DETERMINATION OF HOURLY RATE OF REMUNERATION (Hansard, 9 March 1998)

§ Mr. Lansley
I beg to move amendment No. 43, in page 2, line 22, at end insert— 'except that payment by an employer of pension contributions to a recognised pension fund on behalf of an employee shall be treated as part of a person's remuneration for the purposes of this Act.'.

Mr. Deputy Speaker
With this, it will be convenient to discuss amendment No. 44, in page 2, line 22, at end insert— 'except that expenditure made by a employer in respect of training that is wholly or partly attributable to a person shall not be treated as part of that person's remuneration for the purposes of this Act.'.

§ Mr. Lansley
As hon. Members will be aware from their close scrutiny of the Bill, clause 2 enables the Secretary of State to make regulations governing matters that will include, under subsection (4), provision with respect to what is to be treated as remuneration for the purposes of the national minimum wage.
In Committee, we several times tested the Government's intention on what would constitute remuneration for these purposes, and found a surprising lack of specificity. The furthest that Ministers would go was to offer us what was described as an illustrative list of the components of remuneration, which would no more than explain to a good human resources manager what would constitute a list of pay and benefits. One or two specific issues were not covered in detail by amendments, and the debate and subsequent consideration clearly show the desirability, on grounds that I hope to explain, of putting in the Bill the specific treatment of two aspects of remuneration.
192 I shall speak briefly to each of the amendments, because, although they are rightly linked because they relate to the same clause, they are different in their treatment of specific aspects of remuneration. [Interruption.]

§ Mr. Keith Simpson
On a point of order, Mr. Deputy Speaker. Is it in order for hon. Members who are going to or coming from bed to make such a noise while my hon. Friend is speaking?

Mr. Deputy Speaker
Such matters are entirely for the Chair.

§ Mr. Lansley
As I was saying, I hope to speak to each of the amendments. They deal with discrete subjects, but both relate to the same clause and specify direct treatments for aspects of remuneration.
Amendment No. 43 relates to pensions. Hon. Members will observe that it seeks to provide that, when an employer makes pension contributions on behalf of an employee into a recognised pension fund, they should be included in that person's remuneration for the purposes of the legislation.
It may be for the benefit of the House to reflect on some of the considerations in the Confederation of British Industry's evidence to the Low Pay Commission. The CBI rightly pointed to the importance of pension contributions as an aspect of remuneration.
The CBI says, for example, that pension contributions are often worth more than 10 per cent. of pay, and that both employers and, indeed, the Government regard such contributions by employers as playing an important part in the establishment in the longer term of a United Kingdom pensions framework and self-sufficiency in pensions.
I know that you, Mr. Deputy Speaker, would not expect me to comment at length on the desirability of self-provision through occupational pension schemes. For the purposes of this debate, it would be reasonable to treat that as self-evident and as a point that is agreed by hon. Members on both sides of the House. The intention of policy should be to maximise the extent to which employees undertake pension contributions that are designed to secure an adequate income in retirement, so that they do not fall back on the Exchequer or the benefit system for a reasonable income after retirement. [Interruption.]

Mr. Deputy Speaker
Order. Many private conversations are going on in the Chamber. Would hon. Members please listen to the hon. Member for South Cambridgeshire (Mr. Lansley)?

§ Mr. Lansley
Thank you, Mr. Deputy Speaker. I was comforted by the fact that, at that moment, at least the Minister of State was listening to me, even if other Labour Members were not. I recognise that, if it matters, the Minister should hear me, rather than other Members, who will do his bidding in this matter.
If we take it as read that the desire of policy is to reinforce rather than to undermine occupational pension provision, what is evident from the CBI evidence—rather than quoting it, I shall render simply my analysis of it—is that there is a significant potential disincentive if pension 193 contributions are put outside remuneration for the purposes of the national minimum wage and if the wage is set at anything above a relatively low level. Clearly, all those concerns are predicated on a discussion of a particular rate, and the CBI's evidence is predicated on the difficulty that would arise if the rate were set "at a high level", as it expresses it.
If the rate were set high, and if, as a consequence, employers were placed under severe cost pressures and needed to consolidate what would otherwise be benefits in kind outside basic pay into basic pay to comply with the national minimum wage rate, employers would not, to the extent that we would wish, be willing to contribute to occupational pension schemes in addition to paying the basic wage rate.
That presents us with a serious problem. If we do not know at this point whether pension contributions will be included in or excluded from the national minimum wage, we cannot assure ourselves as a House as to the overall compliance of that policy with broader policies to secure greater self-sufficiency in occupational pension schemes.

