Low Pay (Hansard, 28 July 1989)

§ Mrs. Alice Mahon (Halifax)
Low pay is not inevitable, it is not necessary and it is in no way a vital component for a successful economy. If it were, Bangladesh would be way ahead of West Germany in the league of economically successful nations. The Government's persistent view that wages at the lower end of the labour market are being held above their true market level, thereby pricing workers out of jobs, is simply not true. The Government's obsession with deregulating the labour market to bring wages down has incurred clear costs in economic and human terms. For workers it has caused low morale, poor living standards, insecurity, poor health and inadequate housing. According to the Low Pay Unit, which uses Government statistics, the Government are achieving some success in depressing wages, as the relative earnings of the low paid were 4 per cent. lower in 1988 than in 1986 when figures were first collected.
Firms caught up in the downward spiral of relying solely on low wages to increase profit have proved it to be a disastrous policy. Those firms often have a very high turnover in staff and their contribution to training and research is virtually nil. Low-wage competition produces uncertainty for individual firms, destabilises the business environment and destroys economic prospects for the future. It has a knock-on effect in the local economy as low-paid workers cannot buy goods produced by other workers and tend to rely more heavily on local authority services. Although low-paid workers pay a disproportionately high share of their wages in taxes, if they pay taxes at all, their taxes represent very small sums, so there is also a loss to the Exchequer.
In 1982 the Government rescinded the fair wages resolution, which instructed Departments to require contractors engaged on Government contracts to pay wages and observe hours and conditions no less favourable than those established for the trade or industry in the district. In 1985 the Government wanted to abolish the wages councils altogether, but because an election was on the horizon they settled for seriously weakening the wages councils by amending their powers and taking away protection for young people under 21. Wages councils were also no longer allowed to set minimum holiday entitlements for the workers in the industries they covered.
The Government engage in doublespeak when they talk about the market finding its own level and claim to be a non-interventionist Government, when in fact they intervene on a massive scale with family credit, which clearly subsidises inefficient and mean employers. The other side of the coin, which is even more negative, is that it is the least popular benefit. Low take-up is endemic, mainly because of the stigma attached to claiming it. People on low pay do not want to be seen to rely on Government handouts and would much prefer to earn a decent living wage.
The Government, in their push to abolish wages councils, have consistently refused to produce any real evidence. The only evidence that they have cited in maintaining the link between low earnings and employment growth was the Treasury model, in its paper, "The Relationship between Employment and Wages". That was 1483 referred to in the 1985 consultative document on wages councils. In that document Treasury officials admitted in relation to the fixed model that the simulation results depend critically on a system of adjustments which is entirely arbitrary and has no empirical basis Even the Financial Times, which is usually reasonably sympathetic to the Government, said in its edition of 13 May 1985: The Government have frequently given real wage increases as one of the causes of high unemployment and argued that lower pay was needed to price people back into jobs. However, the figures show that real take-home pay of the poorest single workers fell by nearly 6 per cent. in the three years to April 1982. A period during which unemployment was rising most rapidly. Paradoxically, despite pinpointing real wage rises as a significant barrier to employment, the Government recognised in the consultative document accompanying the White Paper, "Employment for the 1990s", that since 1986 the rates of youth unemployment has declined dramatically"— at the same time as young people's earnings have— continued to rise". It seems that the Government cannot make up their mind.
During the 1980s the Government have also set out to render the wages inspectorate impotent by cutting the numbers of inspectors from 120 in 1985 to just 71 today. That means that there are 106 fewer inspectors in post than in 1979.
In June another excellent report was produced by the Low Pay Unit entitled, "Undervalued, Underpaid and Undercut", and saying that The numbers of firms found to be committing the criminal offence of minimum wage underpayment has leapt by 26 per cent. in the past year. The chances of prosecuting for that criminal act are small as only 51 of the 89,000 firms caught between 1979 and 1988 were prosecuted. More than 88,000 were never taken to court. That shows that the Government are ambivalent about their commitment to law and order.
The Government's commitment to fining firms which underpay is a joke because they do not have enough inspectors at the Department of Employment. The Government now send out a postal questionnaire to smaller firms. The 1988 consultative document on the abolition of the wages councils was the last to be published by the Government and it is a slim and inaccurate document. On page 7 the Government say: If the reply indicates that there may be an underpayment, or if no reply is received, an inspection visit is carried out. Where the reply shows that no workers are underpaid, no visit is made, except for a 5 per cent. sample selected for a visit to monitor the validity of the postal inquiry method. That is not good enough given that the law-breaking firms owe their combined work force a total of £1.3 billion. How many small firms have filled in the postal questionnaire in each year since its introduction?
