§ 7.29 p.m.
§ The Minister of State, Department of Trade and Industry (Lord Clinton-Davis)
My Lords, I beg to move that the Bill be now read a second time.
It is a great privilege for me to launch today what I hope and expect will be an interesting and constructive debate on one of the Government's flagship policies: to 1027 introduce for the first time in this country a statutory national minimum wage. I add, not exactly in parenthesis, that I am extremely pleased to welcome to the Opposition Front Bench on this occasion two much admired, well liked Members of this House, the noble Baronesses, Lady Miller of Hendon and Lady Seccombe. I enter no caveats about their appearance on the Opposition Front Bench except that I expect them to support the Bill to the hilt! I shall proceed by giving a brief summary of the Bill. Broadly speaking it sets up a legislative framework—
§ Lord Strathclyde
My Lords, before the noble Lord explains the Bill I hope he will not mind if I introduce a hint of dissent. It is now half-past seven and the noble Lord is introducing one of the most important Bills that the Government are introducing during the course of this legislative Session. We were told that this Bill would start at around six o'clock this evening. There are 18 speakers. That means this debate will probably not finish until between 10.30 p.m. and eleven o'clock. Apart from those who are to speak in the debate, the House is relatively empty. Does not the noble Lord think that he owes the House an explanation, and indeed perhaps even an apology for not having organised the business in such a way that we could start the debate earlier?
Is it not a reflection on the Government that they have so organised their business as not to be able to discuss this Bill at prime time after Questions on a normal day? It will not have escaped the notice of the Minister that half-past seven is normally the time that we adjourn for dinner. What arrangements have been made to feed noble Lords who will take part and listen to the debate? The noble Lord, Lord Clinton-Davis, will know how much we, the official Opposition, have sought to co-operate with the Government ever since they came into office last May. We have done so not just to the letter of the law but also to the spirit of the law. I hope the noble Lord will convey to the business managers that although we have sought to co-operate in the past, after this evening's performance it will be considerably more difficult to do so.
§ Lord Clinton-Davis
My Lords, first of all, as to the dinner arrangements I have had mine, and so has the noble Baroness, Lady Seccombe, who ate with me. We have a crowded Back-Bench here.
As to the substance of the point that the noble Lord makes, of course he knows that I am not in charge of the usual channels. If he has a complaint to make, I am sure that he will make it in the appropriate manner. We had a Statement which did not involve all the Members of the House who are present now. I do not think I can usefully comment further. I think the noble Lord will be aware that those on my Front Bench read Hansard and they will read what he says. I have no doubt that he will communicate directly to the Government Whips his concerns about the matter. I hope that we are not to construe what he said about future business as a threat; he is too benign for that.
1028 I was about to embark upon a brief summary of the Bill when I was so inappropriately interrupted. I see that the Chief Whip is leaving the Chamber; obviously he intends to eat his dinner now.
The Bill sets up a legislative framework for a national minimum wage expressed as an hourly rate and applying to all workers in this country. It provides a power to establish a statutory low pay commission, and to treat the report of the existing Low Pay Commission as if it were the report of the statutory commission. The commission will recommend a rate for the national minimum wage, as well as how to calculate a worker's hourly pay for minimum wage purposes, and what reference period should be used in making this calculation. In addition, it will consider whether there should be any different rates or exemptions for young people below the age of 26, and for those such as trainees above the age of 26.
The Secretary of State will set the rate and any different rates or exemptions through regulations once the commission has reported. If she departs from the recommendations in any way, she must lay a report before Parliament giving her reasons for so doing.
The Bill also sets out various enforcement measures including the power to appoint enforcement officers and the creation of criminal offences, and imposes a duty on the Secretary of State to publicise the minimum wage. It also ensures that the minimum wage legislation interacts with existing legislation on minimum agricultural wages, so that all agricultural workers will be covered by the national minimum wage in addition to their existing regime.
I shall now briefly explain how the Bill works by running through the various parts of the Bill in rather more detail. We have of course provided detailed Notes on Clauses for those noble Lords who wish to become even more expert in the subject. We welcome the contributions that they may make not only in this debate but at later stages.
Clauses 1 and 2 are key clauses. They establish a worker's right to the national minimum wage and give the Secretary of State the power to make regulations which set and adjust the national minimum wage, determine any pay reference periods and determine how properly to calculate a worker's hourly rate.
Clauses 3 and 4 give the Secretary of State the power to make regulations which exclude or provide a different rate for those under 26, and to add others to this group who are over 26, such as trainees which I have already mentioned.
Clauses 5 to 8 provide a statutory framework for the low pay commission. The Secretary of State must refer particular matters to the low pay commission before first setting the national minimum wage. She has to at any future time refer matters to the low pay commission. The low pay commission must have regard to the economy of the United Kingdom and competitiveness in preparing its reports. The existing, non-statutory Low Pay Commission is—as I have already indicated—to be treated as if it were the statutory low pay commission.
1029 Clauses 9 to 12 deal with record-keeping. The Secretary of State may make regulations requiring employers to keep records which workers will have the right to inspect, and giving workers a right to a written national minimum wage statement when they are paid. Clauses 13 to 22 deal with enforcement. The Secretary of State may appoint officers or use the officers of another department or Crown body, to enforce the national minimum wage. The powers of such officers are set out. The clauses provide for information exchange between enforcement bodies for national minimum wage purposes, including arrangements with agricultural wage enforcement officers.
Enforcement will be achieved through two routes. First, any worker paid less than the minimum wage will have a contractual right to recover the difference between what he has been paid and the national minimum wage by going to an employment tribunal or any other appropriate civil court. This reflects the existing right to recover underpayments. Secondly, enforcement officers can issue an enforcement notice requiring an employer to pay the national minimum wage. Officers will be able to follow this up with a financial penalty if an employer fails to comply.
Clauses 23 to 27 make it unfair to dismiss a worker or take detrimental action against him on the grounds that he qualifies or will qualify in the future for the national minimum wage. A worker is also protected from any action against him for asserting his rights under the Bill.
Clauses 27 to 30 deal with proceedings for civil cases. This includes a reversal of the burden of proof in all civil proceedings, so that the onus is on the employer to show that an individual making a claim is not entitled to the minimum wage, or has in fact been paid it. ACAS has a conciliation role in tribunal cases involving the minimum wage.
Clauses 31 to 33 deal with offences. There are to be six criminal offences, the main one being the refusal or wilful neglect to pay the national minimum wage. The others relate to obstructing an investigation and failure to keep records. A person guilty of one of these offences will be liable to a fine of up to £5,000.
Clauses 34 to 45 clarify the position regarding particular classes of people. Agency workers and homeworkers who may not otherwise be "workers" as defined in the Bill are given the right to the minimum wage. This is in line with the Bill's inclusive approach. The Bill also covers Crown employees, staff of the House of Lords and House of Commons—they are to be treated on exactly the same basis—and mariners in UK-registered ships provided they normally reside in the UK. The Bill can be extended to others, including offshore workers. The Bill does not apply to members of the armed forces; share fishermen; genuine volunteers; or prisoners.
Clauses 46 and 47 ensure that agricultural workers receive at least the national minimum wage as part of any agricultural minimum rate and make various 1030 adjustments to ensure a smooth interaction between the national minimum wage and the agricultural minimum wage regimes.
Finally, Clauses 48 to 56 are miscellaneous and supplementary. The most significant is the clause which has the effect of preventing a worker and employer from agreeing to a level of pay below the national minimum wage. These clauses also cover publicity for the national minimum wage, deal with the regulation and order-making powers—most of which I think the House will be pleased to know, are subject to affirmative resolution—and define the terms used in the Bill.
I hope that this outline is sufficient to give noble Lords an overall picture of the Bill. Its purpose is straightforward. It is to mount a direct attack on the scandal of low pay and in-work poverty which exists all too often today. The minimum wage which it will introduce is to be established on principles of universality, clarity and simplicity. As my right honourable friend the Chancellor of the Exchequer said during the debate in another place on the Queen's speech:Only a minimum wage will provide the sure foundation for the tax and benefit reforms that we shall introduce to make work pay. Far from being a job-destroying measure, a minimum wage is an essential component of a constructive strategy to make work worth while and to create jobs."—[Official Report, Commons, 20/5/97; col. 544.]The priority of that policy is underlined in much that the Government have already done, and in what the Chancellor has already taken forward in his Budget. It is a priority policy. We are very proud of the policy which we put clearly before the electors and on which we fought and won the election beyond any doubt whatsoever. I submit that the policy is right; it is fair; it is just and it is sensible.
The time is overdue for a minimum wage to be introduced. Our reasons for doing so are based both on social and on business grounds and I submit that the rationale may be considered from the workers' and the employers' points of view alike. For workers, together with tax and benefit reform, it can promote work incentives and form part of a strategy to "make work pay". By removing the worst cases of exploitation, it can ensure greater decency and fairness in the workplace. Too many people are paid too little. We need to raise their earnings and their earning power. We have made the introduction of a national minimum wage a top priority and it will set a floor of decent pay for everybody.
What we shall achieve through the Bill will contrast strongly with what went on in the previous 18 years before we took office, during which there was a constant erosion of the rights and security of workers, most notably, so far as concerns pay protection, involving the abolition of the wages councils which had protected the wages of large numbers of people in some of our lower paying industries.
Statistics tell us that the minimum wage will be of particular benefit to women and ethnic minorities. For a number of reasons, those groups are much more likely to be occupying jobs at the lower end of the pay spectrum. Many women have so far been unable to use 1031 the provisions of the equal pay legislation to raise their pay relative to that of men. Those groups will benefit, therefore, from the introduction of a fair and just minimum wage.
The goal that we set before the House is to make our country fit for the 21st century. The labour market our measures will usher in will accommodate the need for change and adaptability, aided by better training and retraining. But the workers in that market will have greater security and greater protection against abuse than they have ever enjoyed; and that is needed.
As well as the overwhelming social justification for a minimum wage, there is an equally powerful business case for having a pay floor legally set. More people will be attracted into work. Firms will be encouraged to invest in developing their staff. Workers will have a greater sense of attachment to and involvement and interest in their firms.
A minimum wage will prevent undercutting on price based on low pay. It should encourage firms to compete on the basis of quality, not just on the basis of price. It will bring an end to the situation, all too familiar, where a responsible employer finds he is being undercut by unscrupulous competitors paying rock-bottom wages.
A minimum wage should reduce staff turnover and encourage training. Rapid turnover of staff in low pay sectors is a key reason why employers are reluctant to invest in training. Research by the Centre for Economic Performance has shown that recruitment costs in sectors with a disproportionate number of low paid workers—the hotel and fast food business—can range from £352 to £686 per vacancy. This is in industries where recruits stay in a job on average eight to 10 months. There is little incentive to train employees if the skills acquired are likely to be lost to the firm.
We shall have a well trained and better motivated workforce—the kind of workforce in which good employers will want to invest. By helping to promote employee commitment, reduce staff turnover and encourage investment in training, the minimum wage will provide a boost to productivity. And that is seriously required in this country. This all adds up to a more competitive workforce and more competitive businesses. That represents one of my department's key priorities. It will make this country not only fairer, but also a more prosperous place in which to live. As both workers and businesses will benefit, so will the economy as a whole.
I anticipate—I hope that I am wrong—that we shall hear in the debate many of the traditional arguments against the Bill. The issue of job losses will no doubt arise even though the large number of studies into minimum wage fixing have revealed no evidence to prove that a sensibly set minimum wage will adversely affect employment prospects.
It is for all those reasons that, although we await the report of the Low Pay Commission, I hope that I have been able to rebut the claim that this Bill is nothing but an empty framework. And, hard on the heels of the job losses argument, I fully expect that we shall encounter the ogre of the "restoration of pay differentials", inviting us to believe that if the pay of a car worker in Daventry 1032 is raised to meet the requirements of the minimum wage, the pay of a car worker in Dagenham will go up in proportion.
It is interesting to note in that connection a recent study by Income Data Services [IDS]. This found that many of the arguments about the potentially damaging effect of minimum wages and the restoration of differentials had been highly partial and prone to exaggeration. It found that many companies were already putting up the pay of their lower paid employees—in advance of the arrival of the national minimum wage—and have not appeared unduly concerned at the costs involved. Even more interestingly, the study found no evidence of pressure from higher-paid workers to restore pay differentials. That provides, I submit, considerable food for thought for those who predicted that firms would lay people off rather than pay them a decent wage.
Of course, we recognise that companies which face competition from low paying competitors overseas face special problems. However, the fact is that the vast majority of workers who will benefit from the national minimum wage are not going to be under the immediate influence of the so-called "global market". Contract cleaners at Manchester airport, for example, where a company is offering rates of £1.30 per hour, are not up against competition from companies operating in Bangladesh or Sri Lanka. In the main it is all about local companies competing in a local labour market in a local economy.
There are those—and this may be articulated in today's debate—who favour a variable rate for the minimum wage, with different levels of minimum pay for different regions, sectors or size of company. Such a variable rate would fly in the face of our goal of keeping the minimum wage as simple as possible; but beyond that there are practical reasons for staying with a single national rate. Our view is that to attempt to aim tailor-made minimum pay rates at particular regions or sub-regions cannot be economically justified. Pockets of relatively low (and high) pay occur in all regions. Regional and sectoral rates would lead to endless special pleading from different groups and difficulties of the "where to draw the line" sort. Finally, we believe that workers for small businesses are entitled to the same degree of protection as are workers in larger undertakings. For all these reasons we reject the idea of a variable minimum wage.
As I touched on before, the Bill provides a power with the potential flexibility to make exemptions for specific narrowly defined groups and young people. We have asked the commission to make recommendations on possible lower rates or exemptions for young people. It makes sense, therefore, for the Bill to include provision for the commission's recommendations to be taken on board—there has to be that measure of flexibility—if that is what the Government ultimately decide. I wish to emphasise that, in the first place, it is entirely up to the low pay commission to recommend whether, and in what circumstances, there should or should not be exemptions. No decision has yet been made.
1033 Of course, it is right to look in depth at the problems of young people. The Government do not wish to see the national minimum wage discourage young people from remaining in education and training, or restrict employment opportunities for those looking for jobs. To fail to consider the options in this area would be foolish indeed. That is why we have asked the commission to pay particular attention to young people and make recommendations accordingly.
Perhaps I may remind your Lordships before moving on that the Government have a number of other initiatives which will benefit this age group. The New Deal for the young unemployed will give young people a number of options to help them escape from the travails of long-term unemployment. These initiatives have a common aim—to help young people get into the workplace, to end their exploitation, and to ensure that they are trained for the challenges of the 21st century.
Clearly, there would be little point bringing in legislation without providing the means to enforce it. Naturally, the priority will be to encourage compliance by companies and awareness by workers who are not being paid the statutory minimum. The fact that there is to be a single national rate, which should be given wide publicity and with which everybody will quickly become familiar, will greatly assist this process. Ensuring that proper records are kept is another important contribution to openness. For the reasons I gave earlier, it will be in employers' own interests to pay the minimum wage for business reasons, quite apart from the penalties that may apply for not doing so.
The Bill builds upon existing civil enforcement mechanisms for individuals to pursue recovery through the tribunals or courts. There will be cases, I hope very few, where wilful and deliberate efforts are made to avoid paying the legal minimum. There will be some wily employers who might attempt to wrest some perceived commercial advantage by exploiting vulnerable workers. That would be short sighted. But these people need to be stopped, and they will be stopped. That is what the business community as a whole will want to see. They will want to rest assured that, while they are observing the requirements of the minimum wage, their competitors are doing likewise.
That is why the Bill provides for criminal offences, including wilful failure to pay the national minimum wage. It is also why the Bill provides—as indeed it has to—for the possibility of enforcement by enforcement officers who will have the ability to enforce compliance, if necessary, through the imposition of a financial penalty.
The Government have been criticised over the manner in which we have pushed the legislation forward in parallel with the work of the low pay commission. Some of our opponents have referred to it as putting the cart before the horse. I would submit we have been shown to be right in taking this twin-track approach. We have been in office for a mere 10 months. A great deal has been accomplished in that time, and, with a fair wind from your Lordships' House, we now stand very near to seeing a national minimum wage become the law of the land.
1034 We wished to consult as widely as possible before setting a rate for the minimum wage. But to have waited until that had been achieved before starting to make progress with the legislation would have considerable lengthened the timetable, and entirely without purpose.
As it is, there are those who say we have not gone fast enough. They would like us to have declared a rate for the minimum wage right after winning the election. But that would have been wrong. It would have resulted in an arbitrary rate, based on some sort of formula, and would have carried little conviction in the world of business and commerce and even within the trade union movement. We have made no secret of the fact that we have considered, and discarded, such an approach.
