Wages Councils (Hansard, 11 March 1981)

§ Mr. Richard Alexander (Newark)

Wages councils were set up in the 1920s to protect workers from the old sweatshop conditions which existed in those days. When I was a law student in the 1950s, we used to have a law subject called"master and servant". However, we no longer talk in those terms about employees and employers. Labour relations and labour practice have moved on, but we still have wages councils.

In this short debate, I hope to show that, while wages councils might have been a good thing in the 1920s, things are different 60 years later, and they should no longer be a permanent feature of the industrial and commercial scene. Sixty years ago, employees were largely non-unionised and were rarely aware of their rights. That is not so today, yet 34 wages councils still cover about 2.7 million workers—for example, shop assistants, hotel workers and agriculture workers. For them, statutory wage rates are fixed.

As a party, we Conservatives are pledged to ensure less government. It is surely relevant to ask why our small businesses are still burdened with these councils. One fact that is beyond doubt is that over the years awards by wages councils have on average been above the rate of inflation. That is no recent trend. In 1978, under the previous Government, there was a 5 per cent. pay guideline. But, for example, there was a 21 per cent. award to 21-year-olds in the retail stationery trade. That trend has continued. It means that wages council awards not only follow or try to keep pace with inflation but lead it. Last year, there was a 20 per cent. award to workers in licensed non-residential establishments. So it is not only the Chancellor who puts up the price of beer over the years, but it seems that only the Chancellor gets the stick.

In 1981, in almost all industries—that is, outside the State sector—wage settlements have been realistic and well within the rate of inflation. They take into account the employer's ability to pay, but that is the last thing which wages councils seem to consider. Sometimes, they even make more than one award in a year. The retail trades had two in 1980.

I owe an enormous debt to the National Federation of Self-Employed and Small Businesses, whose recent research document,"Priced Out" has prompted me to raise this matter this evening. It has looked into a question to which very few people know the answer—who are these wages councils? Who governs our industry and our enterprise in this way? What are their qualifications to pontificate over our business? Its findings are disturbing.

Originally, no doubt, wages councils were intended to reflect the particular industry concerned, with representatives of the employers and the employees and chaired by an independent member. Unfortunately, their contact with day-to-day business is minimal. The pointy-headed professors, political appointees and quango seekers sit in judgment on businesses they know nothing about. Their very lack of knowledge of business is sometimes accounted to be an advantage when they are selected, but once again it is the small business man, the small entrepreneur, who has to pay for their lack of expertise. I suggest that this is unfair.

981 Even if there are representatives of the industry concerned on the council, they are always the larger employer and the senior trade unionist, whose involvement in the industry is minimal, This means, for example, that a large store owner in London decides the appropriate wage rate for the small shop in the Midlands.

In addition to all this inflation which wages councils engender, in addition to their remoteness and their atmosphere of"jobs for the boys", there is the expense. Last year they cost the taxpayer £280,000 for bureaucracy alone. That figure pales into insignificance when there is added the cost of 300 inspectors and other staff at £2½ million a year. For £3 million a year I suggest that they are an expensive, unnecessary luxury.

They are not only expensive for the State but are costly and often ruinous to the employer, who is bound to comply with their awards, regardless of whether he can afford to do so. I said earlier that sometimes there is more than one award in a year, occasionally back-dated and usually with a minimum of notice, sometimes none.

The Minister must agree that this creates enormous financial problems for the smaller business which already has a cash flow crisis. The result is that businesses have to close, staff are laid off and staff who would otherwise be taken on are not engaged. The increased costs are passed on in the form of increased prices to purchasers, if they can be found.

When businesses are run in this way a hidden sufferer is the potential employee, the young unemployed, women and ethnic minorities. Wages councils have not created one new job in their entire history. Beyond doubt they have either destroyed or denied thousands of jobs. They have eroded differentials in every area where their writ runs.

Their abolition would have no adverse effect on jobs. Let us take, for example, a dress shop run by an employer, with a manageress and one assistant. The shop just might be able to take on an extra young girl assistant, but the wages council award would have to be considered. The employer would wonder whether he could afford it, and usually the answer is"No".