In 1985 the Confederation of British Industry voted by three to one in favour of retaining the wages councils. Then, as now, almost every response ranging from trade unions to churches was hostile to the abolition of the councils. As I have already said, a general election was on the horizon and the Government ran away.
The 1988 consultative document on the abolition of the wages councils uses many of the same arguments about workers pricing themselves out of jobs with one or two new ones thrown in for good measure. A firm in 1484 Calderdale, FKI Babcock, employs many low-paid workers. Recently, one of FKI Babcock's home workers visited me at my surgery. Home workers who work for that company are given kits of electronic components to assemble. They were arbitrarily told that the price of assembling those kits was to be halved, in the interests of efficiency. The woman who visited showed me written evidence. She had previously been paid £71 for assembling a kit—low pay, but that is the norm for home working—but in future she is to be paid £38. Meanwhile, Tony Gartland, the managing director of FKI Babcock, is to earn £773,000 this year, because he has just given himself a 250 per cent. increase in salary and bonuses. The company's pre-tax profits have risen by 122 per cent. to £108 million.
I ask the Minister to look at the massive increase in profits in the hotel and catering sector during the 1980s. The consultative document implies that wages councils were keeping wages higher than the market could afford. Greedy directors are a far bigger problem than low-paid workers. Those captains of industry—the good and the worthy—who are giving themselves huge pay increases and who have failed to invest in training and research, are being put in charge of training enterprise councils. Tony Gartland is one of the good and the worthy. He will be in charge of one of the TECs in my constituency—that is an absolute scandal.
On page 5 of the consultative document, the Government argue that 55 per cent. of workers covered by wages councils work for organisations that have established collective bargaining. It is sheer brass neck for the Government to try to treat unions sympathetically to win an argument when for years they have tried to smash the unions and any form of collective bargaining. The Government's arguments are fatally flawed. They have difficulty in following to a logical conclusion their thought processes in the document.
Because of high unemployment, the Government's union-smashing policies and some undemocratic laws, the number of workers covered by principal national agreements has fallen by 30 per cent., from 8.5 million workers in 1979 to only 5.9 million now. The Government admit in their document that two thirds of the 2.5 million workers who are still covered by wages councils work part time. The majority are women and those who work in the hotel and catering sector account for 39 per cent. Those groups have the smallest trade union membership in any industry. Women and part-time workers tend not to join unions and are discouraged from doing so. Hotels arid catering services are notorious for not having unionised workplaces. Small firms often employ on a casual basis. It is a fiction that national agreements and trade unions can protect those vulnerable groups of workers.
I hope that the Minister will give evidence to support the statement on page 5 of the consultative document that since young people ceased to be covered by wages councils in 1986 their earnings have not plummeted but have continued to rise. At the same time the rate of youth unemployment has declined. I come from a low-paid area in Halifax, a town which has the dubious honour of being the low pay capital of west Yorkshire, which is the lowest paid area in the country. The West Yorkshire Low Pay Unit has asked the Minister to carry out some research. It has sent me examples of 1485 what has been happening to young people since the abolition of the protection provided for them. The Low Pay Unit referred to the following job: A receptionist offered £2 per hour to work shifts—morning, afternoons and evenings—in a busy town centre hotel. Duties involve checking guests in and out, cash handling, using a busy switchboard and a computer; reception experience required; age 17 to 20. If the wages council had still covered young workers, a 17-year-old could have expected the princely sum of £1.60 in a licensed hotel. However, a worker aged 18 or over would have been entitled to a minimum rate of £2.12 an hour. They are not paid shift allowances and their conditions have got much worse because this vital protection has been removed.
The report also highlighted the case of a 19-year-old working in a fruit and vegetable shop. On 26 April 1988 he was earning £1.85 an hour. If still covered by the retail food wages council, his hourly rate would have been £2.33. A 16-year-old working all day Saturday in a supermarket was being paid 50p an hour on 29 April 1988. If still covered by the retail food wages council his hourly rate would have been £1.47. Those are disgraceful rates of pay by any standards—even compared with pay under the wages councils, which never set high rates of pay. Such salaries now are virtually criminal.
The Government omit to mention that the number of school leavers has fallen. There will be more than a million fewer 16 to 19-year-olds in 1993 than there were in 1983. And we have got used to the Government not mentioning changes in the way in which unemployment is calculated, particularly by excluding those on schemes.