It was vital to speak to, and, more importantly, listen to, those who would have to live with the effects of this measure and to take their views into proper account. During the years before the election we engaged in discussions with hundreds of individuals and groups about our proposals. The need to take action was clear, and that need was reflected unequivocally in our election manifesto. It was vital that we built on that foundation and cemented support for a partnership-based approach to the problem of low pay. For that purpose, we set up an independent body, the low pay commission which will present its recommendations by the end of May.
We hope that this method of proceeding, which, through the consultation process adopted by the commission, has involved as broad a range of people and organisations as possible, should result in the minimum wage commanding the widest respect and receiving the broadest observance—much more so than if a rate had been produced without any proper consultation and foisted on a suspicious business community.
The Government have themselves submitted evidence to the commission setting out the key issues which we thought it would find helpful to consider, but giving only factual background. It was presented in a balanced manner and did not attempt to steer the commission in any particular direction. I believe that that was the right approach.
Once the low pay commission has produced its report, full consultation on draft regulations to introduce the minimum wage will take place. The Government will themselves set the rate for the minimum wage, based on the recommendations we receive, and we will see to it that it is implemented as soon as practicable thereafter.
Many business people have long seen the sense of a legal floor to wages, provided it was sensibly set. We have succeeded in winning over more and more people to that view. I believe that when the minimum wage policy gets under way, as it will with the benefit of a number of supportive statements from businesses with household names, that will demonstrate its relevance to the needs of this country. More and more people are now seeing the sense of our minimum wage policies. Surveys have been undertaken by large numbers of organisations. There are employers now in every sector who support the principle.
1035 I believe that the setting up of a national minimum wage is a difficult task. We have tried to keep things as simple as possible; we have gone for a single national rate and not allowed variations by region, sector or size of firm. It is, of course, not a measure which should be seen in isolation. It is one of a range of policies which come under our broader "flexibility plus" agenda which has the overall aim of achieving high and stable levels of growth and employment. It takes its place alongside the tax and benefit reforms which will contribute towards reduction of poverty and welfare dependency and the promotion of work incentives.
The Bill is something to which the Government are totally committed. That is something I know the House will understand, even the noble Baronesses opposite. I believe that the intense consideration which we have given it illustrates our belief in the principles of justice and fairness. I look forward to hearing your Lordships' contributions to the debate. It is essential that we get it right. We shall certainly listen carefully to the contributions made. I commend the Bill to the House. I beg to move.
Moved, That the Bill be now read a second time.— (Lord Clinton-Davis.)
§ 8 p.m.
§ Baroness Miller of Hendon
My Lords, I should like to thank the Minister for the warm welcome he gave to my noble friend and myself. I do not think he will be surprised and I hope he will not be disappointed to know that I do not agree with many of the things he said.
I wish to begin by disposing of two myths. The first is the myth perpetrated by every government of whatever political complexion: the myth of the mandate. It is as if every single voter reads and agrees with every single word in the fine print of the party manifestos. A party manifesto is not an à la carte menu. So those voters who read it have to take the whole package or nothing. Nor are the policies set in concrete. The policies set out in party manifestos themselves tend to change with the passage of time, due to what Harold Macmillan called "events". But apart from that, whatever we as politicians may think—and I speak from 25 years of door-to-door canvassing and teaching canvassing techniques to candidates and agents—the fact is that the majority of voters do not vote for anything. They simply vote against.
In 1979 they voted against the winter of discontent. In 1983 they voted against the longest suicide note in history. In 1997 they voted against the divisions in the Conservative Party, as well as against other things, some real and some imagined, that they felt the party was guilty of. However, according to the rules of the game which we on this side of the House fully respect and honour by virtue of the Salisbury convention, the Government have a mandate for introducing the concept of a minimum wage, however misconceived we believe the idea to be. We are, however, entitled to invite the Government to think again on some of the details, in addition to the changes which the Government have conceded in the other place.
1036 The second myth is the myth of the United States of America. This claims: "They have had a minimum wage since 1938, and look how prosperous they are". This myth has been repeated many times in the other place during the passage of the Bill and will doubtless be repeated here during this present debate.
The minimum wage in the United States of America has always contained exemptions in favour, for example, of small businesses which the Government refuse to concede. Secondly, it has always been set at a figure comparatively low to the average wage. During the 1950s and 1960s it was about 50 per cent. of the average wage. In the 1970s and the inflationary 1980s, it declined to around one-third of the average wage in manufacturing. It held steady at 3.35 dollars during the 1980s and so by 1989 its real value had fallen by a further 25 per cent. It was therefore so low that it had little, if any, effect in terms of its impact on jobs.
Since 1996, it has been only 5.15 dollars, which is about £3.09. That is trivial compared with United States wage levels. Even that is not the whole story, for if that 5.15 dollars were to be pro-rated to the United Kingdom level of wages, it would come out at just under £2.70.
A majority of American minimum wage earners are either young persons living in non-poor families or are a second or third earner in the household and not the primary breadwinner and in any case are subject to wide exemptions. In 1992, only 4.25 per cent. of minimum wage earners were adult householders.
In the Second Reading debate in the other place, the President of the Board of Trade alleged that:the Conservative party has argued that Britain can only and should only seek to compete by aiming to he the cheapest at all costs; aiming to be the bottom of the heap; aiming for the lowest wages and the worst working conditions to be found among our competitors".—[Official Report, Commons, 16/12/97; col. 162.]That statement is not only a monstrous distortion but is manifest nonsense. It is just a refurbishment of Old Labour's caricature of the wicked bloated Tory capitalists grinding the faces of the poor. Unlike the Government and their paymasters in the trade unions, we on this side of the House understand that no one owes us a living.
Of course, to attract business we must be, as the Government say, a centre of excellence. Indeed, we have become ever increasingly so since the last government cured the British disease of constant industrial strife. We have acquired in this country more inward investment than any country in the world except the United States of America for three simple reasons: first, because of our low tax rates—
§ Lord McCarthy
My Lords, the noble Baroness is talking about America and nowhere else. Would she make the same remarks about the minimum wage legislation in Germany, Belgium, Switzerland or Austria? Has that been as low as in America?
§ Baroness Miller of Hendon
My Lords, the noble Lord should wait until I have finished my speech. However, in view of what he said, perhaps I should remind him—I am sure he would agree—that 20 per cent. of American workers work at below the minimum wage 1037 in Germany. In America, they have produced 30 million new jobs over the past 20 years at a time when there was a zero increase in jobs all over Europe. So if that is the kind of system the noble Lord would like to bring here, it may very well happen.
As I was saying, one of the reasons is because of our low tax rates, as Chancellor Kohl himself admitted when he met the Prime Minister last Friday. The second reason is because of our flexible labour market. The last one is—and some noble Lords opposite may choose to laugh at it—that it is because of our lower labour costs. But it is not because we are "the sweat shop of Europe", as the Labour Party and the unions contend. Our basic wage levels compare favourably with other industrialised parts of the EC. The difference is our smaller social on-costs, the price of the social chapter.
If the United Kingdom's unit labour costs are taken as 100, then Germany's are nearly double at 199, Switzerland's are 188, France's are 131 and Italy's are 123. The evidence from the OECD supports the view that the more flexible labour markets of the United Kingdom, the United States and New Zealand show lower unemployment rates than the highly regulated labour markets of France, Italy and Spain.
Germany, which until recently had low unemployment rates due to its undoubted superiority in education and training skills, is now also sliding down the unemployment slope. The Institute of Directors complains that the EU is over-regulated and increasingly uncompetitive with the rest of the world. The Far East continues to develop dynamically, and while no one suggests that we should reduce our labour costs to those of the third world, what we do not have to do is to hand them any sort of competitive advantages.
Ross Perot warned during the 1992 American election of American jobs slipping across the border to Mexico, and with the establishment of the North American Free Trade Area, that is exactly what has happened in parts of the American car industry.
We have all the former east European satellite states just waiting to take our jobs. Because, let us make no mistake about it, every authoritative study on the subject confirms that the minimum wage will cost jobs. In a sudden outburst of candour which he must be tired of having quoted against him, the Deputy Prime Minister admitted that "any silly fool" knew that a minimum wage would result in job losses.
Professor George Bain, the principal of the London Business School, is the chairman of the Low Pay Commission. He said in The Times of 3rd June 1997:I would be surprised if there were not some job losses, but the question is whether those jobs would be better lost anyway".Perhaps he should ask those who lose their jobs what they think. They probably do not regard it as a price worth paying.
§ Lord Evans of Parkside
My Lords, perhaps the noble Baroness will allow me to intervene. Will she offer the House a forecast of the jobs she expects to be 1038 lost by this piece of legislation? Will her forecast come anywhere near the 2 million job loss forecast that was made by her party before the 1992 election?
§ Baroness Miller of Hendon
My Lords, I hope the noble Lord will wait until I come to job forecasts in a later part of my speech.
As I said, a minimum wage not only causes job losses, but it prevents job creation in the first place. Let me give an example from one of the professions where the sums are much higher than the sort of figures that even the TUC is talking about. I refer to the Minister's profession. There are hundreds of law graduates seeking what are now called "training contracts". They used to be called "articles" or "articles of clerkship". There are also a large number of small firms of high street solicitors in general practice who used to provide such places but cannot afford to do so because of the minimum wage set by the Law Society. A graduate cannot work for less, even though his or her parents who have supported them through university are prepared to continue to do so through what amounts to postgraduate studies.
Many people—my husband was one and so, I imagine, was the Minister—are prepared to accept jobs that are not well paid at the beginning of their working lives partly because they live at home and do not have high expenses but, more importantly, because they realise that one way to obtain a good job is to accept one that is not so good and work their way up.
The CBI, in its evidence, pointed out that even a modest minimum could lead to job losses unless wage differentials are squeezed. And there we come to the next point. I note that the Minister mentioned differentials when he started his speech, but the fact remains that it is meat and drink; the very stuff of life for the trade unions. "If an unskilled newcomer trainee gets £X, then my members must get £X times Y", and there we will be off in another round of inflationary wage increases, with wages going up without any increase in productivity. Another turn of the screw of uncompetitiveness.
The noble Lord, Lord Healey, said in 1994,Don't kid yourselves. The minimum wage is something on which the unions will build differentials. Therefore the minimum wage becomes the floor on which you erect a new tower".— [Official Report, Commons, 16/12/97: col. 193.]The Engineering Employers Federation says it does not support the introduction of a national minimum wage because of its effect on differentials and the increased cost of subcontracted services.
The CBI says that,a national minimum wage would undermine flexibility and is a poor way to tackle poverty".Indeed, it forecast that,it could result in rising prices, business closures and unemployment".There are still many unanswered questions about the Government's proposals for a national minimum wage. My honourable friend the Member for Daventry asked them for a final time on the Third Reading in the other place. I will not take up your Lordships' time by 1039 repeating them here. The Minister will find them in col. 269, volume 308 of Commons Hansard. I do not expect him to answer them today, but perhaps he will write to me.
The most important of all the unanswered questions is at what level the minimum wage is going to be set. The Secretary of State tells us that we must wait until the Low Pay Commission reports. The Minister told us the same. In other words, we have to sign another of Labour's blank cheques to approve the principle and procedures for a national minimum wage without knowing how much it will be and without being able to assess its effect on jobs, on industry and on competitiveness generally. Perhaps the Minister can tell your Lordships' House when the commission's report will be published. If he cannot do so today, will he please write to me?
§ Baroness Miller of Hendon
My Lords, I thought the noble said towards the end of the month, but perhaps I did not hear him correctly.
The Bill gives the president somewhat convoluted powers to create exemptions, but those are far from clear. The Government refused in the other place to exempt directors who, for all sorts of reasons, in their own family businesses might not want to draw wages. What about family members like wives or children helping out in the family business for nothing or pocket money or pin money? Are they going to result in the owner being prosecuted?
Why will the Minister not take clear and unambiguous powers to create exceptions by statutory instrument when, in what is after all an experimental regime, there are bound to be anomalies and inconsistencies? Is it the case that she wishes to have the option if she chooses to hide behind the commission, by insisting that Parliament accepts whatever they recommend.—"It is not my fault, Guy!". Parliament should be supreme and not the rubber stamp for this newest quango.
Let us look at the composition of the Low Pay Commission. Three of the nine members are university economists who are indirectly on the government payroll and who have a strong Labour background; three of the nine are trade union officials or senior union executives; and three of the members represent trade and industry. One comes from the CBI, which represents large companies, one from the Grenada Group and the other from the Scottish Grocers Federation. Presumably this last gentleman can be described as representing small businesses, but as these will be the ones hardest hit by and probably driven out of business by a national minimum wage, the commission can hardly be described as a well-balanced organisation.
1040 The Minister of State in the other place proudly announced the support of Tesco for a national minimum wage. I am sure the fact that that would knock another nail in the coffin of the small corner grocer did not even enter into their considerations.
Then there is the vacillation of the Government over precisely who should or should not be affected by the national minimum wage. Their manifesto allowed for no exemptions. In the President of the Board of Trade's second sentence in the Second Reading in the other place she said,The Bill will introduce for the first time in the United Kingdom, minimum wage protection for all workers".—[Col. 162.]Sections 3 and 4 of the Bill give power to exempt persons under the age of 26. At the Amsterdam summit, the Prime Minister endorsed the presidency's conclusion that wage agreements across Europe should take more account of differences in qualifications and regions to facilitate job creation. The Minister of State said on 20th November that there should be no regional, sectorial or company derogations. Exactly one week later, when the Bill was first published, there were special arrangements for share fishermen and agricultural workers in addition to those for 16–25 year olds. The Government also realised that they had to give themselves an exemption from the Act as the employer of the Armed Forces!
As presented to your Lordships, the Bill also contains exemptions for unpaid voluntary workers, which I am sorry to say includes Members of your Lordships' House. It also exempts prisoners.
Although we still have to await the result of the deliberations of the Low Pay Commission before we know what a minimum wage is, the Government have been conducting their own internal Dutch auction with kites being flown at figures from £4.61 down to £3.50. All higher than the USA. My right honourable friend the Member for Wokingham twice asked in the other place whether a waitress on £3 per hour with free accommodation and meals is better or worse off than a factory worker living in Central London on £4.50 per hour or a barman living in Liverpool on £4 an hour with free food.
The President of the Board of Trade has expressly forbidden the so-called independent low wages commission to take regionality into account. Why not? Perhaps the Minister in his reply will tell us the justification. My honourable friend Mr. David Maclean pointed out that a national minimum wage will harm employment in Cumbria, where the cost of living and other expenses are lower. Why should anyone start a business in that beautiful but remote part of the country with limited transport facilities when, for the same money, they could do so somewhere else?
It was suggested that low wages were being subsidised by the taxpayer in the form of family credit, now being abolished by the Budget. But in fact only 12 per cent. of people receive family credit for more than a year, and the completely independent Institute of Employment Studies reported that,employers did not have adequate knowledge of family credit or sufficient information about potential recruits to adopt such practices".1041 I am not sure what effect the new working family tax credit will have on the national minimum wage. I suspect it may make it irrelevant. But perhaps the Minister will be able to enlighten us in his speech.
Where the taxpayer will be affected—because of the adverse effect the minimum wage will have on employment—will be through more unemployment, more jobseekers' allowances to be paid and less tax revenue coming in. How do the Government reconcile their attack on what they call low wage-paying employers with their welfare-to-work policy, where there will be a combination of wages and public subsidy?
It is impossible to assess the effect of a minimum wage on a growing, prosperous economy, but the effect on one that is slowing down will clearly be adverse to jobs. Employers will seek to replace human workers with machinery that does not need wages, pensions or holidays. Every one of your Lordships who has filled his car at a self-service petrol station has helped to destroy the unskilled jobs that used to be available. Every one of your Lordships who has ever used a cash machine at a bank has helped to deprive someone of a clerical job in that bank. The dangerous social effects of unemployed and unemployable youth cannot be overstressed.
I said earlier that because of the myth of the mandate the Government will get their Bill. Nevertheless, the Opposition still oppose the principles of the Bill. We believe that it will be damaging to jobs. A study by the Department of Trade in 1996 suggested that, at £4.15 an hour, which the unions were then demanding, assuming a half restoration of differentials, the job loss will be almost 1 million. A minimum wage is recognised by the Institute of Directors and the CBI as damaging to our buoyant economy. It will add to inflation. It will damage our competitiveness. It will not help the lowest paid in society. On the contrary, countries that have a minimum wage find themselves with a list of derogations growing year by year, as different groups have asked their legislators for exemptions because of the harm being done to their particular trade or industry.
I repeat what I said earlier because it needs to be stressed. A major defect in the Bill is that it does not give the President of the Board of Trade clear power to provide further exemptions if they are found to be necessary. If, as we fear it will, the minimum wage results in rising unemployment, the Government will bear the sole responsibility. It will give us no satisfaction whatever to say that we told you so.
