HL Deb 24 July 2001 vol 626 cc1908-15

3.42 p.m.

The Parliamentary Under-Secretary of State, Department of Trade and Industry (Lord Sainsbury of Turville)

rose to move, That the draft regulations laid before the House on 5th July be approved [2nd Report from the Joint Committee].

The noble Lord said: My Lords, I am pleased to present these amending regulations to your Lordships. They are primarily about increasing the main rate, and the development rate, of the national minimum wage.

The national minimum wage is an outstanding success. It is now very widely recognised that it was sensibly introduced and effectively implemented, and that it is helping all those it was designed to help without causing any significant problems to the economy.

The independent Low Pay Commission has a key role to play in this policy. The Low Pay Commission not only makes unanimous recommendations on rate increases and other changes to the regulations as appropriate; it also monitors the impact of the policy so far by looking at the official data and also, crucially, by talking to the small businesses and other employers, the workers, the sectors, the advice groups and so on who are in the front line. It has found none of the dire consequences predicted by opponents of the minimum wage. Indeed, its success has now converted all but the most blinkered critics into supporters of this policy, though with varying degrees of enthusiasm.

The Low Pay Commission submitted its report this year in two volumes. In March, it presented us with Volume One, which contained the recommendation to increase the main rate to £4.10 an hour from the current £3.70 an hour. That report also contained a great deal of very interesting evidence and findings about how the minimum wage had impacted on the country so far. It is comprehensive and it challenges many of the assumptions that have been made about the effects of legislating in this particular part of the labour market. Above all, Volume One found that, results from research … show that the effect of the minimum wage on employment was broadly neutral or, if anything, mildly positive". So much for the collapse of the economy and the predictions of millions of job losses.

I repeated a Statement in this place on 5th March of this year about the main rate increase from £3.70 an hour to £4.10 an hour. We now have the regulations before the House. I should like to say a few more words on the subject.

The first point to note is that, like all its reports and recommendations, this was unanimously agreed by the members of the Low Pay Commission, which includes a small business person, the Deputy Director-General of the CBI and one other business person, as well as academic experts and leading trade unionists. This was a balanced recommendation based on factual analysis and the consultations and evidence gathered over the preceding year. A rise to £4.10 represents an increase of 5.4 per cent a year over the period of two-and-a-half-years since the introduction of the minimum wage in April 1999. It is roughly in line with rises in average earnings over that period.

In our Regulatory Impact Assessment, the Government noted that, whilst its impact on the overall wage bill of employers will be small, the rise will be of significant benefit to workers on low incomes, especially those who are paid at the prevailing minimum wage rate". Or, as the Low Pay Commission put it: We believe we have recommended an increase … which will be manageable by low-paying sectors, but will still provide low-paid workers with a substantial rise in their hourly earnings". The Low Pay Commission submitted Volume Two of its third report at the start of June. This volume covers the development rate for younger workers and for adult workers who are receiving training at the start of their jobs. It looks at the age at which the main, adult rate should apply. It looks at the future role of the LPC itself. It also covers quite a number of other detailed issues around implementation and coverage.

The LPC recommended that the development rate should rise from £3.20 an hour to £3.50 an hour on 1st October, and the Government agreed. The regulations that we are considering here today effect that change. This represents an increase of around 6.7 per cent a year since April 1999— slightly higher as a percentage than the main rate because the initial rate was lower than the £3.20 recommended by the LPC in its first report.

One of the most welcome findings in the LPC report was that the rise in employment levels of young workers was actually greater than the average rise in employment across all ages. That is a significant finding. It supports our case for having a lower rate for young workers. International studies have shown that countries that apply a single rate to all workers aged 18 or over can sometimes experience problems with worsening youth unemployment among the unskilled. However, I know that this is a sensitive issue. The LPC indicated that it would like to keep the whole question of age coverage under review. The Government have accepted that recommendation. We do not want to take risks with young people's jobs. Our success in getting young people back to work is one of our proudest achievements. We want to do nothing that might jeopardise that.

Perhaps I may say a few words about the sectors that are likely to be most affected by the rate increases; namely, sectors such as hospitality and social care. The LPC is well aware of the sectors where low pay is a particular problem. Its reports have looked into those areas in great detail, both in terms of the effects so far and the likely effects of the rise in October. The commission found that some sectors would, of course, be more affected than others. It also found particular issues in respect of care homes that we are following up with relevant government departments, because they link into the whole question of the provision and funding of social care.