This means that the possibility of taking on another employee is reduced because of the wages councils insisting on unrealistic wage awards. Wage awards for the under-21s in particular have gone up faster than those for adult workers. In some trades—the retail food trade, for example—the adult age has been lowered from 21 to 19. The automatic result is that the employer is reluctant to take on a young person, particularly if he is untrained. The employer is happier to take on an older person who is trained, less likely to leave and of far more use to him, if the differential in the rate is so small. Once again the point must be made that it means that young people are at risk of obtaining no jobs as a result of wages council awards.

A few weeks ago, there was a short debate on this subject in the House. It was argued by an Opposition Member that £57 was not much of a living wage for a man with a family. I agree. However, it is a living wage for a young man or a younger man who has no family and no other prospect of a job. That £57 is usually more than the potential employer can afford. It is excessive and would often cripple him. It would discourage him from taking on more young people.

Would it not be fairer if a youngster on the dole, who receives £23 a week, perhaps received £47 and a job rather 982 than a potential £57 and no job? Wages councils and not hard times are often the culprits for the current youth unemployment figures.

There is a problem in agriculture, with particular reference to agricultural college students. As part of their course, those students must have work experience on a farm, but the Agricultural Wages Council has increased rates of pay. Those rates are inflexible and prevent many farmers from being able to take on a young temporary student, as the farmer is obliged to pay full adult working rate. The wages council takes no account of the fact that the student is already supported by grants and that he needs work experience. The inevitable result is that there are no vacancies for young potential agricultural workers. Only farmers' sons can obtain such employment.

The National Federation of Self-Employed and Small Businesses gave another example of the inflexibility which can arise. A lady wanted to work on Saturdays instead of Fridays because it suited her personal convenience. However, the wages council inspector came in, jackbooted and bowler-hatted, and said that she must be paid time and a half for Saturday working, although it was at her request that she was working on Saturdays instead of Fridays.

Often when a business is in a poor way, the employer can just break even by offering a cut in wages, which the employee is sometimes willing to accept. If he is not, the result is bankruptcy and unemployment. I ask my hon. and learned Friend in all sincerity whether he does not agree that, in these difficult times, particularly for the younger, single person, a lower wage is better than reduncancy or unemployment.

Surely wages councils have no right to permanent existence in the 1980s, well knowing the damage they do to employers and potential employees. They are answerable to no one. Their decrees have the force of law without parliamentary sanction or the intervention of Parliament. There is no appeal. That is wrong. I believe that those councils are now obsolete and harmful, and that they should be abolished. In 1981 they have no continuing justification, apart from promoting bankruptcy, unemployment and inflation. I hope that my hon. and learned Friend will announce their early abolition.

§ The Under-Secretary of State for Employment (Mr. David Waddington)

The House should be grateful to my hon. Friend the Member for Newark (Mr. Alexander) for raising this matter on the Adjournment. I am well aware of the concern which is felt here about the wages council system.

Although one can see the strength of the proposition that where, in an industry, employees are poorly organised and unable to bargain on free and fair terms, there should be some statutory machinery for the fixing of minimum wage levels, it would be quite wrong to perpetuate the system of wages councils if we became convinced either that the system no longer served any useful purpose for the workers involved, or that by raising wages above market levels it was causing a significant loss of jobs.

Few hon. Members would argue that it is more important to ensure a minimum wage in an industry than it is to see that jobs are available. In my view, if there were clear evidence in the case of a particular wages council industry that substantial job opportunities were being destroyed because of the minimum wage levels being fixed, the case for allowing that wages council to continue 983 in existence would be very dubious. People have a right to price themselves into jobs as well as to commit the folly that we see so many committing of pricing themselves out of them.

It seems that three options are open to us. First we could repeal the Wages Councils Act 1979 and thereby abolish the wages councils lock, stock and barrel.

However, that would mean removing the only machinery there is for fixing minimum wage levels, even when—and I am here paraphrasing the wording of the Act—without a particular wages council there would be no adequate machinery for the effective regulation of wages and even when, without that wages council, a reasonable standard of pay would not be maintained.