§ Mr. Ian Bruce
My hon. Friend has an advantage over many of us in the Chamber, in that he sat on the Standing Committee. When it got to the regulations, did the Government give any indication as to exactly what they were going to include? Have we had any draft regulations yet that would help the House?

§ Mr. Lansley
My hon. Friend illustrates part of the difficulty that lies behind tabling an amendment of this sort. Although the Government illustrated for the benefit of the Committee—indeed, the Minister was kind enough to give us a note—the components of remuneration, and although they presented the same note to the Low Pay Commission, pensions were listed in a paragraph at the end simply as one of the items that might be included as a benefit in kind. I am sure that the Minister would not suggest that, in presenting such a note, he intended to say that all benefits in kind had to be included.
For example, tips were instanced as a component of remuneration, but the Minister has not vouchsafed his view whether gratuities and tips should or should not be included, and the circumstances under which they should or should not be included. Therefore, we know only—my hon. Friend makes a good point—that pension contributions on behalf of an employee form a benefit in kind that may be treated as part of that person's remunerative package.

§ Mr. Hammond
Watching the Minister's face during my hon. Friend's remarks prompts me to put on the record the fact that, in Committee, the Minister made his personal view on tips very clear. What is not clear is what the Low Pay Commission will recommend.

§ Mr. Lansley
I defer to my hon. Friend, who in Committee tested the Government and the Minister pretty much to destruction on the subject of tips and gratuities. However, we are not discussing that now.
I want to bring my remarks on amendment No. 43 to a conclusion—[HON. MEMBERS: "Shame."] I am surprised; I had thought that the points I was making were self-evident. For some reason, Labour Members seem to 194 think that they are not. Perhaps they will rise and explain why they do not think that my points are self-evident—I think they are.
If the desire is to support occupational pension schemes, we must include in the Bill the provision that employers' contributions should be included in remuneration. Only by that route will we avoid the risk that employers will be under a perverse disincentive to cut pension contributions in order to meet their obligations under the national minimum wage.
Amendment No. 44 relates to training, but its intention is not to determine whether there is a national minimum wage training rate. That is something on which we await advice from the Low Pay Commission and regulations from the Government, using the powers in clause 4 to amend clause 3 by regulation.
We want to follow through the question whether there is to be a training rate, and what the implications would be for training costs incurred by employers. Is there to be a training rate? If the answer is yes, that suggests that that rate is lower than the uniform single national minimum wage rate. If, in addition to a lower rate for trainees, training costs incurred by an employer are also taken into account as part of a trainee's remuneration, the net effect overall will be further to depress the rate of pay for that trainee under national minimum wage legislation.
Unless the Minister or Labour Members suggest otherwise, that would appear to go a long way towards providing a specific disincentive to someone to take up a training post, as opposed to one which has no training but which might attract the full hourly rate for the national minimum wage.
If, however, there is not to be a training rate, what will be the consequences? Paragraph 66 of the Government's evidence to the Low Pay Commission—which I recommend to hon. Members who have not had a chance to look at it—states clearly their view that, even if they were able satisfactorily to define trainees for the Bill's purposes, there would be a risk that having a lower training rate would act as a disincentive to people, particularly young people, to enter a training post rather than a non-training post.
If there is no training rate, the logic of the Government's argument flows through into training costs. Likewise, if training costs are fully taken into account in the remuneration payable to a trainee—and we all know that training costs for relatively young and unskilled people who have a skills backlog to make up can be high in proportion to the cost of employment—that will have precisely the same impact, which is to reduce the amount that is available within the headroom of the national minimum wage to be paid as remuneration directly to that employee. That will put us right back to precisely the point that the Government, rightly or wrongly, suggest is the reason why they may not want a separate training rate.
I make the assumption—although I realise that it is not one that the Minister will confirm today—that the Government do not want a training rate. That is why they have gone to the trouble in paragraph 66 to provide so explicit a steer to the Low Pay Commission—that, instead of going to the trouble of trying to define trainees or running the risk of creating a perverse disincentive against establishing training posts, the Low Pay Commission should treat the age criterion as a proxy for training, and apply a lower rate to all those under 26.
195 If that is the path down which the Low Pay Commission goes, and if the Government accept the commission's advice, including training costs in the national minimum wage will provide the precise disincentive to which the Government object. It would be entirely logical within the structure of the Government's own arguments—as presented to the Low Pay Commission and as will be implemented in the legislation—to exclude training costs attributable to a person from the calculation of a national minimum wage.
If for any reason I am wrong in my assumption—[Horn. MEMBERS: "No."] I hear the sounds of Labour Members, who think that it is extremely unlikely that I am wrong; I am grateful for their support in the matter.