§ 8.22 p.m.
§ Lord Razzall
My Lords, I do not know whether it will be any comfort to the Minister if, speaking on behalf of the Liberal Democrat Benches, I indicate that I entirely disagree with the tone and virtually all of the content of the speech we have just heard from the noble Baroness, Lady Miller of Hendon. Furthermore, I do not know whether it will give him any assurance to know that in saying that, contrary to the assumption the noble Baroness makes, I never have been, never will be or ever could be described as Old Labour.
1042 We believe that for far too long the previous government tolerated the practice of cowboy employers exploiting their workforce with the taxpayer, whom the noble Baroness's party always professes to defend, having to pick up the bill. We all have our anecdotal evidence of that and we could all produce our stories about outrageous exploitation of workers on low pay. The best example I have relates to the enormous recent profits made by various of the owners and entrepreneurs who invested in the train operating companies compared with the wages that are currently paid to the men and women who walk up and down the trains providing us with the drinks and food that we have from the buffet cars. Their average hourly wage is infinitely less than any rate the minimum wage will be set at by the Low Pay Commission. If one juxtaposes those wages with the enormous wages that are being paid to those who are operating those companies, one sees that this is a significant problem which the Tory Opposition ignore at their peril.
I find it very strange as well that the Conservative Opposition have consistently opposed the introduction of a minimum wage, although, to be fair to them, they opposed it during their period in government. But we are the only serious industrial country in the western world that does not have some form of minimum wage legislation. The noble Baroness made much of the experience of the United States. Of course it is the case that if the minimum wage were to be set too high there would inevitably be some effect on jobs. However, six out of the seven recent studies that have been conducted in the United States, in regions as diverse as New Jersey, Texas and California, indicate that employment in the low wages sector and areas where the minimum wage has been monitored has increased recently by as much as 20 per cent. There is certainly no significant opposition among American economists to the minimum wage. So I think the American experience certainly does not prove the point which the noble Baroness made.
We on this side of the House by and large support the introduction of the Bill. We have welcomed the establishment of the Low Pay Commission. We advocated for some years that we should establish the Low Pay Commission and so we welcome that. We welcome the exclusion of volunteers from the provisions of the Bill. There was a good deal of debate in another place with regard to volunteers. Significant issues were raised by our side and we are pleased that, as a result of the amendments that were accepted by the Government in another place, the position of volunteers has been clarified.
We are also particularly pleased about the significant development that took place regarding agency workers, part-time workers and home workers. It has for long been a scandal in this country that those groups of workers, who are often paid £1 an hour or less, have been significantly exploited by employers. We all know of examples of that. We are pleased that the Government have taken on board that point and, in framing the legislation, are looking to deal with it.
1043 Having said that, noble Lords would not expect me to indicate that we would not wish to improve the Bill as it passes through this House. The major substance of the amendments which we shall bring forward will concern the point on which the Minister touched in his speech. I listened carefully to what he said but we still remain convinced that there needs to be a further provision to permit a regional variation of the minimum wage.
The case can be put very simply. I shall not detain the House, because the arguments have been made extensively and we shall seek to make those arguments again as the Bill proceeds. However, let us assume for the sake of argument—those who have read the press may know as little as or more than the Minister—that the minimum wage is set at around £3.50 an hour. The figures from the Office for National Statistics demonstrate that there is significant variation on a regional basis between the average income of people in relation to £3.50 an hour. For example, in the north east region 8.4 per cent. of the working population earn less than £3.50 an hour. In the south west the figure is 6.8 per cent. while in London it is 2.1 per cent. Thus it is clear that more than three times as many people as a proportion are earning less than £3.50 in the north east than in London.
Let us look at the figures for government departments, which are, after all, under the control of the Government. Answers obtained to questions in another place to tease out exactly what are government wage rates at the bottom end show that the lowest payer is the Department of the Environment, Transport and the Regions, which on average pays about £3.25 an hour. However, the average lowest rate in a government department in London is £4.30 an hour. So already within government departments there is a significant variation on a regional basis as to the minimum rate that is being paid.
Our case is that we believe that the Government are making a mistake in not authorising the Low Pay Commission, in making its recommendation as to a minimum wage, to introduce a regional variation. We understand the arguments that have been put forward. Broadly speaking, the Minister in the other place was quite clear about the first one. He said in terms that it was in their manifesto that they were not going to have a regional variation and therefore there will not be one. I accept that the Salisbury Convention applies so far, but I am not sure whether in this House it applies in requiring me not to argue the intellectual case for a regional variation.
The second argument which the Minister put forward is that it is very difficult to implement a regional variation. Our answer would be that that is something which the Low Pay Commission should be empowered to look at. It may well say that, for all the reasons we have looked at, there should be one national minimum rate. However, in this Bill the Low Pay Commission should be given the opportunity to look at that rate and the regional variation.
We support the argument of the Equal Opportunities Commission that the issue of gender imbalance is not properly dealt with in the Bill. I accept the point made 1044 by the Minister that the Bill will enable significant progress to be made in bridging the gap between the low pay of men and that of women. However, we would support an amendment to the Bill requiring the Low Pay Commission to consider the effect of the legislation on equality between women and men and assessing the rate level.
We believe, and have argued quite strongly in the other place, that the issue which the noble Baroness touched on—namely, that of young people and training and whether 26 is the right age to provide the cut-off for the minimum wage—should be looked at again. There are some very difficult issues. We would like to bring forward some suggestions in Committee as to how they should be dealt with. We are not sure that 26 is the correct cut-off age, nor are we sure that the Bill is going to make appropriate provision to ensure that the kind of training example which the noble Baroness described is properly taken into account in the Bill.
Although significant progress was made in another place as regards the status of the Low Pay Commission, we argue that we should go further at this stage. The Government are indicating that they would wish the Bill to contain powers for the commission to become a statutory body with permanent effect. We believe that there are so many issues thrown up by the minimum wage legislation and its imposition that it is clear that the Low Pay Commission should now have permanent effect. We would like the Bill to make provision to have various items referred specifically to the commission, including a regular review of the economic impact of the minimum wage. That should also include, in the light of the Minister's remarks, the impact of gender differentiation and the minimum wage. We are concerned that unless the Low Pay Commission has permanent status, the issue of equality between men and women's pay will become lost as we attempt to monitor the effects of the minimum wage. For that and many other reasons, we shall seek to bring in amendments to ensure the confirmation of the Low Pay Commission as a fully effective statutory body.
We are concerned about the status of the secondary legislation that is clearly going to be brought forward to give this Bill teeth. As the noble Baroness has indicated, to some extent we are debating the Bill in a vacuum. The issues which many noble Lords would wish to raise would be entirely different were the minimum wage to be set at £3 compared with £4.50 or £5. Many of the arguments about unemployment, regional variation and the gender gap—somebody's pager has gone off. I am sorry my Lords, it is mine!
§ Lord Razzall
My Lords, I apologise to the House. Many of the arguments on all those issues need to be continued over the course of the next few years. Therefore, we would like to see statutory effect given to the permanent status of that statutory body. In the other place the Government indicated some movement in that area. We propose to press the Minister somewhat further on that issue.
1045 The noble Baroness raised the critical issue behind this Bill. In another place many nights were taken by the Opposition in attempting to slow down the progress of the Bill. In the course of the debate I believe that Madam Speaker had to remonstrate with the government Minister for suggesting that a filibuster was taking place. Whether that was the case of not, I do not know: I was not there. I do know, however, that many nights and mornings were taken up in Committee and at other stages of the Bill. I urge the Opposition to accept the fact that we are going to have this legislation and that we should use the opportunity here to try to improve it in the way I have suggested and not indulge in the kind of behaviour that went on in another place. I believe that this is good legislation which is right for the country. We can improve it if we all work together here.
§ 8.36 p.m.
§ Lord Harris of High Cross
My Lords, I am not sure whether I should apologise for taking part in this debate as a former practitioner of the dismal science of economics. Next to the offer of a free drink, the mere mention of a minimum wage is best calculated to get most economists to their feet with their mouths open. It is a subject that disproves the old quip that if you ask half-a-dozen economists a question, you get six different answers—or seven if Lord Keynes was among them. In contrast, it requires no homework, no new research, no statistical models, no consulting—not even a fee—for most independent economists to agree nem, con. that a minimum wage is likely to be damaging and could be disastrous.
Of all the anti-market wheezes that I have come across, the idea of enforcing by statute a single, national minimum wage seems to me the most damaging in prospect. That is for several reasons. First, it seems superficially a painless way, as we have heard, to prevent the "exploitation" of the weakest members of industrial society. Secondly, it can therefore be wrapped up in the rhetoric of fairness and so harness the moral passion of laymen, as the noble Lord, Lord Clinton-Davis, attempted. Thirdly, for politicians, less concerned with morality and guided by the vote motive, it serves wonderfully to promote short-term party popularity. At the outset it is an absolute winner. It is unstoppable. Apart from the Conservative Party, its only opponents are stony-hearted economists who, we all know, are lackeys of high capitalism.
Even if I could forthwith proceed to demonstrate the disastrous effects of a minimum wage on production costs and employment, I fear that the moral and political bandwagon could not now be halted. But, alas, I admit that I cannot demonstrate any such thing. I cannot prove the case against this massive, mammoth, monstrous Bill for the simple reason that I do not know what I am talking about. None of us knows what we are talking about. The Minister does not know what he is talking about. Not even the normally omniscient professor the noble Lord, Lord Peston, if he were here, would know what he was talking about. That is because we do not yet know the level at which the minimum wage will be set. I shall return to that challenge in a moment.
1046 Any of us can conceive of a minimum wage low enough to do no harm, but then it would also do little good. We also understand that if the minimum is set above what economists call the "market clearing wage", it will certainly hurt those it was meant to benefit. Thanks partly to the Institute of Economic Affairs, with which I have had some forty years' association, there is today a more general acceptance of what the late Lord Robbins used to call the "invincible platitudes" of liberal market economics. It is a central precept of textbook analysis that a rise in price will reduce demand. Of course, in the lecture room, that missionary truth is hedged around with cautious qualification. Thus, the rise in price will only "tend" to reduce demand and therefore to create unemployment, and it will do so only if "all other things remain equal". If I had the time I could tell the House of circumstances in which a minimum wage could possibly improve employment, but that is a textbook or examination exception such as one sets to catch out undergraduates.
The trouble is that there is not just one labour market. There are distinct labour markets in different regions, different industries and different skills. Although a single uniform minimum wage will have no ill effects for skilled workers in flourishing firms in the South East, it could do much damage at a number of other margins. It will bear most harshly on the least effective worker, in the least productive firms and in the less favoured regions.
A consistent lesson I recall from almost all of the empirical studies in the United States is that when the minimum was increased—usually around election time—the main victims of the resulting unemployment were the most vulnerable workers. They were typified by being unskilled, inexperienced, young, black and invariably women. It may not sound quite nice, but it follows that the one advantage which the least attractive, least employable people have in a competitive market is the freedom to offer their relatively unwanted services at a lower wage. At least they get their foot on the ladder. I wish that Milton Friedman were present to give his performance of thanking the almighty for the sweatshops on the east coast of America in the last century which enabled his immigrant parents to get a toe-hold on that great continent.
If we turn to the Bill, we find 50 pages of, for me, impenetrable legal mumbo-jumbo, with seven clauses giving wide powers of further regulation. There is no fear of unemployment, at least for lawyers. The prospect opens up of a new era of litigation by disaffected employees that will dwarf unfair dismissal cases. It should prove what I believe is called "a nice little earner" in retirement for the noble Lord, Lord Wedderburn, and the noble Lord, Lord McCarthy, who do not appear at the moment to be present among us.
The concept of a minimum wage sounds simple enough, but we must bear in mind that the rewards of a job include what economists call the "net advantages of employment". Let us consider the impossibility of evaluating payment by commission, discounts, and benefits in kind, including convenience, regularity and flexibility of work. Mention has been made of McDonald's. It may once have paid lowish wages but, 1047 in my view, it has done more than many government schemes to initiate and train generations of young people for regular work and so improve their future employability. For my money, it merits the accolade "McJobs" and it may now easily be in a position to cope with the minimum wage, but the same minimum will handicap smaller businesses in labour-intensive industries and prevent them growing into the McDonald's of the future.
I now come to the real heart of all this—I wish that there were time to go into it all. Let us turn to the Explanatory and Financial Memorandum and to the section headed "Financial effects of the Bill". We read:the net effect is likely to be relatively small",but we should note the preceding proviso, which states:assuming the National Minimum Wage is set at a sensible level, with employment and the productive potential of the economy unchanged".I need hardly say that if it is not set at a sensible level—that is, at a low level—the knock-on effects in the name of preserving differentials—whatever the noble Lord, Lord Clinton-Davis said—and the resulting unemployment will cost the Treasury many billions of pounds in wages and benefits.
Will the Minister take a moment at the end of the debate to confide in us his present judgement of a "sensible" minimum wage? He must have given this a great deal of thought. Indeed, he is paid to do just that. It would be helpful if he could tell us so that at later stages we can have some idea of whether it is to be £3.50 or £4-something. It would be useful to have that knowledge.
Noble Lords will be pleased to hear that I shall trouble them no further by participating at later stages—because this is a totally misconceived Bill which, by massive amendment, could be made only slightly less bad. The whole gamble was, of course, intended as a flower arrangement, a bouquet, to appease Old Labour. I fear that it may prove to be a wreath of nettles.
§ 8.46 p.m.
§ Baroness Turner of Camden
My Lords, perhaps I may say first how much I welcome this Bill. We have had to wait a long time for it. That is no fault of this Government who have kept their pledge to introduce legislation to provide for minimum wages as soon as possible. There is no doubt that the move is highly popular—and that it is badly needed. For too long, many people in this country have had to work too hard for too little. As my noble friend the Minister explained, this Bill is part of the Government's overall strategy, which I applaud, to reform the tax and benefit system to aid poorer people, particularly those with children, and to assist with job creation, as the Chancellor did last week, by giving assistance to smaller firms in particular.
Why is the Bill so necessary in today's Britain? Today, we have over 1 million employees earning less than £2.50 an hour, of whom about 60 per cent. are women. According to the OECD, we have a higher proportion of people in low paid work than the majority 1048 of western European countries. There is apparently, according to the TUC, little variation of low pay by region and for that reason I understand that the TUC does not support the case for a regionally varied minimum wage, despite what the noble Lord. Lord Razzall, said.
I have here a dossier, compiled by the TUC and the Low Pay Unit, of simply appalling cases of what really amounts to sweated labour. Perhaps the noble Baroness, Lady Miller, will take note because she apparently does not think that we have sweated labour in this country. The examples include a hairdresser paid £1.95 per hour with no extra pay for overtime, which she is often required to work; a manager at a sports centre who is paid £200 for a six-day working week of 16 hours a day, which amounts to £2.08 an hour; an assistant MoT tester offered £1.50 an hour to work from 9 a.m. to 6 p.m. Monday to Friday; a care assistant paid £1.78 an hour for a 48-hour week; a woman working in a tailoring factory paid £2 an hour for a 35-hour week; a clothing factory worker earning £2.75 an hour; and a construction worker employed by an agency working for less than £3 per hour. These are examples of sweated labour by any standard. They are some of the cases culled from a large dossier covering various areas of the country. The situation in Scotland is no better. There are cases of employees in shops and restaurants working for less than £3 per hour. In particular care workers are badly paid at about £2.25 to £3 an hour. The security industry is particularly exploitative. Some cases have been recorded of men who earn as little as £1.50 an hour.
Some of the worst cases occur in industries where there were once wages councils. It will be recalled—as mentioned by my noble friend the Minister—that those councils were weakened and finally abolished by the previous government. When in opposition we put up spirited resistance to the move but unfortunately failed to stop the Conservative government from going ahead with it. As soon as wages councils disappeared a number of employers seized the opportunity to pay as little as they could get away with. In conditions of high unemployment that led to the grossest exploitation of very vulnerable people. It is noticeable that in low-paying industries, often the workforce is mainly female or from ethnic minorities. Far from there being a jobs explosion in the former wages councils sectors as the Conservative government promised, the rate of job growth slowed in those industries at a time when employment growth across the whole economy was accelerating. In the year before abolition around 17,800 full time equivalent jobs were created in the wages councils sector, but in the year following abolition only 5,000 full time equivalent jobs were created; and, of course, there were falls in pay. I commend those figures to those who claim that if we introduce minimum wages there will be job losses. The experience of wages councils proves exactly the opposite.
The sector hardest hit was hotels where the average earnings of all workers—men, women, manual and non-manual—fell in real terms after 1993. Even in those 1049 industries where there have been increases, such as clothing manufacture and food retailing, they have been significantly below those for service and manufacturing generally. A survey conducted in 1995 to examine vacancies that would previously have been covered by wages councils found that nearly half offered lower wages than would have been payable had wages councils remained in existence. Since 1979 the advent of Conservative administrations committed to the unfettered operation of the market has meant that the rich have become richer and the poor have become poorer.
