majesty’s Revenue and Customs in respect of any other non-fiscal function.

Each case for additional powers must be taken on its own individual merits. Coercive powers in PACE can be used only in respect of indictable offences. Therefore, if the relevant legislation provides for summary-only offences, it will not be possible to apply these powers. For example, Her Majesty’s Revenue and Customs could not use PACE powers in respect of its enforcement of the statutory adoption, maternity—again, I can cover the ground mentioned by the noble Lord, Lord Henley—paternity or sick-pay provisions excluded from the Finance Act, because those provisions do not include an indictable offence.

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