§ Mr. Ian Bruce
I wonder whether my hon. Friend has thought about—[Interruption.] I can hardly hear myself speak; I hope that my hon. Friend can hear me. A type of remuneration that could well be coming in the near future is an offer by employers to give employees a specific amount to help them pay back the very large student fees that they will have to pay. Many of them may be low-paid trainees who are just on the minimum wage, part of which may consist of training costs. I wonder whether my hon. Friend has put his mind to that specific situation—which could apply also to people attending technical colleges, who may have to pay for part of their course while they are employed?

§ Mr. Lansley
I am grateful to my hon. Friend. I had not specifically dealt with that point—which reminds me that, with the imposition of tuition fees and the proposed changes to maintenance grants, there has already been a significant reduction in the number of mature students applying to enter higher education. The reductions show, as one would expect, that Conservative Members understand only too well—rather better than Labour Members sometimes do—the incentive and disincentive effects of costs and charges. We may already be seeing the disincentive effects of imposing additional costs in higher education.
In tabling amendment No. 44, I hope to exclude the risk—to which the Government themselves attribute some importance—that those who are contemplating taking up a post with associated significant training costs for their employer will be discouraged from doing so because they will have to live with the consequence of a much lower wage than they would receive if they were to take a different job without training and the long-term benefits of acquiring skills, but which would deliver to them in the short term the single national minimum wage rate.

§ Mrs. May
Does my hon. Friend agree that it would be entirely consistent with the Government's policy of lifelong learning and expectation that people will continue throughout their lives to train and retrain in different skills if Ministers were to accept his amendment No. 44?

§ Mr. Lansley
I am grateful to my hon. Friend, and I entirely endorse her point—which I hope will further encourage Ministers to accept amendment No. 44. The amendment is not remotely destructive, as the Minister has suggested—it is designed to be employee-friendly, 196 and to address the Government's own explicit reservations, as expressed in their evidence to the Low Pay Commission. In a sense, it is designed to reflect not the concerns advanced by Conservative Members—substantially in Committee—but some of those presented to the Committee by the Government, the logic of whose position has not been carried through.
The Government—understandably—have resisted many amendments, saying that they must wait for the outcome of consideration by the Low Pay Commission before making regulations. That is perfectly all right. I am trying to make it clear to Ministers that we do not need to wait for that outcome—that there is a rationale for excluding training costs from remuneration where they are attributable to a person, whether or not there is a training rate in regard to the national minimum wage. The logic applies in both cases, which is unusual.
The argument about pensions is separate. It would greatly enhance the security and comfort of industry if it were made clear now that there is no danger of the broader policy objectives in relation to promoting self-sufficiency in retirement being undermined. I am thinking particularly of low-paid and vulnerable persons who would otherwise be without occupational pension schemes in retirement, and would therefore depend solely on the whim of future Governments regarding the benefits system.
The Government have said that they want to free people from that, through stakeholder pensions and the like. If we can help the low-paid not to rely wholly on benefits when they retire, and create a structure that is not potentially inimical to the provision of occupational pensions for low-paid employees, that too will be an advantage.
On that basis, I commend the amendments.