We have witnessed the advent of so-called flexible employment. This may have suited some employers, but it was certainly disastrous for many employees. Most people like some degree of stability about their employment; it helps them to plan their lives. The Conservatives have attributed their heavy defeat at the polls last year to a variety of causes but they still fail to understand the enormous part played by job insecurity, affecting as it does large sections of the population including those who were once their natural supporters. Flexible employment has all too often meant short-term contracts, part-time working when full-time jobs would be preferred, contract and agency working, seasonal working and—perhaps the most exploitative work of all—zero working where an employee is expected to be on call, sometimes even at the work place, and is paid only when called upon to work, usually at a miserable hourly rate.
I am delighted that the Bill seeks to define "employee" to include the contract or agency worker quite specifically and also home working which exploits so many women. I am not sure about zero working but I believe that that is also covered by the provisions of the Bill. I am glad that detailed arrangements for enforcement via employment tribunals are set out in the Bill. It is also envisaged that there will be some form of inspectorate as there was for wages councils. Employees are offered protection against discrimination of any kind, including dismissal, for seeking to enforce their rights to a minimum wage. That is a very necessary provision.
This evening we have heard cries of, "What about the rate?" I am content to leave that to the low pay commission which I understand is to remain in being and will probably be given a statutory base. The rate may change from time to time, and it is therefore not appropriate to include it in primary legislation. The commission will have the job of consulting those with a particular interest, and I am sure it will do it well.
I am particularly happy that the Equal Opportunities Commission, of which I was once a member, has sought national minimum wage legislation and has already made submissions to the low pay commission. There are still substantial differences between male and female earnings despite more than 20 years of equal pay legislation, although the latter has made an enormous difference to job opportunities and pay for many women. A national minimum wage will help to improve matters for women at the lower end of the earnings scale.
1050 Good employers have nothing to fear from a national minimum wage. An increasing number express support for it. Most of them will have no difficulty paying it since they realise that a well-motivated work force depends on fair treatment and adequate rewards to employees. Why should the taxpayer continue to subsidise employers who believe that they can make a profit and stay in business only at the expense of paying employees too little for them to live on? The total cost of the subsidy to the in-work poor is of the order of £3 billion pounds a year, which is equivalent to £120 a year for each taxpayer. This is a very good Bill. I am delighted that we have it, and I congratulate my noble friend the Minister and his colleagues on its introduction.
§ 8.56 p.m.
§ Baroness Eccles of Moulton
My Lords, I am very pleased to take part in this debate on such an important Bill. In spite of the Minister's comforting words, it has the potential for making unpredictable and perhaps damaging changes to our economy. I shall pursue a theme that has already been emphasised by my noble friend Lady Miller and the noble Lord, Lord Harris. I begin by reminding the House of the words of the Labour party in its election manifesto. It promised to introduce,a statutory level beneath which pay should not fall with a minimum wage decided…according to the economic circumstances of the time and with the advice of an independent low pay commission".One difficulty that arises in debating the Bill is that we do not know what discussions have taken place between the Government and the Low Pay Commission regarding the latter's terms of reference. We do not know what advice the commission will give; nor do we know how the Government will react to that advice, which, as we understand it at present, they are not bound to accept. It is not unknown for governments to seek advice on pay and then not take it.
A second and more serious difficulty is the enabling nature of the Bill. It will give the Secretary of State wide powers to decide not only what the minimum wage should be but how pay will be defined. For example, does it include benefits in kind? Nor has the pay reference period been decided. Will calculations be based on total pay received over one week, four weeks or some other period? I disagree with the Minister when he says that nothing is lost by pushing ahead with legislation before the Low Pay Commission has reported.
The resulting vagueness on the face of the Bill makes it impossible to evaluate the probable effects, and the unintended consequences, of this proposed interference with interactions within the employment market. All there is to go on is a rather unsatisfactory clue or two. The Chancellor of the Exchequer has said many times that his objective is to make work pay. He has shown in the recent Budget that, within public expenditure constraints, his aim is to improve the position of the low paid from 1999 onwards. How does this policy initiative tie in with a minimum wage? Has the Chancellor's Budget speech engendered a fresh discussion between the Secretary of State and the Low Pay Commission in 1051 the light of the terms of reference added last year, which ask the commission to "consider and report on any matters referred to it by Ministers"?
Further, it is hard to engage in constructive debate without some knowledge of where the central thrust of the Government's policy towards minimum pay lies. Is it to provide a safety net for those who, for whatever reason, fall foul of imperfections in the market?
An example of gross pay which would presumably be above the safety net is £5 an hour for a 36-hour week, bringing in £180. But another example would be a security guard guarding an empty building and working long hours on a basic rate of £2.50 an hour. A 72-hour week would thus bring in the same gross pay as the first example. We might pause and ask ourselves why anyone would want to take such a job. Perhaps they are doing a distant learning course or even writing a novel in the silent watches of the night with only an alsatian to distract them. Be that as it may, are the Government concerned primarily to provide a safety net for the unwary who tend to be employed in the service sector, both public and private? Alternatively, are the Government minded to accept the Old Labour view of a basic minimum wage at, say, half average male earnings, as the foundation upon which the structure of all pay is to be set? That would result in all incentive payments being up for renegotiation and all differentials being fiercely defended. It seems highly unlikely that that is the intention of the present Government. The trouble is we do not know, because the Government have not told us.
In conclusion, one thing is clear. The decisions that will be made, if and when this unsatisfactory Bill becomes law, will be vital to the continued good economic performance of the United Kingdom. In that respect, in my view, a national minimum wage will not be a help. However, if it is to be introduced, perhaps I may emphasise again how important it is to follow the example of Canada or New Zealand and set it at a safety net level and not at a level which would result in increasing the pay of the majority. That would be a certain recipe for job losses. The safety net approach would be more consistent with the Chancellor's declared aims.
Nevertheless, it is frustrating, not in the spirit of openness, and—dare I say it?—bordering on the undemocratic for your Lordships to be left so much in the dark about the Government's intentions. If the chief executive of Barclays Bank can deliver his considered advice on national insurance to the Government in so short a time, why is it taking so long for the Low Pay Commission to publish its advice?
§ 9.2 p.m.
§ Lord Wedderburn of Charlton
My Lords, I congratulate the Government, through my noble friend the Minister, on bringing forward this Bill and the low pay commission that goes with it. I was pleased to hear that my noble friend had fortified himself before our debate, so that he will be vigorous in carrying those thanks down to the other end of the building.
1052 Minimum wage laws have been a long time in their gestation. Bills were presented to Parliament in 1800 and 1808, albeit they were thrown out. In writing about them Beatrice Webb said:minimum conditions of service form an indispensable basis of any decent social order".That is an argument that I have not heard addressed from the other side of the Chamber except, in one respect, by the noble Lord, Lord Razzall.
In view of the hour, I shall content myself by speaking mainly of the Bill's legal structure. In part that is because of the importance of some of its features. It is particularly important at a time when employees' organisations face transnational employers in the global economy, to which they have little defence, except occasionally by legislation. That in no way cuts down the importance of their organisation in trade unions.
Secondly, no one has yet mentioned the fact that we have some international obligations in this matter, or we did until the Thatcher government destroyed them; that is to say, the ILO Conventions 26 and 131 and Recommendation 135 which argue that it is an international moral obligation to have some kind of minimum wage arrangements.
I agree with my noble friend the Minister that the first problem is to reach all the workers to whom the protection is to be offered. My noble friend said that we must have universality. That is right, but on this matter the Bill is a legal landmark. The old categories of employee and self-employed, and, to some extent, worker, have gradually disintegrated in the market as it has developed. Waiters are hired as self-employed workers to serve at tables that are leased out to them. One driver of a lorry which was let to him on hire purchase by the employer was held by the court to be self-employed, even though he wore the employer's uniform and obeyed his orders.
In a recent case a security man's—how often security men have been mentioned; they form a group which is exploited atrociously—rights and duties were owed to so many different companies, and in such diverse manners, that the Court of Appeal held that he was not protected as an employee against unjust dismissal because his contract was one that was sui generis. The very special thing about the Bill is that it protects all such workers, even those whose contract is sui generis, as the Court of Appeal put it in that case.
The Bill makes also a valiant effort to protect two groups which again have been atrociously exploited: home workers—I am speaking of the old form of home workers (over 1 million of them) although there is a group of tele-workers whose conditions have not been explored properly by research—and agency temporary workers, or agency temps. They are protected by the various definitions of the word "worker" in the Bill, which means that any person under a contract, doing work for another, except the professional client or customer, will be protected.
The Government might consider extending the other power in the Bill—namely, the Secretary of State's power to extend the provisions to persons who are not otherwise workers within its provisions—to trainees and 1053 bring them into the fold of the protection of a minimum wage. It is also questionable whether the definition of worker, which is admirably wide, requires the word "contract"; that is to say, there will be some who will try to evade the Bill, and they might, as it stands, make arrangements which were not technically contractual, to get them beyond its frontiers.
Home workers and agency temporaries have been in the forefront of recent discussions and surveys. Last year, the Court of Appeal in the McMeechan] case decided that one must look at the facts to decide whose employee the agency temporary worker was. Was he the agency's employee or the client's employee? Indeed, if there was no contract of employment where did the contract lie? The Government may wish to look again at their admirable attempt to defend temporary workers against such analysis. They may wish to consider a formula used in some European directives based on the approach of French law whereby the worker is prima facie presumed to be the employee of the agency and not of the client. That might be an addition which would make the position even more secure.
Your Lordships will be aware of the myriad forms of employment which workers, young workers in particular, are forced to take. I refer, for instance, to beck-and-call contracts, on-line contracts and zero hours contracts. Last year, I discovered, astonishingly, that a student in my graduate seminar, who was already laden with massive loans, had taken a job to help him through the year. He attended when the employers telephoned him to do so, including at weekends. However, once he arrived—and this is the esoteric form of zero hours contracts—he had to sit out the shift and if they wanted him to work they would call on him. But he was paid only for the time that he worked and not for the time waiting in the wings, hoping that the intolerable rate of £2 an hour might be paid to him for a little movement rather than remaining in a sedentary position.
That outrageous Taylorist abuse is one which perhaps demands more general legislation. I say to the noble Lord, Lord Razzall, hoping that he would be in his place, that the Bill cannot do everything. It is not the job of the Bill to deal with the problem of the gender gap. Indeed, I wonder whether it is within the Long Title. That is not to say that I do not believe that steps should not be taken; the gender gap in wages is much too great. Perhaps the Bill concentrates on what it does well.
There is a maxim which is applicable to the Bill. It is that no rights are stronger than their sanction. This Bill faces that problem by using, rather in the manner of the modern legislation on safety at work passed by the Labour government of 1974, not one but a whole series of interlocking legal remedies. It does not make the mistake that so much employment legislation has undergone of leaving everyone with only an action in the industrial tribunals (we must now call them employment tribunals) and a remedy which is scarcely enforceable. The Bill puts forward, both in the employments tribunals and in the courts, civil actions, criminal prosecutions and penalties and the intervention of enforcement officers with wide powers. In that 1054 respect, too, the Bill deserves congratulations on not being mealy-mouthed about the enforcement of its provisions.
The work of the enforcement officers is likely to be a critical component. The question must be asked: is the intention to give some of the tasks to an existing inspectorate, such as the VAT inspectors, or to create a new one? No doubt the Government will tell us their plans and we can consider them when they are announced.
Finally, it is for consideration whether the mechanism of enforcement might have one aspect added to it. It is to give to a representative trade union the status to appear in court on behalf of workers to defend a range of rights under the Bill. In France, since the law of 1920, unions have been regular parties to actions in various courts which were in defence either of particular workers' interests or of the so-called collective interest, l'intérêt collectif, which is a well-known concept in the civil law. It is my understanding that the working group on representative litigation set up by the noble and learned Lord the Lord Chancellor does not have that matter within its remit, or indeed the jurisdiction of the employment tribunals. However, if I am wrong the matter should surely be put on its agenda.
We have in this Bill a basis for a social advance which is of particular importance despite any adjustments or amendments that I have suggested. In my view, nothing that I have said can detract from the nature of the Bill or its general thrust which will be a powerful contribution to the cause of social justice for working people.
§ 9.14 p.m.
The Viscount of Oxfuird
My Lords, for much of my life I have been overseas and have observed this country from a distance—in my youth at school in New Zealand and after that, working overseas, exporting and being involved with industry in this country from both the manufacturing and marketing points of view. I have seen the effect of government decisions, decisions made by companies, their managing directors and their workforces, on how they are perceived by the customer. Quite frankly, the only person who matters to any organisation's future and ability to pay anybody anything is a person called the customer.
I sometimes wonder whether the Government have two agendas: one for public consumption, as in the Budget; and the other conceived in the mist rising from Europe. Surely the Government must realise that the current unemployment problems facing our friends across the Channel are of their own making. Why do we have to put the blinkers on and follow them down that path and produce legislation like this when our competitors in the Far East have just been awarded a 30 per cent. price advantage due to currency devaluation against the strengthening value of sterling?
I go to Korea most years on business. The people of that country will be rubbing their hands with glee if this Bill is passed. When their nation suffered a recent economic downturn, the men and women defied their unions and went into the street with what might be 1055 called "mattress" money—fistfuls of American dollars which they offered to their government in support of their sad economic situation. This will be their turning point as ours was in 1979. The luxury of even being able to consider this Bill has been won by every working man and woman in this country over the past 18 years.
Why are we throwing away that hard-won position? The Government have been seduced by the emotion attached to wants as opposed to the reality attached to needs. In that there lies a big question: how long will it he before the electorate discovers that this Government's agenda has nothing to do with good governance but is totally devoted to the promotion of a political party—popular opinion versus public interest?
In opposition, the Government took every opportunity in your Lordships' House, when given the chance, to decry the Conservative government for their so-called lack of support for manufacturing industry. Claims that business is warming to the minimum wage are disingenuous. A statutory minimum wage is opposed by the CBI, the Institute of Directors, the British Chambers of Commerce, the Federation of Small Businesses, the Forum of Private Business and the small business bureau. That is a long list.
Why do they object? No one objects to people earning money but they do object to legislation. Sometimes I wonder whether we spend enough time stopping to truly consider the result of our actions. Strangely enough, the job-destroying characteristics of the minimum wage have not been lost on the Government. Despite earlier attempts by the President of the Board of Trade to fend off advice from the Minister without Portfolio, and her indications that there will be no variations to the national minimum wage, Clause 3 includes a provision allowing the holder of her office to decree by regulation a lower rate for younger workers and trainees.
The fact that the Government have not come forward with a rate for the minimum wage is no accident. Obviously they know that announcing the figure would prompt many estimates of the cost of the minimum wage, as we have already heard this evening, and its impact on jobs. Not a word has been heard since the general election; indeed, the DTI's estimate in 1996 was an additional million on the jobless total. How will the Government explain to the country the cost of 2.3 million unemployed?
Finally, regional variations have already been mentioned. Perhaps the Minister can tell the House whether any real consideration has been given to this area. Surely, the national minimum wage will have a greater effect on those employing in the north east than those employing in London. I do hope that your Lordships will think very, very carefully before passing this dreadful legislation.
§ 9.20 p.m.
§ Lord Evans of Parkside
My Lords, unlike the noble Viscount who has just sat down, I left school at 15 years of age and went to work in the shipyards on Tyneside. I worked there for the next 28 years and I worked in some of the hardest, toughest and most dangerous industries in this country. I saw the impact on the lives 1056 of so many people who worked in those industries. Indeed, I saw people killed in the shipyards. I also had responsibility for helping the widows and wives of men who had been killed or seriously injured, and I saw men dying because their lungs had been destroyed by asbestos and other industrial substances. While I agree with the noble Viscount that the customer is of paramount importance, I should like to remind him that the worker also has some rights and is entitled to some justice in our society.
That is why I unreservedly welcome the Bill, which, in my view, honours one of the most significant general election pledges that the Labour Party made. The Labour Party's manifesto promised to introduce a "sensibly set minimum wage". I was also pleased that the Bill was introduced so quickly into the other place on 16th December last and that it was finally concluded, after a marathon all-night sitting, on 9th March. If any noble Lord takes the trouble to read the record of the proceedings, he will see that the committee in the other place sat for many hours, including a marathon sitting which was the longest since the war, as the Tory Party and Tory MPs fought tooth and nail to try to derail, prevent and stop this legislation.