If, as seems likely, the Government go ahead with their proposals to abolish the wages councils—the only minimum protection for 2.5 million of the lowest paid workers in the country—despite widespread opposition from employers, unions and other organisations, we shall be the only EC state with no legally enforceable wage protection and we shall be in breach of the universal declaration of human rights, the European charter and the treaty of Rome, which called for member states to promote improved working conditions and an improved standard of living for workers". United Kingdom wage rates are already relatively low compared with high-pay, high-productivity countries such as Germany and France. It is unlikely that other member states will stand by and allow the United Kingdom to engineer competitive advantage by wage cutting. They do not want the Third world society that would emerge from such a battle. I imagine that there will be great pressure on the Government to acquiesce in the European social charter.
I am sure that the Minister will say that most employers favour abolition of wages councils, but a large number of important employers—some of them the Government's paymasters—are not convinced about abolition.
I still have another 10 minutes and I could easily go on for that long, but I shall conclude by quoting from the Low Pay Unit's recent press release which contained a report on the responses to the Government's paper. The Government say that they have received almost 400 responses to their proposal to scrap the wages councils. The Low Pay Unit survey comments that none of the responses from the churches, charities voluntary organisations and trade unions favoured abolition. Amongst 1486 the 24 employers' organisations who sent their responses to the Unit, those in favour of retaining the minimum wage system outnumbered those in favour of scrapping it by two-to-one. Those opposing Government plans included the CBI, the Institute of Personnel Management and the British Institute of Management … Employers are concerned that people should not be subject to exploitation and that the social security system should not be used to subsidise low wages. There is also a belief that wages councils improve industrial relations and a scepticism about the Government's claim that the abolition of the wages councils will lead to the creation of more jobs. It is worth quoting one or two of the various employers' organisations. The British Independent Grocers Federation disagreed fundamentally with the Government's assertion that wages councils were a barrier to employment growth, saying that there is no evidence in the Consultation-Document, or elsewhere for that matter, to support that contention. The National Federation of Fish Friers made a statement worthy of any trade union: It is our view that if a business has to rely on cheap labour to be successful and profitable there is something wrong with the management. I have already quoted the British Institute of Management, which also said that to suggest that the social security system should be the support structure for low-earners, at a time when the so-called poverty trap remains unresolved is unhelpful to managers seeking to encourage people into legitimate employment at realistic wages". In a debate the other evening on social security regulations, the Minister refused to give an undertaking that those who are now forced under the new regulations to take work for which they believe that they are not suitable or trained, would not be forced to go to an employer who paid illegal wages. That is disgraceful.
The Government will get away with whatever they can. Their real purpose in abolishing the wages councils is to allow even lower wages than at present. I carried out a little research among employers. I had asked the Minister a question about employers, but it was like extracting teeth; it proved very difficult to get straight answers from the Department.
Among the responses from 68 employers' organisations, almost half were opposed to abolition of the wages councils. Some of those who supported the abolition of the wages councils felt that the weakening of the wages councils in 1986, which they opposed, was the main reason for them to support abolition now. Clearly some employers favour abolition because that would allow them to exploit their workers even further.
I had some wonderful quotes from employers. To its shame, the National Federation of Self Employed and Small Businesses said: The removal of Wages Councils would mean that the most deserving groups of employees would be able to start pricing themselves into jobs and that new and more flexible contractual arrangements could be introduced into the service industries. The British Retailers Association referred to "inflationary minimum rates". As we are talking about £2 an hour, that is a clear sign that in an area with high unemployment some employers intend to get away with poverty wages and highly exploitive conditions of employment.
Wages council rates leave a great deal to be desired. However, in the absence of any legislation giving people the right to a minimum income, they must be maintained to prevent wholesale exploitation. The vast majority of 1487 those responding to the Government's consultative document took that view. I hope that the Minister will convey to the Government the fact that there is real opposition to the plans to abolish the wages councils. I ask the Government to drop their proposals and instead to strengthen the wages councils so as to provide real protection for the lowest paid, who deserve nothing less.

§ The Parliamentary Under-Secretary of State for Employment (Mr. Patrick Nicholls)
The hon. Member for Halifax (Mrs. Mahon) graced our deliberations today with a speech showing her usual and characteristic charm and generosity of spirit. In the very few moments that she has been kind enough to leave to me I shall do my best to answer at least some of the points that she has raised. I will deal with the wages councils, but, due to lack of time, I shall not be able to deal, as I had intended, with the general argument about low pay.
A point that is consistently ignored in these debates is that the economic and social situation today is vastly different from that in 1909 when the wages councils system was introduced. Average pay is far higher and hours worked per week some 10 to 15 fewer. The country also benefits from a comprehensive system of social security protection for those both in and out of work.