Wages councils fix only minimum rates of pay. Average earnings can be a markedly different matter. My hon. Friend said that awards by wages councils have been above the rate of inflation, but that is true of wages throughout the economy, which may be one of the causes of our present misfortune. The history of the past five or 10 years is there for all to see. Wages well above the rate of inflation have been paid.

Ultimately one must acknowledge that the implications of wholesale abolition of the wages councils system would be far reaching, and one would have to be convinced that, in spite of known pockets of low pay, the type of protection now afforded by wages councils is not necessary anywhere.

There is a second option. We could amend the Act to provide that certain categories of workers—for example, young people—should be excluded from its provisions. There is concern about young people and the effect that minimum rates may have on their employment prospects in particular.

I have no doubt that negotiators, whether within wages councils or elsewhere, should take great care when settling rates for young people; and I know that concern has been expressed about proposals made by wages councils, particularly by the Retail Trades (Non-Food) Council in this regard. But I must remind my hon. Friend that the trend across the whole of industry—and not just in wages council sectors—has been towards a narrowing of the differentials between the wages of adults and those of young people. In retailing, the norm, where there are freely negotiated collective agreements, is an adult rate of 18.

I am bound to say that I doubt the sense of this development. Indeed, I am not afraid to say that from this Dispatch Box. However, it is not a development that is peculiar to wages councils. Indeed, the Retail Trades (Non-Food) Council, in proposing an adult rate of 19, is behind the trend in collective agreements in the retail trade and is not setting it. Recently the trend seems to have been towards an adult rate at the age of 18.

My noble Friend had written to both retail wages councils mentioning the need to consider the effect of their proposals on small retailers, making particular mention of the employment of young people. I trust that his words will be heeded. The exclusion of young people might have two extremely undesirable effects which have made the 984 problem difficult for those who have had to take the decisions. First, the exclusion of young people might lead merely to others losing their jobs to young people rather than to an increase in the total number of jobs available. One could well understand that situation arising in particular sectors.

Secondly, it might even lead to young people losing their jobs when they reach the age of 18 or 19. At such an age, they would be brought within the wages council system from which, until then, they had been excluded by legislation. The third option open to us is to keep the present Act in being, but to ensure that it is kept constantly under review. My hon. Friend may feel that in all the circumstances there are certain advantages to that course.

I remind my hon. Friend that these councils are independent bodies. They are principally made up of representatives of both employers and workers in the trade involved. One sometimes thinks of them—my hon. Friend has voiced the opinions of many of those involved—as merely the tools of academics. However, that cannot be so. Let us take, for example, those who are represented on the Retail Trades (Non-Food) Council. I understand that 16 organisations nominate people to represent the employers. Among those 16 organisations are the National Chamber of Trade, the National Union of Small Shopkeepers and the British Hardware Federation. Therefore, one would have thought that small traders had an opportunity to be adequately represented on the employers' side of that wages council.

The other temptation is to imagine that wages councils are the tools of Government and that Government impose the rates. Again, that is not the case. I emphasise that the Secretary of State has no power to direct wages council, but that he has the power to keep their activities under constant review, and he can use his best endeavours to ensure that no council continues in existence when it has outlived its usefulness. This I am sure he will continue to do.

My hon. Friend has made some useful and helpful comments which I shall certainly pass on to my right hon. Friend and to my noble Friend, who has had charge of these matters in recent years. I am sure that the wages councils will heed his words. I am not for one moment underestimating the importance of all the arguments that have been advanced by my hon. Friend. In my Department we do not look upon the matter as of little importance. We have taken great note of the representations made by the National Federation of Self-Employed and Small Businesses, with which my noble Friend recently had a meeting. We shall certainly continue to listen with great attention to representations made to us.

As I have already said, one should be ever on one's guard to ensure that individual wages councils do not continue to exist when they have outlived their usefulness. It is our job to keep a vigilant eye on the situation and to ensure that the system is serving a useful purpose. Once it ceases to serve a useful purpose, we shall not hestitate to abolish it.