§ Mr. Ian Bruce
I am in two minds about amendment No. 43, which was tabled by my hon. Friend the Member for South Cambridgeshire (Mr. Lansley). Hon. Members will have noted that I have not countersigned it, although many amendments have been tabled by us jointly—by a South Cambridgeshire-South Dorset axis.
Let me first observe what the hon. Member for Lincoln (Gillian Merron) mistakenly understands to be the rules of the House, and declare an interest. The issue affects me personally, and has nothing to do with what the hon. Lady was rather foolishly engaged to do on behalf of Whips and Ministers. It is the Stepford tendency. I do not accuse Labour women so much; it is generally the men who do things without understanding the rules.
I am currently a director of a company, which pays only a small pension on my behalf. I do not take a salary, and I think that is important. I also advise the Telecommunications Managers Association. As I am going to describe something that happened to some of its directors, I thought that I should make that specific declaration.
I feel that I should draw attention to a problem with my hon. Friend's amendment, because the Minister will decide on regulations, or regulations will be decided on later. I refer to whether we want a pension contribution to signal that someone is receiving an income—whether a provision in the Bill saying that a pension is part of income can trigger a requirement for someone to do something that Ministers may not have intended.
197 I am simply saying that many people—particularly directors, but I am not going to repeat the arguments—do not receive a salary from a limited company, but some form of pension contributions are being made on their behalf. I shall not stray too far from amendment No. 43, which refers specifically to pensions, but clearly any other benefit in kind could trigger a situation in which someone becomes an employee according to the provision. I simply flag that up.
I wanted to tell the House about the Telecommunications Managers Association, which has a number of volunteer directors. Although they have portfolios, they work totally voluntarily. When acting on behalf of the TMA, they may be publicly liable. Therefore, quite rightly, the TMA decided to take out public liability insurance for them. The Inland Revenue then decided that they should be treated as employees of the company. It is a relevant issue, and I am sure that you, Mr. Deputy Speaker, know why I am raising it.
Any benefit in kind covered by amendment No. 43 might trigger something that the Minister does not want to trigger in respect of people who are not employed in the normal way. The Minister of State was trying to insist that someone was not an employee because they did not have a contract of service and were working voluntarily; however, they could still be caught by the regulations and by amendment No. 43..

§ Mr. Boswell
My hon. Friend the Member for South Cambridgeshire (Mr. Lansley) is to be commended for introducing the amendments. They are an example of the focused approach that he and my other hon. Friends have applied consistently in Committee and on Report. The amendments do not represent a blanket solution. Having thought about the issues, my hon. Friend is proposing two different solutions—an inclusive one for pensions and an exclusive one for training. I hope that the Government will not sling the charge that we are trying to include everything in order to depress the real value of the national minimum wage that they intend to introduce.
On the pensions side, I agree with my hon. Friend that pensions are, and should be treated as, deferred pay. As he has said, they are a major cost element in the total remuneration package—one which is even greater thanks to the Government's imposition of an unwelcome pensions tax which has considerably increased employers' costs.

§ Mr. Ian Bruce
Before my hon. Friend leaves that point, I am sure that he knows that the European Court has already ruled that pensions are part of pay. That was the problem we had about men getting a lesser pension benefit than women. It was why the Barber judgment resulted in our having to change the retirement age for women.