From the speech that we heard tonight from the noble Baroness on the Front Bench opposite, it is quite obvious that the Tory Party has not changed at all; indeed, it is obviously determined also to fight the Bill in this House. However, I should remind Members opposite that the Bill received considerable consideration in the other place. I trust, therefore, that their opposition to the Bill will be tempered by the fact that it is necessary to have this legislation on the statute book at a reasonable time without a lengthy filibuster.
For the first time, this Bill will create in Great Britain a national minimum wage and it will bring our country into line with almost every other developed country, all of which have some form of national minimum wage. This legislation, taken together with the strategy that the Chancellor of the Exchequer announced in his Budget last week, will lay down the framework for a more just and a much more decent society than we have had over the past 18 years. I appeal to noble Lords opposite: surely employees, workers, are all entitled to reasonable pay and conditions. They should certainly be free from some of the gross exploitation which many of them have suffered over the past few years.
I spent 23 years in the other place. Sadly, for 18 of those years, I sat in opposition and watched Tory governments successfully abolish workers' rights with Bill after Bill through all those years. First they hamstrung the trade unions, the workers' main defence mechanism, and then they abolished the wages councils in 1993.
I remind the House of the words of Winston Churchill when in 1909 he introduced the wages boards which were the forerunners of the wages councils. He said,Where you have what we call sweated trades, you have no organisation, no parity of bargaining; the good employer is undercut by the bad employer, and the had employer is undercut by the worst".1057 Those words were uttered 89 years ago. The wages councils in this country existed right up until 1993 and provided a modicum of cover for those in the most sweated trades in this country. Those words proved to be extremely wise, as was realised when the wages councils were abolished. The Tories claimed that abolition of the wages councils would create jobs, albeit at lower wages. There is scarcely a shred of evidence that a single job was created by the abolition of the wages councils. However, there is plenty of evidence of wages in certain sectors declining badly because of the loss of the wages councils.
Over the past few years every Member of Parliament could have regaled this House with details of some of the most appalling wages that were paid to workers in pretty awful situations, as revealed to those MPs at constituency surgeries. The words of my honourable friend Chris Pond, the Member of Parliament for Gravesham—who for 17 years worked for the Low Pay Unit and probably has more knowledge and experience of these matters than any other person in the United Kingdom—are probably the most telling. In another place he gave details of the Low Pay Unit's Christmas "Scrooge of the Year" award. Noble Lords can read his speech at col. 201 of Hansard of another place of 16th December. He stated that one of the previous,nominees for the award included the employer of a woman who worked in a residential nursing home. In a letter to her, the employer stated 'I would like you to work 5 pm to 9 am Monday to Sunday inclusive'. That is 112 hours of night work. The letter goes on: 'Salary will he paid in arrears at a rate of £150 a week', which is about £1.34 an hour".Another "Scrooge" award winner was a clothing workshop employer who paid his staff the princely sum of 59p per hour. A Birmingham chip shop employee took home 80p an hour. The recently established TUC hotline uncovered cases such as that of a waiter paid £12 for an eight-hour shift. His tips were taken from him at the end of each day.
That Tory government policy which they ushered through both Houses of Parliament created a massive burden for the taxpayer as well as a degree of poverty for millions of workers in this country. In 1996 more than £2 billion was paid in family credit alone to subsidise employers who paid these scandalous wages. The incredible Tory claim that abolishing wages councils would create jobs must be put alongside the even more incredible Tory claim made before the 1992 general election that a national minimum wage would result in 2 million lost jobs. Unless my hearing went astray I believe that the noble Viscount who spoke before me reckoned that 2.3 million jobs would be lost as a result of this legislation. I notice that the noble Baroness did not offer any figure in her speech.
The Viscount of Oxfuird
My Lords, I thank the noble Lord for giving way. The addition to the current 1.3 million unemployed would be 1 million. I believe that makes a total of 2.3 million.
§ Lord Evans of Parkside
My Lords, I apologise to the noble Viscount. I accept the figures that he gives. 1058 I would say only that the figure of 1.3 million relates to those claiming jobseekers' allowance and does not represent the true number of people who are without work in this country. On the Bill's Second Reading in another place, Mr. John Redwood led for the Tory Party. While still claiming that jobs would be lost, he again offered no figures, unlike previous Tory claims about alleged job losses.
Clauses 2, 3 and 4 of the Bill provide no distinction in the minimum wage on the grounds of different areas, different sectors of employment, undertakings of different sizes, or different occupations for those aged over 26. I accept the broad principle. However, while I understand the reasons and thinking behind the propositions in Clauses 3 and 4, I wish to offer two caveats. First, I am puzzled by the reference to the age of 26. I am not sure why that age has been plucked out. In all the industries in which I have worked, the general ruling was that once that person had reached 21—in other words he or she was recognised as an adult—he or she then received the full rate for the job. Those below the age of 21 received a lesser amount. Secondly, if there were a differential at age 26, is there not a danger that some employers would be more inclined to employ those aged under 26 because they were cheaper than those just over 26 because they were more expensive? Can my noble friend give an undertaking that, if regulations are brought in under Clauses 3 and 4, they will be brought before Parliament for debate and a vote on whatever proposition the Secretary of State brings forward?
I congratulate my right honourable friend the President of the Board of Trade upon establishing the Low Pay Commission within a short period of taking office. It has been vitally important for the commission to be able to take evidence, and to start to do the necessary groundwork at this early stage. The commission will consider all the necessary factors, including the concerns of small businesses, and will produce a fair and justifiable minimum wage. While I understand employers' anxiety that the minimum wage should not be too high, I hope that they will understand our concerns that the minimum wage should not be too low. We shall be looking for a fair and adequate balance.
I strongly support the minimum wage enforcement clauses. As we have seen in so many other fields, it would be pointless to have minimum wage legislation if we have no means of enforcing it against the, it is to be hoped, very few cowboy employers who will undoubtedly do their utmost to get round the legislation. I believe that it is a fair, just and long overdue Bill. It will bring material benefits to millions of British people. There are almost 1 million people in full-time employment in Great Britain today, most of them with families, who earn less than £2.50 per hour. Many are mothers with children. Many are from ethnic minorities. All would benefit greatly from this legislation. I am proud that a Labour Government should at an early stage have introduced this Bill to combat poverty. I strongly support it.
§ 9.33 p.m.
§ Lord Dixon-Smith
My Lords, I declare an interestas a practising farmer. As such, those parts of the Bill dealing with the agricultural wages aspect of the question might conceivably directly affect me. From what I have heard so far, I hope that my employees will be well clear of any provision introduced by the Bill.
However, declaring that interest gives me the opportunity to make two pertinent points. First, agriculture, like many other industries today, is an area of rapidly declining employment. There are a number of reasons for that, most of which do not have to do with either the beastliness of employers or indeed the dreadful environment in which most agricultural workers live. By and large, they are extremely fortunate in that regard.
However, there is one basic temptation, or pressure, depending on how one looks at it, which every employer, not just in agriculture, goes through; namely, the higher wages go, the easier it becomes to employ a machine to do the work. If we examine the consistent trend over the years in my industry, we see bigger, better and quicker machines, and more sophisticated systems, with fewer and fewer people required to do the work. The higher wages climb, the more intense that pressure is.
The other point, for what it is worth—and I shall slightly turn it round—is that agriculture is a basic industry, working with basic commodities. At the present time, because of the strength of the economy, as everybody in this Chamber will undoubtedly be aware, it is rather a depressed industry. In many parts of the country—in Wales, up in the hills, in Scotland, in the north west and parts of the West Country, there will be farmers who are already achieving what might be called negative income. It is not a very happy situation to be in. Anyone who is in that situation for long will find himself in considerable difficulties if he happens to have employees.
The thought occurs to me, slightly wickedly, that if we set the national minimum wage at something like £5 an hour and there is an immediate battle for a restoration of differentials and we let inflation rip, then the pound might be rapidly devalued and those farmers would probably find themselves once again with a positive income. However, I am sure that the rest of the country would suffer so much in bringing that about that we had perhaps better put that wishful thought aside.
In considering my remarks about the Bill, I had a passing fancy that perhaps we should cast Sessions of Parliament as Shakespearian plays. I could not help but think that perhaps "The Tempest" was appropriate for this current Session, with the new Government determined on immense activity and sweeping all before them. With that in mind, it becomes quite easy to "cast" the Budget debate and the Finance Bill that is to follow in the part of Prospero, with wonderful spells being cast which we all hope will be of general benefit to the country at large.
But this Bill then becomes a problem, because we do not yet have the information that enables us to define its character. Once again we have before the House an 1060 enabling Bill. Like the various referendum Bills before us earlier which did not at the time contain the information as to what was to be created, so now we do not know what the minimum wage might be. We know the "how", but not the "what"—and in this case it is the "what" that matters. Do we have Trinculo, a rather irrelevant but somewhat amusing character; or might it be Caliban, descendant of a former occupant of the island with rather unfortunate and self-destructive characteristics?
In the whirlpool of taxes and benefits surrounding people at the bottom of the wages pool, it is not always easy to determine precisely what is going on. I have tried to measure the intentions of the Bill against some of the points outlined by the Chancellor of the Exchequer in another place last week, and also in the context of views expressed in various places as to what the appropriate level of a minimum wage might be.
In the other place last week, in talking about restructuring national insurance as recommended by the tax and benefit task force, the Chancellor said:From next year, the Government will abolish the distorting entry fee for employers' national insurance. We will also abolish the multiplicity of separate national insurance rates. We will therefore cut the cost of hiring lower-paid employees. Employers will pay no national insurance on any employee earning less than the starting point of the personal tax allowance—£81 a week" .—[Official Report, Commons, 17/3/98; col. 1104.]Assuming a 40-hour week, that is just over £2 an hour; noble Lords do not need me to tell them that. Of course, one has to consider that there may be part-time workers, but anyone who can earn £81 per week, say, in one day, is not likely to be considered to be low paid or at the bottom of the wages pool. Since I cannot accept that the Chancellor would waste his breath on the matter without some reason—still less do I believe that he might spin some irrelevant spell—I hope that the Minister in his reply will assure me that the Chancellor's remarks are pertinent in the light of the implications of the Bill. I assume, therefore—and I hope to be assured that it is so—that where the Secretary of State has power, under Clause 3, to create exemptions for those under 26 years, those exemptions will be made.
At col. 1105 of Hansard for 16th March in the other place, in discussing the change from family benefit to tax credit, a guarantee was given that work would pay and that for a family with a child and someone working full-time, income would be at least £180 per week. I assume that that sum is arrived at for some people by adding a tax credit to the wages paid. That is an interesting concept and I wish it well and hope that it works. But once again it suggests real wages at a level that may be well below some of the figures that have been suggested as appropriate for the minimum wage.
The reality is this. The Bill, with its flowing legal prose, creates a procedural mechanism to do a specific job. In itself, apart from the estimated cost of over £0.5 million, it is innocuous. The conclusion of the job, however, is highly significant. In other countries where minimum wages apply, the effects seem to vary depending on the conclusion that is reached as to what is appropriate. There appears to be a correlation between the level of the minimum wage and the level of unemployment.
1061 In the United States where the level of the minimum wage is relatively low, unemployment is also low. On mainland Europe, however, where various national minimum wages are relatively higher, unemployment is correspondingly much higher, certainly at levels which we would not wish to see here ever again; in many places at levels we have never seen here—thank heavens! It is on that decision that I shall finally have to decide how I cast the Bill. I think we must all hope that I do not have to cast it as Caliban.
§ 9.43 p.m.
§ Lord Thomas of Macclesfield
My Lords, the question before us today is one of principle, a principle already accepted by many industrial countries of the world and by most European countries. So it was a particular disappointment to me today to hear the opening speech of the noble Baroness, Lady Miller of Hendon. We could have spared the toilers in Hansard because it was exactly the speech, the sentiments and facts brought out in the first Factories Act at the beginning of the last century, the second Factories Act and the third Factories Act. These were not the end of the world as was forecast at that time.
I was a proud member, with Lady Howe, of Opportunity 2000. I heard from women who had succeeded in industry that in their view often the biggest enemies of women prospering, going up the ladder and getting to the top, were other women. I find it ironic, therefore, since I always dismissed that as folklore, that the noble Baroness, Lady Miller, should speak against a national minimum wage when by far the greater beneficiaries will be women.
§ Baroness Miller of Hendon
My Lords, I am grateful to the noble Lord for giving way. I believe that my record in working for women is very good. However, does the noble Lord agree that in America there was an exemption in the Equal Pay Act 1963 which provided that men and women should receive the same salary because it was proved that, when there was a minimum wage structure, the women did much worse out of it than the men?
§ Lord Thomas of Macclesfield
My Lords, I do not accept that logic. In my experience, by treating women with respect an employer will earn much more loyalty and the business will benefit as a result. I see no reason to follow the example given by the noble Baroness.
If the principle is carried to extremes in terms of cash per hour worked, either extreme would be disastrous. Too much would result in redundancy, as the Benches opposite claim; in bankruptcy, unemployment and a reduction in gross domestic product and tax revenues. Clearly, therefore, too much would be wrong, though I wish that could be applied to some executive directors. That is why a commission needs to be set up which can be independent of the political debate and argument. It can judge what is an appropriate amount in terms of the economy at that time.
1062 The noble Baroness also confuses flexibility with minimum wages. Flexibility involves multiple skills; it concerns the hours of the day which one works. It is not about paying people a bag of rice a week. That is not flexibility; it is unethical. In terms of our New Zealand friend—obviously a refugee from New Zealand which has a national minimum wage—customers respect employers who respect employees. An employee is an employer's biggest ambassador and salesperson. If employees are exploited, they will not send a good message to the customers. It is therefore self-defeating to exploit people with very low wages.
Too little or no minimum wage, as has been suggested, results not only in low hourly rates, but also in increases in social payments—I have heard the figure of £2 billion suggested; that is a subsidy paid to some employers. However, it is interesting that the Benches opposite should be arguing that case. It puts the good employers at a disadvantage. And good employers, whether large or small, would regard it as unethical. They occasionally lose business because of the cowboys in the economy and the sooner we get rid of those, the better.
My experience of 44 years as a banker was that there was a tight correlation between what people were paid and what was invested in them in terms of skills and training. The more they are paid, the more advantageous it is to invest in them by helping them to develop skills. The opposite is also true. If the labour comes very cheap, it is rare to find those employers investing in and developing those employees.
If we carry on without a minimum wage, we will continue the exploitation, particularly of women and particularly of certain ethnic groups. Both extremes, therefore, could be a disaster to the individuals, to the companies, to the country's gross domestic product and to tax revenues. Worse still, a society with a value system that has no respect for individuals would result. That is part of the culture change which this legislation and the Budget of last week seek to address; that is, the culture change of valuing people.
It was Robert Owen, a textile manufacturer, who taught his fellow textile manufacturers 100 years ago that the more you invest in people and the more you respect people, the more profits you make and the more profits you are entitled to make. He had a track record that no one can besmirch after all this time.
I am delighted to support the principle of the Bill. The actual rate per hour should be decided by the commission and revised according to RPI every year. As a cautious banker, my inclination would be to start at the lower end of the scale and build on that rate every year. I certainly hope that the Bill will pass very quickly.
§ 9.50 p.m.
§ Lord McCarthy
My Lords, I want to do two things at this late hour. First, I want to join those on this side of the House who have congratulated the Government on the drafting of the Bill. It is the next best thing to a masterpiece. It makes one appreciate what the parliamentary draftsmen can still do if they are properly encouraged. Secondly, I want to answer those who have 1063 opposed the purposes and functions of the Bill. The noble Lord, Lord Dixon-Smith, said that the arguments reminded him of Prospero in The Tempest. I could not quite get the connection, but they remind me of Touchstone in As You Like It, in particular what is called Touchstone's defence, a series of mutually contradictory arguments in declining order of plausibility.
There are four arguments really, four of what Touchstone would have called ripostes, replies, objections. The first riposte, reply or objection, which strangely enough has not been advanced very much in this House tonight although it was very much heard from the right honourable Member for Wokingham in another place—he made it the central arm of his defence—is that what the Opposition believe in is not a minimum wage but a minimum income. By that I think he meant the combination of social benefits—family credits, housing benefits and so on—that is likely to alleviate the worst forms of wage poverty. He said that if one got right the minimum income one would not need a minimum wage. I may or may not be seeing the noble Baroness, Lady Miller, nodding, but at least that is what the right honourable Member for Wokingham said.
There are three objections to that. In the first place the previous government were, I suppose, introducing the minimum income over 17 years, but there is no sign that they had achieved the minimum income. Secondly, what they achieved were inequalities of income and pay which were the second worst in the OECD. That is what they achieved in 17 years of trying to do without a minimum wage. Seven times the number of workers were below 40 per cent. of average income than was the case in 1979. That is what the previous government achieved with their minimum income guarantee. We do not think that is the answer, because we have had a long period of experience and it has not solved the problem.