It is significant also that two thirds of wages councils workers are paid above the minimum and that the majority of wages councils workers work part-time, many of them contributing a second income to the family.
Councils now cover about 10 per cent. of the work force. The system is extensive only in retailing, hotel and catering and clothing manufacture and some other very small industries. It is not comprehensive in coverage. It is riddled throughout with anomalies—laundries are covered, but not laundrettes; and the sale of cooked meats is covered, but raw meat is not.
As the House will recall, the wages council system was reformed and simplified by the Wages Act 1986. The Government were acting in accordance with the wishes of the majority of employer bodies. In addition to reducing councils' powers and removing under-21s from regulation, the legislation attempted to clarify the councils' role as setting minimum rates, not going rates, by requiring them to consider the employment effects of their decisions in areas where workers are generally paid below the national average for their trade or occupation.
In the first year of operation, the average increase imposed by the councils on the previous lowest rate was 8.6 per cent. In the second year, the outcome was an average increase of 6.3 per cent. and settlements in the third year have averaged 6.5 per cent. Earlier this month, at the start of the fourth year, the council for licensed hotels and restaurants has proposed increasing its minimum rate by almost 10 per cent.
Settlements of that order of magnitude hardly suggest that the councils have operated with regard to their clarified remit. Moreover, a substantial proportion of workers covered by councils—probably as many as a third—continue to be paid on the minimum rate. Such clustering of pay levels around a particular figure is evidence that council minimums continue to be above the levels required to fill jobs.
The hon. Lady asked for evidence to be produced that the effect of wages councils was adverse employment 1488 implications. She said that she was unaware of evidence to that effect. I am bound to say that the evidence that the hon. Lady sought was in my written reply to a parliamentary question from her earlier this week. That answer stated: A large body of evidence exists on the implications for pay and jobs of the abolition of wages councils. This includes studies undertaken or commissioned by the Department". I went on to say that the studies had been listed in various parliamentary answers, and I even set them out to help the hon. Lady in her deliberations. I went on to say: Virtually all of the research work on this subject conducted in the 1980s and known to the Department supports the view that removing statutory minimum wage provisions can be expected to have beneficial effects on employment."—[Official Report, 21 July 1989; Vol. 157, c. 390.] That is the evidence that the hon. Lady said did not exist.
Much of what the hon. Lady said was consistent, bat, as often happens with the hon. Lady's contributions in the House and in Committee, it was consistently wrong. I will try to deal with two of the grosser fallacies. She tried to make some spurious capital out of referring to the prosecutions that had been mounted by the wages inspectorate over the years, and she referred to questionnaires. On prosecutions, the hon. Lady's attitude is that all things under Conservative Governments are wicked and all things under Labour Governments are good. That is a view of history that probably would not disgrace Noddy in Toyland. If the hon. Lady wants to conduct the debate in that way, and experience shows that she does, there is a slightly better ratio of prosecutions to underpaying employers under this Government than under the Labour Government. The hon. Lady referred to questionnaires—again, more evidence of her Ladybird economics—as a dreadful thing, apparently drawn up by the wicked Tory Government. I have to tell the hon. Lady—she can giggle her way through this if she will-that those questionnaires were introduced by a Labour Government.

§ Mrs. Mahon
Will the hon. Gentleman give way?

§ Mr. Nicholls
No, I will not give way. The hon. Lady has had more than her fair share of the time available.
She should look at the response to the questionnaires. Ninety-five per cent. of them were completed accurately, and if they were not, there was a follow-up and a full inspection.

§ Mrs. Mahon
What about inspector numbers?

§ Mr. Nicholls
The hon. Lady chirrups from a sedentary position, "What about inspector numbers?" From her extensive research into the matter, she must surely be aware that the operation of the wages councils was substantially clarified in 1986. It was made a great deal easier, and the regulations were made a great deal simpler. I do not expect the hon. Lady to approve that—that would be asking too much. It meant that the work of the wages inspectors could actually be concentrated on carrying out a much narrower remit. To suggest that there was any loss of enforcement, where it was still necessary under the law, was quite wrong. The hon. Lady cannot grasp, no matter how many times Ministers try to get it across to her, that she is concerned only about low pay. In the real world, the issue for many of our constituents is not low pay but no job. The hon. Lady cannot understand or countenance that for many people the first step back into the labour 1489 market is a low-paid job which leads on to something better. A low-paid job for a person who has been out of work means a better passport in the labour market. That is the reality, but the hon. Lady is a complete stranger to reality.