§ Mr. Boswell
Precisely; although whether it would carry across into the context of the minimum wage is a separate issue which Ministers will no doubt be considering.
On the training side, again I agree with the proposals of my hon. Friend the Member for South Cambridgeshire. I have a rather personal reservation about what might be called the quantum approach to training—the number of 198 hours of entitlement—as I do about counselling. I am not sure whether personal activities should be treated in such a mechanistic way. In any case, there is a real difficulty conceptually in imparting a market value to training. Should it be by reference to the cost of provision and how should that be determined? Should it be at the margin or the average cost or by a commercial counterpart bidding for the service? Would it be necessary for an internal operation to have to work at arm's length in order to establish a transparent cost of training?
I very much agree with my hon. Friend that it would generally be desirable to encourage training by disregarding it for the purposes of the national minimum wage. It is an extremely important activity for the individual worker, in terms of the acquisition of basic skills that he was implying was part of the costs—that is a subject dear to my heart—progressing through national vocational qualifications and others right up to management grades. It is important at all levels of attainment. At the same time—here I add a slight note of reservation—it is important not to structure training in such a way as to create a disincentive to the company to carry it out. In one sense, excluding it from the national minimum wage remuneration package might be said to do that. However, I answer that readily by saying that the training should represent real value to the employer as well as to the employee. It should increase productivity; therefore, it is entirely sensible to draw the balance of distinction as my hon. Friend has done.

§ Mrs. Roche
I shall deal with the amendments in turn. My reasons for not supporting them are the same in each case, but there are differences between them.
The aim of amendment No. 43 is to ensure that the Bill states that an employer's contributions to pension funds on behalf of the employee will count towards remuneration for national minimum wage purposes. That would reduce the cash value of the minimum wage. No decision has yet been taken on the components of the rate.
The amendment would prejudge the Low Pay Commission's recommendations. The Government's evidence to the commission included a table showing some of the components of pay, which has been sent to all members of the Committee. I know that they found it helpful. That illustrates how complex the issue can be. I make no bones about that. That is why we have asked an independent consultative body to examine the issue and come up with recommendations.
There has been recognition this evening by hon. Members on both sides of the excellent job that the Low Pay Commission is doing. [Horn. MEMBERS: "Oh."] The hon. Member for Daventry (Mr. Boswell) was kind enough to praise its work earlier. Hon. Members on both sides also said in Committee that the Low Pay Commission had taken evidence from a full range of employers and employees throughout the country.
Clause 2 will provide the necessary flexibility to reflect whatever recommendations are made.

§ Mr. Lansley
In relation to evidence to the Low Pay Commission and precedent, does the hon. Lady accept that the Agricultural Wages Board has examined pension contributions? It proposes that employers' 199 pension contributions for employees should be included in remuneration and treated as part payment of the minimum wage.

§ Mrs. Roche
Tempting though it may be, those are matters for the Low Pay Commission. I do not want to prejudge its conclusions, as the amendments would. Being overly prescriptive would undermine the twin-track process.
The same objections apply to amendment No. 44, which deals with that part of an employer's expenditure that is attributable to training. The amendment would have interesting effects, but the objection to it is the same, regardless of whether such expenditure counted as part of workers' remuneration: the amendment would prejudge the recommendations of the Low Pay Commission.
I said repeatedly in Committee that clause 2 is an enabling clause—it is not prescriptive. The issue is one for the Low Pay Commission. Both amendments would seriously inhibit the flexibility of clause 2. If the amendments are put to a vote, I urge my hon. Friends to oppose them.

§ Mr. Lansley
I am disappointed that the Minister gave the reply that she had planned before I had moved the amendments. I hoped that I had so constructed my arguments that she might bend and allow at least the amendment on training. I understand that the amendment on pensions would deny the Low Pay Commission the flexibility to come to a different—albeit wrong—conclusion. I thought that I had shown that, whichever way the Low Pay Commission went, the Bill would have provided a reasonable solution.
I am disappointed with the Minister's response. When the time comes, I hope that Ministers and the Low Pay Commission will respond in the regulations to be brought before the House. In view of that, I beg to ask leave to withdraw the amendment.