The third riposte I would give to that refutation of our position is that to create a minimum wage involves part of a general policy of dealing with poverty. This is a multi-focused approach. The minimum wage is part of a whole series of measures, some of which might in the end produce a minimum income. I refer to job creation, social benefits, housing subsidies and tax remissions. If we go on long enough, we shall do something essential, important and permanent about wage poverty. But we certainly shall not do it without the assistance of a national minimum wage.
When one makes arguments of that kind, those who want to defend their position move on to the second riposte, saying, "That's all very well and fair, but it's unobtainable and impossible because the inevitable consequences of seeking to introduce a national minimum wage are higher costs, lower sales and rising unemployment". That argument has been put forward widely in this debate tonight. As I understand it, it is what the noble Baroness, Lady Miller, said. I did not hear him, but I understand it is what the noble Lord, Lord Harris of High Cross, said. It was also what the noble Baroness, Lady Eccles, and the noble Viscount, Lord Oxfuird, said. They said that if we try to solve the problem in that way all that we shall get will be unemployment, higher costs and lower productivity.
1064 There are three objections to this. The first is that the evidence for it is not evidence at all, but a series of simulations. One only gets this kind of catastrophic consequence if one uses computers and puts rubbish in and then gets rubbish out. One never gets that from empirical studies in the field. One can put in anything one likes. Various figures were tossed about. I can remember the expert on this, Michael Howard of another place, when he was Secretary of State for Employment. One Thursday afternoon at Question Time he got the figure to 1.7 million jobs. It was not very clear what was the minimum wage and how much the knock-on effects would be. He satisfied himself and he got the figure up to 1.7 million lost jobs. I believe that that is the record.
The most recent—and it has been tossed about in the debate tonight—was the 1996 figure of the DTI, which the previous government used in the course of the election. If there was a minimum wage of £4.15 an hour and a 50 per cent. knock-on effect in terms of differentials, one would lose 1 million jobs. That is a case of rubbish in, rubbish out. The CBI is a little more reasonable and serious. It told the Low Pay Commission that, going up to a figure of £4.40, with a replacement ratio of about 35 per cent., there would be a loss of 250.000 jobs. That is not quite so much rubbish in, and not quite so much rubbish out. Then there are the studies of Ferney and Metcalfe. They summarised the work of the academics who had done studies of this kind. They produced figures of between 9,000 and 120.000 jobs and an average of 80,000. So one can always obtain such figures if one makes assumptions about the level of the minimum wage. They are on the high side. If assumptions are made about the extent to which differentials are replaced, which are very much on the high side—especially if you are Michael Howard—one gets death-defying, terrifying figures.
Secondly, one never gets anything like that if one looks at the actual studies of the people who have been working minimum wage systems and who have increased that minimum wage by between 10 to 20 per cent. at any particular time. They can say what that has meant for employment. In those circumstances one has a wide variety of results, all about 2 per cent. plus or minus. But one never gets anything significant when one looks at computer-type simulations rather than what one gets from what really happens. That is my second argument against the misery of hypothesis.
My third argument is that the essential part of this Government's policy in this Bill is that they propose a softly, softly, catchee monkey approach to see what happens to unemployment, costs and wages whenever they change the minimum rate. That is the only sensible way. No intelligent person knows what a particular minimum wage is going to do to a particular industry or occupation at a particular point in time. Nobody knows, but anyone who tells you that he does has been mucking about with simulations.
The only thing to do is to start in a relatively modest way by keeping the Low Pay Commission in existence, giving it adequate research. It should then say exactly what is meant in terms of productivity or increased 1065 efficiency or in terms of employment levels in different parts of the labour market. That is the unique thing about this Bill. It proposes to do exactly that.
So I come to the third riposte or counter-claim: that all this may be true. That has been said by quite a number of speakers on the other side of the House. Their great objection is that the way in which we propose to establish a national minimum wage is inequitable and unfair because it is simple, understandable and will have a simple rate spread across the whole of industry. Those people who do not think that we need anything like a national minimum wage say that we need something much more complicated. They cite variations by industry, by region, and by size of firm.
There are three arguments against that. First, variations in levels of pay per hour for full-time workers by industry and by region are relatively small, with the possible exception of central London. The differences are relatively insignificant. At £3.50 per hour, 14 per cent. of the full-time labour force is affected—18 per cent. of the labour force in the north of England and 10 per cent. of the labour force in London. In other words, in terms of full-time workers, the variations are relatively insignificant.
Secondly, the main cause of variations between workers—and therefore the main beneficiaries of the minimum wage—is the number of part-time workers whom a particular industry, area or firm employs. It is part-time workers who are relatively low paid, and especially part-time working women. Indeed, part-time working women will be the major beneficiaries of any decent minimum wage, wherever they live in the country. That is because, even in central London. women part-time workers are universally badly paid.
The third argument against the "complications" of our simple, across-the-board minimum wage is that it is the only way we can imagine of having an enforceable system. Those who do not like it should come forward with an alternative. If everybody knows what the minimum wage is, if it can be printed on the back of payslips, everybody will know what they are entitled to and the system will be self-enforcing. That is the point about having a single minimum wage.
Indeed, that point was appreciated by the Conservatives when they were in office. I can remember—noble Lords who were there at the time will also remember—the noble Lord, Lord Young, standing at the Dispatch Box in 1986, when the then Conservative Government introduced the Wages Bill. The noble Lord told us that what was wrong with the wages councils was that they were so complicated, with enormous schedules of rates, differentials and regional changes. The noble Lord said that he would produce a single rate for every wages council. He said that it was sensible to have a rate across the board. He was right. The trouble was that several years later, the Conservatives abolished the whole lot!
Those are the arguments against, so I come finally to what I would call "the objection disingenuous", which is the last objection when all other objections have been destroyed. Frankly, this one is a bit of a cheek. It has 1066 been put forward tonight by the noble Baronesses, Lady Miller and Lady Eccles, by the noble Viscount, Lord Oxfuird, and by the noble Lord, Lord Dixon-Smith, and, I am sure, by several others. They say that the Government have a sauce not to put all this in the Bill. They say, "If the Government are so certain and want a straight rate across the board, and if they do not want exceptions, why not include it all in the Bill? Why do they leave us to wait and see what they are going to do?"
There are three answers to that. First, I remind those noble Lords who were here in 1992—I think that pretty well all noble Lords who are present were, and if they were not, they were in the country and they will remember the election—of what the Conservative Government said then when the Labour Party proposed a system such as this. In 1992, God save us, we proposed a simple rate which would be read off and automatically indexed every year from the new earnings survey. It was to be based on average male manual earnings. It was to be automatic, with no investigation. It was to be put on the face of the Bill—and the Conservatives went mad. They said that we should wait and see what could be afforded and study the matter in greater detail. They asked why we wanted to put a single figure in our manifesto. Perhaps we were listening and took the point and therefore arrived at a much more sensible system.
Those who say that the rate should be identified before legislation appears are asking for a delay of two-and-a-half years. They are suggesting that the low pay commission be set up to investigate the matter, do all the work, prepare a consultation document and argue about it, and a little time after the millennium legislation can be produced. That is not a serious argument; it is a disingenuous attempt to put us off.
The final point is that, far from rushing this issue, we have waited 86 years for it. Eighty-six years have gone by since a spokesman for the Labour Party in another place moved for the first time that there be a minimum wage. It has not been rushed or pushed. It is well overdue, and the sooner we do it the better.
§ 10.6 p.m.
§ Viscount Bridgeman
My Lords, the sub-plot running through this debate tonight has been the question of jobs. I hesitate to follow the noble Lord, Lord McCarthy, with his dissertation on minimum wage and minimum income. The basic reason for our objection to a minimum wage is that it does not address the real roots of poverty. Most of those who will benefit from the minimum wage are young persons and part-time, usually female, earners in two-earner households. In other words, it will leave the bulk of poverty untouched. My noble friend Lady Miller referred to the calculation made by the Department of Trade in 1996 that a minimum wage—admittedly it assumed £4.15 per hour with a 50 per cent. restoration of wage differentials—would result in the loss of one million jobs in the United Kingdom. That is a frightening figure. In the absence of any revision of that estimate we must assume that that is still the department's view.
1067 It is the view of this party that there should be a targeting of cash subsidies via the tax and benefit system. That would be far less damaging to the labour market than a minimum wage. It has the advantage of helping individuals to remain in work in contrast to a minimum wage which, regrettably, may result in an individual losing his job. Sadly, the longer an individual remains unemployed the more difficult it is for that person to find work.
This Bill contains contradictions. Under pressure from my colleagues in another place, the Government have conceded exemption for the Armed Forces. Other exemptions include voluntary workers and share fishermen whose income is derived solely from the profits of a catch. This makes sense. But it is indicative of the Government's piecemeal approach to the anomalies thrown up. Countless small businesses whose profits and ability to pay their workforce can vary widely from year to year will he disadvantaged by this legislation. Small pharmacists who are already under threat from the Competition Bill could go out of business or have to cut staff. The hotel and catering trade in particular view this Bill with the greatest misgivings.
It is significant that the minimum wage legislation in the United States, about which the Government make much play, specifically excludes small businesses. There are other contradictory policy statements, most obviously the welfare-to-work initiative. On the one hand, employers are offered subsidies to take on the young or long-term unemployed to reduce the cost of employment. On the other hand, an increase in employment costs resulting from the minimum wage will lead to job losses.
My noble friend Lady Miller has said that most European countries have minimum wage rates. In practically every case these are accompanied by higher unemployment. My noble friend Lord Dixon-Smith referred to the correlation between unemployment and a minimum wage. Belgium, with a minimum wage of £4.05, has an unemployment rate of 12.9 per cent., and France, with a minimum wage of £3.60, has an unemployment rate of 12.1 per cent. France is indeed an interesting case.
A recent study in the Wall Street Journal Europe in November 1997 gave a stark contrast. From 1987 the real earnings of the lowest paid 10 per cent. of the British workforce rose by 13.8 per cent. without government intervention, compared to 4 per cent. in France where the minimum wage is being raised repeatedly. My noble friend referred also to the correlation of social security payments. In a recent study it was found that the average employee in the UK receives the equivalent of £6.80 an hour compared with £6.50 in Germany, £6.30 in France, and £5.70 in Sweden, after adjustments for national differences in pricing and purchasing power. We may be the only major country without a minimum wage, but the average worker here does not do too badly.
We are committed not to oppose the principle of the Bill. So my remarks are directed in the earnest hope that the rate will be set at a realistic and not an unacceptable level.
§ 10.11 p.m.
§ Lord Davies of Coity
My Lords, like others, I consider the Bill to be one of the most important that the Government, in their short period of life so far, have put before the House. Like others, I welcome it; there will be no one who welcomes it more. The Bill, and the campaign for it, have played a special and significant part in my life. I shall come to that later.
Noble Lords may recall that in the economic debate on 3rd December last year I referred to Wilberforce and Shaftesbury—two great parliamentarians who campaigned for legislation to abolish slavery and child labour respectively. I did that to demonstrate clearly that when they were campaigning for those two worthy causes they were confronted by economic argument—much of the economic argument that we have heard this evening—whereas those of us who, by our support for a national wage, are trying to help the most vulnerable, the most exploited and the most deprived, meet economic arguments relating to bankruptcies, lost jobs and other areas of difficulty.
I concluded my speech in December of last year with the words:I may again feel obliged to remind the House of the things that I have said today".I shall do that, but to this extent only:Earlier this year, in Scotland alone, it was assessed that £265 million per year is paid from the state to top up low pay. In the north west, where I now come from, 30 per cent. of the working population earn less than £4 an hour. Advertisements in Jobcentres cite a banner maker at £2.36 an hour, which is £92 a week; a care assistant at £2.80 per hour for working a night shift; a hairdresser is cited at £1.31 per hour, which is £55 a week. An employee in a travel agent is quoted at £60 for a 39 hour week. I could go on with further examples".—[Official Report, 3/12/97; col. 1386.]The country cannot go on subsidising bad employers with welfare payments. We cannot go on allowing people to languish in the poverty trap between low wages and benefits, our people to have no training, no skills, no hope of jobs, or, indeed, even better jobs. That is a recipe for spiralling down further into the pit where we compete with the world's worst and not the best.
I wish to give two quotations. The first is:Low pay is a cruel injustice which should not be tolerated in a society like ours and yet we all know of employment exploited women having to fight through equal opportunity courts to achieve what is their right … We all know that the vast majority of low paid workers, mostly women employed in shops, in hospitals, in canteens, in hotels and many other areas of industry, make a contribution to the way of life of this nation no less equal than other workers and yet they are still low paid. These workers have been traditionally low paid. They have been historically disadvantaged, but despite our awareness of this injustice the situation grows worse, not better … the low paid are the ones who also suffer most from the attack made upon the social wage. Again, it is the low paid who are caught in the cruel poverty trap when State provision is applied as a subsidy to bad employers. If low paid workers tolerate low pay, they qualify for a subsidy which raises them marginally to a different level of low pay. On the other hand, if they accept a modest increase in wages, their entitlement to the taxpayers' subsidy is threatened. This is the classic low paid workers 'Catch-22'. Low paid workers do not want dignity and self-respect destroying handouts, they want decent wages.Low paid workers also suffer from not being able to borrow in the same way as better paid workers can. If you are well paid, credit worthy, you have established security, you can get the most economical and beneficial credit facilities, but if you are low paid 1069 and, doubtless, have little or no security, you have to resort to the most expensive and sometimes illegal and extortionate loan provisions. That completes the vicious circle of pressure on low paid trying to survive on poverty wages. There is no doubt that the urgency of our issue places a duty, a responsibility and a commitment on all of us to demand the introduction of a statutory minimum wage … Why? Because nothing short of a statutory minimum wage will solve the problem of low pay … Low pay represents an exploitation we can no longer tolerate. It saps hope and confidence. It destroys dignity and self respect. It cruelly deepens poverty and deprivation".The second quotation is as follows:Low pay is no accident in this country. The injustice of low pay exists because we have not done enough about it … The low paid are workers in shops, in hotels, in laundries, in hospitals, in garment factories. They are workers in sweat shop industries in which unscrupulous employers operate. The majority are women workers, young workers, home workers, workers from ethnic minorities and part time workers. They are now a third of the nation's work force. They are the workers for whom … some legal protection has been provided for nearly 80 years. They are the workers for whom Wage Councils were established … Let us not forget why Wages Councils came into being. It was in 1909 that they were introduced, not by a Socialist, not by a trade unionist, but by a Liberal minister named Winston Churchill and he said that unless there were legal wage regulations good employers would he undercut by bad employers and bad employers would be undercut by even worse employers … Low pay is now so widespread that we need drastic action. We cannot tinker with the problem. Only by the introduction of a statutory minimum wage can we hope to remove the suffering, the hardship, the inequality and the injustice that low pay creates".I draw those two references to the attention of the House for particular reasons. Your Lordships may say that much of what those extracts contain has been heard from the Minister on the Front Bench this evening. Your Lordships may have thought they were from Hansard when the Bill was going through the other place recently. They were neither. The first was from the speech I made to the British Trades Union Congress in 1986 when I seconded a composite motion on the introduction of a national minimum wage. For the first time in nearly 120 years the TUC Congress determined that year that we should have a national minimum wage campaign.
The second extract was from my speech to the Labour Party conference, also in 1986, when the Labour Party formally, for the first time in 80 years, determined that it would be campaigning for a national minimum wage. That was all very important to me. It was the year in which my trade union, USDAW, threw its weight behind a national minimum wage campaign. Twelve years later, it now looks as though it will reach the statute book.
Another big plus for my union in 1986 was the fact that we were one of the groups campaigning against the Sunday trading legislation. It was the first time that the Conservative government had been defeated since they came to power in 1979. In that year also I became general secretary of my trade union.
I do not wish to exaggerate the significance of my union's contribution to this campaign. But it can take some credit in being one of the prime movers. I have been somewhat disappointed to hear once again today the old arguments—sometimes described as the old bogeys—in opposition to this very worthy piece of 1070 legislation, namely, bankruptcies, lost jobs and high prices. Those are the essential areas of opposition to what is proposed.
As regards bankruptcies, let us bear in mind that the vast majority of employers have nothing to fear from a national minimum wage. But if there are some who are fearful because they survive by paying low wages or because their employees are receiving state benefits, paid by the taxpayer, because they are not receiving sufficient from their employment to survive, we must ask whether those employers deserve to be operating in those circumstances. Indeed, the question can go further. How long can they survive if that is what they are doing? But I do not believe that that is what is happening. In many circumstances, companies are maximising their profits as a result of paying low wages and ensuring that their employees receive state subsidies to compensate for those low wages.
I turn now to lost jobs. Nobody knows whether or not jobs will be lost. But it will not depend on the introduction of a national minimum wage. It will depend upon the level of that national minimum wage. Both the low pay commission and the Labour Government know precisely that difficulty. This Government are campaigning for and have policies in relation to full employment. They will not introduce a national minimum wage which will cost jobs.
Next, I deal with the issue of prices. In the early 1980s, I negotiated with hotel employers through the wages councils. I can remember arguing for a weekly rate of wage for hotel staff which was less than what many hotels in London were charging their guests for one night's accommodation and very often, not even providing breakfast. That was the disparity between prices paid by guests and wages paid to the employees. But in that regard we must recognise that if prices are being kept down because workers are subsidising those prices by low wages, that cannot be right and should be stopped in any event.
There are three areas in the Bill that I should like to address and to which I should like to draw the attention of the Minister, the Government and the low pay commission. The first is the question of the level of the national minimum wage; the second is the question of the wages and benefits syndrome or access, which is sometimes described as the "Catch 22"; and, finally, the 26 year-old threshold. I understand that we do not want a level for the national minimum wage that will be an attack on jobs. However, I recognise that we should have a national minimum wage that will be an attack on poverty and wages. I trust that the low pay commission and my noble friend the Minister will take those factors into account and address them as they should be addressed.
As regards the question of the national minimum wage and benefits access, perhaps I should explain that that arises where people have such low wages that they are entitled to benefit. However, when the minimum wage comes in, everyone on low wages should benefit. I trust, therefore, that the benefits system will be adjusted so that workers on low pay, who receive an increase by way of the national minimum wage, will not 1071 lose their benefit thus rendering them worse off as a result of the introduction of the national minimum wage. With regard to the 26 year-old threshold, this is obviously a changed qualification. If that qualification is to apply—which, to some extent, is contrary to the age at which the adult rate is normally applied—I trust that a full explanation will be given and that it will be a justified introduction.
§ 10.26 p.m.
§ Lord Monkswell
My Lords, I thank my noble friend the Minister for introducing this debate in a most extensive and adequate manner. In my contribution tonight, I will touch upon history, economics, enforcement and the international situation. As several previous speakers have mentioned points that I wished to make, I hope that I shall he able to keep my remarks reasonably brief.
I believe that my noble friend Lord Davies pointed out to the House that it was only in 1986 that the labour and trade union movement actually adopted a policy for a national minimum wage. One might ask why they did so. We need to explain that they did so as a result of Conservative policies—indeed, because of the way that Conservative policies had affected the labour market in the United Kingdom.
Other speakers have mentioned the fact that we have had wage legislation since 1909, originally with the wages boards and then later with the wages councils. One of the factors that we should recognise is that, after the war, we had full employment for 30 years. Therefore, if a worker was in a badly paid job, he had the ability to walk away from it and get another one. Of course, some workers were not necessarily in that position, but most of them were. So the idea that they could, by their own efforts, get out of badly paid jobs was there simply because of the very fact of full employment. Indeed, the wages councils operated as a safety net for particular categories of employment.
We can see that, since 1979, we have had virtually permanent mass unemployment with levels of at least one million—sometimes two million or three million—above those recorded even for the late 1970s. That had a significant effect on the ability of low paid workers to improve their pay. The abolition of the wages councils effectively created an impossible situation to which the Labour and trade union movement responded by adopting their policy for a national minimum wage. I am glad to see that is now coming to fruition.
One of the aspects of this debate has concerned me. However, one should bear in mind that just under half the speakers in it sit on the Conservative Benches. Therefore, one can understand that one of the threads running through the debate has been the risk of increasing unemployment if the national minimum wage is set too high. I wish to offer a contrary argument to that supposition. I refer to an academic study that was carried out in a number of states in the United States eastern seaboard, all of which had a state minimum wage. One of them decided to increase its minimum wage above that of its neighbours. Extensive academic research was carried out to determine the effect of that 1072 on the economy. The study revealed that the state which increased its minimum wage above that of its neighbours had an increase in employment.
If one pays poor people at the bottom end of the labour market more money, they do not buy a big foreign car, or go on foreign holidays two or three times a year, or buy a second house. They purchase local goods and services with the extra money that they have in their pockets. That stimulates economic demand which generates more employment and that creates a virtuous circle. We need to understand and recognise that factor when we discuss the level of the minimum wage. I argue that it should be set as high as possible.
The figures that the noble Baroness, Lady Miller of Hendon, gave at the beginning of the debate help my case. She pointed out that in the 1950s and the 1960s the minimum wage across the United States was set at half average earnings. That was probably the period of the highest levels of employment and the most beneficial levels of industrial activity that the United States has ever experienced. I am glad that the figures of the noble Baroness help my case.
I quite understand that my noble friend who is to reply to the debate may not be able to answer my question off-the-cuff. His response may be more suitable for a Written Answer. As other noble Lords have mentioned, the other factor is that the Government subsidise had employers who pay low wages. At what level would the minimum wage have to be set to eradicate government subsidy for employers who pay low wages?
I was interested to hear the remarks of the noble Lord—he is not a noble Lord, not yet anyway—John Edmonds, the general-secretary of the general, municipal, boilermakers union, when he said last year that one of the difficulties with minimum wages is that in a situation of mass unemployment unscrupulous employers will inevitably prey on desperate people and arrange matters so that poor employees are paid less than the minimum wage on the basis that no one tells anyone what is going on but at least they have a job. I hope that this legislation, along with the Government's commitment to full employment, will be effective in the medium to longer term.
On enforcement, my noble friend Lord Clinton-Davis pointed out that employers could be taken to court to enforce payment of the minimum wage; and that they could be subjected to criminal proceedings with a fine of, I think, up to £5,000. The problem with that is as regards the really bad, unscrupulous employers. The idea that they might suffer a financial penalty at that level will not be a great deterrent. Will the Government consider amending the Bill so that the worst employers would face a term of imprisonment? One argument is that if a bad employer pays less than the minimum wage, he is in effect stealing money due to his employee. If the situation were reversed, and an employee stole money from an employer, I think that most employers would argue that their dishonest employee should face the penalty of gaol. What is sauce for the goose should be sauce for the gander.
1073 Perhaps I may turn to the international situation. A number of noble Lords have touched on the concept of regional variations of the minimum wage across the United Kingdom—a concept comprehensively demolished by my noble friend Lord McCarthy. But as a party which is internationalist, and a Government with an ethical foreign policy, surely we should argue that what is good for us—a minimum wage set at a decent level—should also apply to our partners on the international scene. We have heard that most continental countries have minimum wages set in their own circumstances. Surely we should put the concept of a European minimum wage on the agenda of the European Union. Bearing in mind the references by my noble friend Lord Wedderburn of Charlton to the effect of transnationals, we should also think in terms of a world-wide minimum wage to ensure that transnational corporations do not exploit one group of workers against another, pitting each against the other by threatening to take their jobs away from them because the companies can obtain cheaper labour elsewhere.
I have posed a couple of questions to my noble friend on the Front Bench. I am sure he will not be able to respond precipitately today since I am tail-end Charlie, and I did not have the chance to give him notice of them. I shall welcome a note in response to my questions. I welcome the Bill and hope that we can dispatch it fairly quickly through your Lordships' House.
§ 10.37 p.m.
§ Lord Newby
My Lord, as my noble friend Lord Razzall said, we support the Bill in principle. In deciding on our line, we have asked ourselves these questions. Should we be prepared as a society to see people continue to be paid derisory and demeaning wages? Should we be prepared to see gross exploitation, in particular of women and members of the ethnic society?
Earlier in the debate, the noble Lord, Lord Harris of High Cross, described this Bill as a flower arrangement to appease old Labour. The noble Viscount, Lord Oxfuird, described it as a triumph of popular opinion over public interest. We fundamentally disagree with both sentiments. The Bill deals with the question of decency. As the noble Lord, Lord McCarthy, said, it will form part of a strategy to tackle poverty, which is surely a noble cause, and not an issue on which to make party political jibes.
The key argument of those who oppose the Bill, and indeed the only substantial argument which can be urged against it, is that low pay equals no pay, and that the minimum wage will put out of work many existing low paid workers. The argument that regulating the terms and conditions of employment should be opposed because it will lead to job losses is as old as the hills. As the noble Lords, Lord Thomas and Lord Davies, mentioned earlier, it was used in the previous century in opposition to the Factory Acts. It was used against proposals to keep women and children from going down the mines. It was used against the ending of the 1074 employment of children as chimney sweeps. In all those cases, in the short term legislation undoubtedly led to job losses. But it could be justified on decency and fairness grounds—and it did not lead to a permanent higher level of unemployment.
Will the minimum wage now under discussion lead to significant job losses? That obviously depends on the rate, and on the exemptions. But at the levels that have been discussed, I suspect that the net effect will be relatively small. I certainly share the view of the noble Lord, Lord McCarthy, against adopting the misery hypothesis—although, given that the noble Lord was my tutor in industrial relations and employment policy some 25 years ago, I could hardly do otherwise.
I cannot agree with the noble Lords, Lord Bridgeman and Lord Dixon-Smith, who argued that there was some kind of mechanistic correlation between unemployment and a minimum wage. If that were the case, how can they explain the fact that, during the period their party was in office, the rate of unemployment in this country fluctuated like a yo-yo, with no minimum wage at the beginning, no minimum wage in the middle, and no minimum wage at the end. As an argument, it simply does not stand up.
We have heard a number of arguments and discussions as to whether there should be a single minimum wage for everybody, or whether there should be variations. In a number of respects we strongly disagree with the concept of variation. There has been some discussion about whether small businesses should in their early stages be able to pay below the minimum wage. When I and a colleague set up a small business about six years ago, we accepted that, as we were taking a risk in setting up the business, the matter of what wage we might get in the short term was extremely questionable. We accepted that if the business did not prosper in its early months we might not take a wage at all. But the argument that, when employing secretaries or other employees, we should say to them, "We are terribly sorry, but we don't want to pay you a decent wage until we've proved that our risk has adequately paid off', frankly, does not stand up to scrutiny.
Secondly, we do not accept the argument that the minimum wage should vary between sectors. In our view, the key test relates to the extent to which those in receipt of the minimum are in receipt of a wage that enables them to live at a decent level. Whichever place people live in, that does not vary between sectors.
There has been much discussion about the position of the under-26s, and whether they should be exempt and to what extent. Not straying very far from this building, if a minimum wage were presently to be introduced at the same level for those aged under 26 as for those aged over 26, there would be a significant number of researchers in another place who would need to look for another job. That demonstrates that there needs to be a certain degree of special treatment, particularly for those who have just left university and who might be spending a small amount of time, not formally as a student, but as an intern. However, we do not accept the argument that there should be no minimum wage at all for those up to the mature age of 26. Indeed, the evidence from 1075 the National Association of Citizens Advice Bureaux gives a string of examples of people aged under 26 who were earning unacceptably low wages. A young woman working as a receptionist for a Devon solicitor was earning £50 for a 34-hour week. A young man working for a local radio station in Lancashire was earning £60 for a 45-hour week. Those levels of wages are just as unacceptable as they would be for someone aged 36 or 46 doing an equivalent job. When the low pay commission reports, we look forward to seeing that there will be a combination of a limited exemption for those at the bottom end of the post-teenage group and protection for those at the top end and the older groups.
Finallly, in terms of variation, we come to the issue on which these Benches differ from the Government, namely regional variations. The argument, stated simply, is that if the cost of living varies between regions there is a strong prima facie case for having a different minimum wage in those regions. The cost of living differs. We have heard about London weighting and know that housing costs vary considerably between the regions. Here I may disagree with the noble Lord, Lord McCarthy, although in London the number of people who will be affected is 10 per cent. and it would only be 18 per cent. in the north-west, that is nearly double, a big difference. This is an area that needs careful scrutiny by the low pay commission. It may be, as the noble Baroness, Lady Turner, said, that when that has been undertaken the degree of regional variation may not be very great. But it seems to us that, first, it should be considered seriously. Secondly, even though it may not be a great variation, a small variation could be quite significant. Therefore, it merits careful thought. We shall return to that in Committee.
That brings me to the role of the low pay commission. As a number of noble Lords said, the simplicity of the Bill is a great strength. But it has been clear from the debates so far in another place that a whole range of issues is likely to arise relating to the interpretation of the Bill when it becomes an Act which the low pay commission will need to examine. For example, we may need further exemptions, and a number have emerged during the passage of the Bill to date. We may need further clarification on existing exemptions, and, for example, the position of voluntary workers was developed during the Committee stage and later stages in the other place. It may need developing further.
The question of young people needs to be looked at as well as benefits in kind. The whole issue of monitoring, coupled with research and implementation of the Bill, needs to be examined. Therefore, we believe strongly that the low pay commission should be placed on a permanent and statutory basis; it should have powers to take initiatives and not be beholden to the Secretary of State for requests for specific pieces of work to be done. We shall return to that at a later stage.
Finally, on enforcement, as the noble Lord, Lord Wedderburn said, no rights are stronger than their sanction. We have a certain amount of concern about the extent to which it would be possible effectively to enforce the measures in the Bill. We have heard and know that a large proportion of employers who will be caught by the legislation are small employers. We also 1076 know that despite the protection in the Bill for workers who assert their rights, many workers are likely to be deterred from complaining either through fear of the consequences or through finding the thought of going to an employment tribunal too daunting. I hope therefore that the enforcement of the Bill will be possible or will not be reduced by there being a shortage of resources. One cheap suggestion in terms of how enforcement of the Bill might be made effective is that the Government are looking at the concept of naming and shaming in another context. It occurs to me that perhaps they should think of naming and shaming poor payers. It might work wonders.
The National Minimum Wage Bill is about fairness and social justice. We have some differences with the Government on specific aspects of the Bill, as I have made clear. But we do not disagree with its principle. We look forward to the debates in Committee and to the later stages as well as to the eventual passage of an improved National Minimum Wage Bill.
§ 10.50 p.m.
§ Baroness Seccombe
My Lords, I add my thanks to the noble Lord, Lord Clinton-Davis, for his generous remarks. I wish I could be as generous about his contribution, but I am sure he knows that we will agree to differ.
We on this side accept that this misguided measure is part of the Government's programme. We tried to dissuade them from it; economists tried to educate them against it; business tried to influence them against it; above all, small and medium-sized businesses begged them not to go ahead with it. But all to no avail. Labour were determined to go ahead with it. Why? Not because this measure will create a single job; it will destroy them. Not because it will make life easier for business; it will bind them even tighter in a noose of bureaucracy and regulation. Not because it will make people wealthier; it will make many people poorer by depriving them of work. Why then?
Because of old Labour dogma. This Bill is part and parcel of the deal that still binds the Labour Party to a few powerful unions. Those unions made the minimum wage part of their political mantra. It was first sung in the old socialist anti-enterprise age of Michael Foot and Jack Jones. It is still being sung today in a world that has completely and utterly changed. What a pity that a government, so intent on modernising everything that does not need to be modernised, did not act to modernise this absurd piece of old Labour dogma.
That said, of course we accept that the Government must have this Bill. But we intend to subject it to close and detailed scrutiny in the hope that we may persuade the Government to reduce its impact on business and the low paid, who will be the biggest sufferers. We have heard, in this excellent debate today, many good reasons for altering and reconsidering parts of the Bill. I hope that we shall have a chance to pursue some of those in Committee. But how much we would be helped in this place if we were given some clear indication of what the minimum wage will actually be before Parliament is invited to pass the Bill. This is a bad procedure, as my 1077 noble friend Lady Miller of Hendon said. I understand that the Low Pay Commission will report in May. Will the Minister therefore give an undertaking to this House in his wind-up that he will report to us on the findings of the Commission and the Government's reaction to it before inviting a Third Reading for the measure before us today?
A minimum wage is not a good way to help the poor. Many low-income earners tend to be on their way to higher paid employment anyway; many others are working part-time for low wages out of choice; they are not the main income earners in a household. As the noble Lord, Lord Harris of High Cross, said, this Bill may deprive earners of getting on the ladder in the first place, and deprive some part-timers of the chance to find any work.
The chairman of the Low Pay Commission admitted, as famously once did the Deputy Prime Minister, that he would be surprised if there were not some job losses. He implied that those jobs might be better lost anyway. Jobs better lost? Someone who has the commitment to take a job must be truly disheartened by such a view coming from someone whose earnings were reported to have been over £200,000 a year. I believe that the way to raise wages is to enhance the success and the profits of employers. That will not be done by adding to burdens on employers and increasing the complexity of taking on new staff.
Look at what happened in France, as my noble friend Lord Bridgeman said. When the noble Lord, Lord McCarthy, mentioned other countries, I noticed that he did not include France in his list of countries which have a minimum wage. There they have a minimum wage of £3.60 per hour, and they have raised the threshold of the wage. But in France the Wall Street Journal reported that real earnings of the lowest-paid 10 per cent. of the workforce rose by only 4 per cent. in the 10 years to 1997, compared with a 13.8 per cent. rise in the same period in unregulated Great Britain. Yet for such little relative gain, the rise in unemployment among the young in France has been truly terrifying. I shudder to think that we should go down that road.
What will be the impact of this measure on public services? Will the Minister undertake to write to me on this before we come to Committee stage? Will he specifically set out how many employees of the health service would be affected by a minimum wage set at £3.70 an hour or £4 an hour? What would be the costs of implementing the minimum wage in the NHS at those levels? Are any sums allowed for a minimum wage in the expenditure plans for the NHS, and, specifically, in the extra money announced by the Chancellor in the Budget last Tuesday? If so, on what level of wage are the Government's plans predicated?
We welcome that the Armed Forces are now exempted from the Bill. That was the result of much pressure, not least from some on these Benches. We understand the exemption also for share fishermen. But, in the light of the fact that the Government have abandoned their commitment to a uniform national wage, will the Minister now consider specific exemptions for small and medium-sized businesses in those sectors of industry most open to shifts in cash flow or to the sudden impact 1078 of a minimum wage? Will he also undertake to review the draconian enforcement powers and fines proposed for small companies in technical breach of the requirements of this legislation?
Industry as a whole and the millions of businesses that make it up are inherently different. It must be nonsense, I believe, to seek to impose a single minimum wage across all industry in every area. I do feel that I, as a rural village resident, must refer to one matter which does concern me greatly. Perhaps I may give an example of a small delicatessen in a village—very different from a large employer like Tesco. The owner works hard but needs additional help. She consequently employs three people part-time. This is the type of work and the hours that suit them. One is able to walk to work, the second cycles and the third sometimes cycles and sometimes arrives by car. This is their choice. Obviously travel to work for them is inexpensive as none of them has to travel more than one mile, which is very different from those who commute to London. They know that the owner makes just enough profit to keep the business afloat and that any extra financial pressure will in all probability result in the closure of the shop. I know I do not have to remind your Lordships of the dramatic decline in the number of village shops in rural areas and I am desperately alarmed that the implementation of this legislation would result in the demise of thousands of village shops country-wide.
The three employees I have referred to know only too well that the only alternative employment available would involve them in travel of at least 10 miles or so, which means extra expense and extra time away from home. This type of employment is often combined with family responsibility, when time is of the essence. I cannot for the life of me see why employer and employee in these circumstances should not make their own arrangements.
If the Government go ahead with this legislation they will have to accept that business closures will lead to extensive unemployment in country areas. It seems to me, therefore, that, as I have said before, in this Bill we can see that Old Labour is alive and well and that government action will result in elderly people in villages who do not own cars suffering as their local shops disappear in addition to the rise in rural unemployment.
But if the Government are as determined as they seem to be to press ahead with this damaging measure, I beg them to consider carefully and constructively some of the many pleas for moderation and exemptions from this measure that we have heard today and which we on this side will want to explore further as the Bill makes its way through the House. Tonight's debate has highlighted the many issues of concern and set alarm bells ringing. We look forward to scrutinising those issues at the next stage of the Bill.
§ 10.59 p.m.
§ The Solicitor-General (Lord Falconer of Thoroton)
My Lords, I believe that the expectations of my noble friend Lord Clinton-Davis have been fully realised. This debate has been an interesting one and of the highest possible quality. Perhaps I may pay a particular tribute to the noble Baroness, Lady Seccombe. I understand that 1079 this is the first time that she has wound up such a debate. Perhaps I may say, without any degree of patronisation, what an excellent speech it was.
A number of points have been made in the debate; but I first of all draw attention to the depth and quality of the speeches made in support of the Bill. I refer first to the speech of the noble Baroness, Lady Turner of Camden, who was assistant general-secretary of a union. She brought before the House specific examples of the effect of low, exploitative pay. I refer to the speech of the noble Lord, Lord Wedderburn, who is one of the most distinguished labour lawyers in this country. He went into detail about how people are exploited by way of low wages. He gave chapter and verse of the way they are exploited by low wages brought on them by people in a position to abuse them. I draw attention to the speech of my noble friend Lord Evans of Parkside who gave detailed and personal examples of his impressive history in a shipyard and the consequences of low and exploitative wages there. I draw attention to the speech of my noble friend Lord Thomas of Macclesfield who was the head of a business which employed a large number of people. He made the point with force and authority that employing people and paying them a decent wage means that the employer invests more in the employee and makes him or her more worth training and fitted for the economic society in which we live.
I refer to the speech of my noble friend Lord McCarthy who completely demolished the arguments advanced about job losses. So far as I am concerned, he made my reply almost redundant. The noble Lord is one of the most distinguished industrial economists in the country. I draw attention to the speech of the noble Lord, Lord Davies, who described the struggles that had been made on behalf of the unions to obtain a minimum wage over a long period of time. I draw attention to the speech of the noble Lord, Lord Monkswell, who effectively demolished the arguments advanced about the USA by the noble Baroness, Lady Miller of Hendon.
The speeches drew attention to two particular things. They drew attention to the extent to which people are exploited by the use of low wages. Did anyone on the other side of the House refer to that in their speeches? Not one of them did. The speeches made the second point that if one pays people decent wages, one gets more out of them and the company improves. Did any noble Lord who spoke against the Bill or its detail refer to that point? Not one of them did.
The case for a minimum wage is a case for decency and fairness; but it is also a case for improving employment practices and the quality of the work that is done. That case requires to be met, but it was not addressed for one moment by those who oppose the Bill.
What were the arguments advanced against the minimum wage? The noble Baroness, Lady Miller of Hendon, made very tired arguments sound fresh and exciting. She began with something she described as "the myth of the mandate". She sneered at the Labour Party for doing that which it promised to do in its manifesto. She said that what we had to do in the manifesto was a myth. She told us that she had been 1080 training canvassers for the past 25 years for the Conservative Party. I dread to think what she told them to say on the doorstep if that is the view she took in relation to the myth of the mandate.
She then referred to the myth of the USA. She simply selected one part of the material relating to the question of whether the minimum wage causes job losses. She said that one can draw no conclusions from the USA. She, like many other speakers, then addressed the issue of job losses. She said that it was plain that if a minimum wage were introduced, there would be job losses. My noble friend Lord McCarthy completely demolished those arguments.
Perhaps I may repeat the highlights in relation to it. In considering whether job losses will be caused, one has to have regard to the rate at which the minimum wage will be set. If it is set at a sensible level, the broad opinion of academics and those who have done research is that it will not cause job losses.
What is the material on which the Conservatives rely to suggest that it will cause job losses? It depends on the day of the week and the particular Conservative to whom one is listening. As my noble friend Lord McCarthy said, sometimes the figure is 975,000; sometimes it is 60,000; sometimes it is 1.6 million, and I have even heard it said that 2 million jobs will be lost. What is the material on which they are relying? They ignore the studies about the effect of the wages councils which showed that they did not have a negative effect on jobs. They ignore the studies of the USA and other countries with minimum wages which show that there are no negative effects on jobs.
The Conservatives rely on figures based on assumptions that they themselves create. The particular favourite at the moment is the 1996 DTI figure which was based on a minimum wage of £4.15 and an assumption that differentials would rise by 50 per cent. right up the hierarchy. As I understand the position of the Conservatives, if there was such a minimum wage, the earnings of the chairman of National Westminster Bank would rise by an appropriate percentage to preserve the differential. With respect to the Conservatives, that is completely bogus. I would respectfully suggest in relation to the issue of job losses that, instead of simply selecting figures that suit a particular prejudice, all the evidence is considered in the round.
The next argument advanced by those opposed to the minimum wage was the question of differentials. They have said that the inevitable effect of introducing a minimum wage is that earnings will increase for all above the lowest paid and right up the scale. They say that that is what the unions would inevitably seek. My noble friend Lord Clinton-Davis, drawing on evidence from a recent report by Income Data Services, effectively demolished the argument that differential rises would occur—no noble Lord has referred to the study of Income Data Services. That argument was simply advanced as a matter of assertion with no evidence whatsoever to support it. There almost certainly will be instances where the pay of a particular group of workers and of their supervisors will both be 1081 below whatever level is set for the minimum wage. Clearly, in those circumstances the arrival of the minimum wage will entirely wipe out the existing pay differential and will need to be addressed. That can be done only by the employer and workers concerned. However, we do not accept the notion that higher paid workers will queue up for consequential adjustments to their own pay rates. There is no such evidence. People are more concerned with their own pay—
§ Lord Burnham
My Lords, I thank the noble and learned Lord for giving way. If he thinks that there is no such evidence that there will be a demand to maintain differentials, he should talk to his noble friend Lady Dean of Thornton-le-Fylde with regard to the printing unions in her time as general-secretary of SOGAT.
§ Lord Falconer of Thoroton
My Lords, I can tell the noble Lord one thing: the printing unions were not having their wages raised by any effect of the minimum wage. The question we are addressing here is what effect the minimum wage will have on differentials. Not one jot of evidence has been produced to suggest that it would have the sort of significant effect that noble Lords are suggesting. People are more concerned with their own pay and with the pay of those with whom they are accustomed to compare themselves than they are with what people elsewhere in the pay range may or may not be getting.
The next basis of attack on our proposals relates to the level at which the minimum wage will be set and to the question, "Why does the Bill not state what the level of the minimum wage will be?" Again, I submit that my noble friend Lord McCarthy dealt with that extremely effectively. We are putting in place a mechanism for the fixing of a minimum wage. That minimum wage will not last for ever. A time will come when it will have to be changed. If one followed the proposals made by noble Lords opposite one would have a huge amount of consultation. One would then decide on the minimum wage and introduce primary legislation. By the time that had reached the statute book the minimum wage decided upon would probably be out of date. Surely, the most sensible way to deal with it is to establish a mechanism for a minimum wage to be fixed after proper consultation.
Next, noble Lords ask why we do not know what the low pay commission has said about the issue. The reason is that that body is considering the matter at the moment. We believe that the two-track approach we have adopted—establishment of the mechanism by which the minimum wage can be fixed and, at the same time, consultation with the low pay commission—means that the matter can be dealt with as expeditiously as possible. But that occurs only after consideration has been given to all the issues by an independent body such as the low pay commission made up of representatives of the employers' side, the employees' side and small businesses.
It was also said that, surely, there should be an exemption for small firms. We appear to have given the impression that low pay is endemic in the small business 1082 community. It is not. Not all small firms by any means are low payers. Who, then, would benefit from a small firms exemption? The answer is that the beneficiaries in the main would be the more disreputable employers—those who competed solely on poverty pay rather than quality and service and those who forced reputable businesses to pay low wages so that they could continue to compete. In popular terminology, they are the cowboys.
Many small firms are on their way to becoming big firms while others, quite rightly, are content to remain modest in size. The Government recognise that small and growing firms are the bedrock of a successful enterprise economy. We appreciate that to run a small firm takes dedication, hard work, drive and imagination. We are taking steps to nurture this area of the economy with a number of policies that are particularly helpful to this sector. In his Budget speech last week the Chancellor announced a wide range of measures to help small firms. However, we shall not exempt small firms from paying the minimum wage. As my noble friend said earlier, employees of small firms are as entitled to receive protection from low pay as those who work for larger companies. This has been increasingly recognised by small firms themselves. I believe that the majority of them would be affronted if they were left out of the minimum wage legislation to form some kind of low-paying ghetto where morale and esteem would be as low as the pay rates.
Nevertheless, recognising as we do the importance of small firms to the economy and the special circumstances within which they operate, we have asked the low pay commission to take full account of the impact of the national minimum wage on small firms when formulating its recommendations. We do not believe that administrative and enforcement arrangements arising out of the legislation should be unduly burdensome for smaller businesses.
The noble Baroness, Lady Seccombe, gave the example of the small country shop. She did not tell us the rates of pay. The effect on the small country shop in relation to the minimum wage will depend on the level at which it is set but, as I have made clear, the low pay commission is to consider the effect on small businesses along with all other businesses when fixing the advice it gives on the level of the minimum wage.
The noble Viscount, Lord Oxfuird, asked about competitiveness. Perhaps I misquote him. I believe he said that the only person who mattered was the customer. That is not the view of noble Lords on this side of the House. We believe that the customer is not the only person who matters. There is an obligation to treat employees with fairness and decency. We also believe that if they are so treated it is likely that the business will be run better and that the customer will thereby benefit. Just to take the narrow view that everything must be sacrificed to the customer is short-term and unfair.
The Viscount of Oxfuird
My Lords, I thank the noble and learned Lord for giving way. He may be aware of total quality management and the programme under ISO 9000 which places the customer first, and 1083 obviously also accommodates the argument that he put forward. They can live together, but it is the customer first.
§ Lord Falconer of Thoroton
My Lords, I was just responding to the noble Viscount's remarks to the effect that it was only the customer who mattered. That is not the view that we take. What the noble Viscount just said amends and dilutes what he said earlier. We do not believe that so far as concerns competitiveness it is a legitimate argument against the minimum wage Bill. On competition with third world economies, most people who are being paid below minimum levels at the moment are not in businesses that are competing, as my noble friend Lord Clinton-Davis said, with manufacturing industries in Bangladesh or such places; they are businesses employing cleaners at Manchester airport at £1.30 an hour. They are not competing with any third world economy paying low rates.
In any event we believe that the way companies should compete is not on the basis of poverty pay; it is on the basis of quality of service or the quality of goods they produce. We further believe that it is beneficial to the economy as a whole that companies should be prevented from competing on such an unfair basis.
Those were the main arguments advanced against the principle of the minimum wage as a whole. As a matter of decency and fairness and as a matter of logic those arguments do not hold water. It is not without significance that the arguments in favour of the minimum wage were never addressed by those on the other side of the House.
I shall refer now to the speeches made on behalf of the Liberal Democrats by the noble Lords, Lord Razzall and Lord Newby. We are grateful for the support that they have given in principle to the Bill. We believe that they are right to give it their support. We may differ on a number of details, but we do differ on one major issue; namely, regional variation in relation to the minimum wage. They favour a regional variation in relation to a minimum wage. We do not.
§ Lord Razzall
My Lords, the noble and learned Lord attributes to us a view that we do not have. We favour the low pay commission being given the power to examine whether there should be regional variations. We would not be so presumptive as to say that we have decided that there should be regional variations but that the low pay commission should be given that power.
§ Lord Falconer of Thoroton
My Lords, fair enough. The Government believe that there should not be regional variations. The arguments against regional variations are strong. We said in our manifesto—we believe it right, not just because we said it in our manifesto, but as a matter of principle—that there should be a simple, easily understood minimum wage.
1084 If there is one minimum wage for the whole country, save for the possibility of those who are 26 or under, that would lead to a much easier, unbureaucratic and well-understood system of minimum wage. If one has regional variations one has the problem of identifying what are the regions; what happens if one works in two places; what happens if one lives in one place and works in another. Low pay is low pay wherever one lives. The purpose of the Bill is to eliminate it.
Moreover, to adopt a regional basis is not to deal with the problem that in many regions there are pockets of low pay and pockets of high pay. What happens if we have lots and lots of regional variations? Do we have six regions, 10 regions or 20 regions? Will they be uprated altogether or separately?
How will you deal with that position? We do not want to create low pay ghettos. Low rates of pay in some areas would act contrary to the Government's aim, which is to encourage firms to compete in terms of the quality of the goods and services they provide and not to focus on low prices based on rock bottom rates of pay. We believe that if you have a regional system of variation you will eventually "ghettoise" and institutionalise low pay in certain regions of the country. We therefore believe that a regional variation scheme will not achieve the overall goals of the Bill, and we reject it.
A number of your Lordships asked why we had adopted 26 as the possible exemption age for young people. The low pay commission is considering whether there should be exemptions or lower rates for people under 26 and we do not know what advice it will give. We took that figure because people under the age of 26 are defined as young people for the purposes of student support, social security payments such as income related benefits and the jobseeker's allowance and the new deal. In practice, that means that some people could join the new deal on the day before they reach the age of 26 and therefore would be working under the new deal at the age of 25. Therefore, a cut off point of under 26 has been chosen.
A number of noble Lords asked what would happen if just before one reached the age of 26 the lower rate were adopted. Would one then be fired by the employer? We sought to provide protection in relation to that by making it a ground of unfair dismissal if someone is dismissed because he is about to receive the benefit of the minimum wage or go into a higher bracket in relation to it.
I have dealt with all the major points raised in the debate. The Bill is delivering on a major manifesto promise. It is part of the Government's policy to make work pay. We have been waiting for the Bill for a considerable length of time and it is long overdue. I commend it to the House.
On Question, Bill read a second time, and committed to a Committee of the Whole House.
House adjourned at twenty-three minutes past eleven o'clock.