But, overall, the Low Pay Commission concluded that there was no reason why the same positive response that it had found from most companies in 1999 on the introduction of the national minimum wage should not also be found in 2001, with this increase. Perhaps I may reiterate that the increase restores the original value of the national minimum wage; it is not "inflation-busting". It will cover roughly the same number of workers—1.5 million—as the £3.60 did in 1999.

So far, I have refrained from quoting lists of figures from the LPC report, but I should now like to do so in order to explain what we mean when we talk about a "positive response" from businesses. The following facts come from Appendix 2, Volume One, of the third report of the Low Pay Commission which gives the result of the LPC's own survey of firms—mostly small firms—in low paying sectors. Almost a third of respondents that were affected by the national minimum wage said that they had benefited from it. Higher staff motivation was the most common benefit. One third of childcare business, for example, had seen increases in motivation. Other benefits included lower staff turnover, the faster filling of vacancies and increased productivity.

Increasing productivity does not mean laying off workers or lengthening hours. About one third of businesses said that they had responded by increasing their investment in training and development. About the same proportion reported an improved quality of service.

However, we are not complacent. It is only fair to point out that some respondents also reported increases in prices or reductions in profits. Our task now is to ensure that businesses respond in a positive rather than a negative way to the new national minimum wage rate.

Two other changes are brought about by the regulations. First, and in line with another recommendation of the Low Pay Commission, we are proposing to increase the maximum allowable offset for accommodation. This will go up in line with the rate increases.

The Low Pay Commission has recommended that these maximum amounts increase to £3.25 a day, or 57p an hour, up to a maximum of £22.75 a week. This is in line with the increases to the rates and therefore preserves the real value of the offset. We know that some particular business lobbies have called for a much higher maximum offset to reflect the real market value of the accommodation provided. But there are real difficulties with trying to make an accommodation offset represent a real cost or value.

First, on a point of principle, we want the majority of the minimum wage to be paid in money, not as a benefit in kind. And on a practical point, there is no way of establishing the "right" rate in market terms. Rents vary enormously from region to region and even from month to month. What is "the right rate" for hotel workers in central London, for gamekeepers in the Highlands of Scotland, for waiters in a bar in Blackpool? That is why we agree with the Low Pay Commission that the accommodation offset should remain a token recognition of the value of accommodation which can be applied universally to all sectors and regions.

Secondly, the regulations change the definition of "accredited training" to reflect changes to legislation on education and skills. This is a bit of "good housekeeping" and does not affect policy. In brief, the development rate can be applied to adults in the first six months of their new job, provided that the employer can show he is receiving accredited training in that period.

The original regulations defined accredited training as being any course which was listed in Schedule 2(a) of the Further and Higher Education Act 1992. That Act has now been repealed and replaced by the Learning and Skills Act 2000. The amending regulations therefore refer to Sections 97, 98 and 99 of that Act, but we have kept in a reference to Schedule 2 of the now repealed Act, too, to ensure that nothing falls between the gaps in the transitional period before those sections of the new Act are brought into force.

All these changes come into force on the same day—1st October this year. I have no hesitation whatever in commending these regulations to the House and I am confident that they will enjoy the support of all Members. I truly believe that the way the minimum wage has been introduced and maintained is an example of consultative policy-making at its best and I urge the House to support the rate increases and other changes. I beg to move.

Moved. That the draft regulations laid before the House on 5th July be approved. [2nd Report from the Joint Committee].—(Lord Sainsbury of Turville.)

Lord Astor of Hever

My Lords, I am grateful to the Minister for explaining these regulations in great detail. Having opposed the introduction of the national minimum wage for reasons which we considered valid at the time, we naturally accept them as a fact. We are pleased that our predictions about their effect on unemployment have not yet come to pass. That is not to say that they never will. It all depends on the state of the economy. At the moment, the economy continues to do well under the momentum that the previous Conservative government provided. With the economy strong in most areas, employment has continued to do well with it. The real test will come if, as is predicted, the economy turns down and the Chancellor suffers together with the rest of us from a bust. Then it will be seen what effect the national minimum wage has on the vulnerable low-paid sector of employment.

With that caveat, we accept the regulations and will not oppose their passage.

Lord Razzall

My Lords, perhaps I may add to the remarks made by the noble Lord, Lord Astor of Hever. The Minister will remember that we have consistently supported the passage of the minimum wage legislation and the regulations under it as it passed through this House.

As an aside, perhaps I may say that I had always assumed that economic activity was the result of the activities and work of the employees and workers of the country not of government. But I bow to the assumption of the previous speaker that the economy is sound because of the actions of the previous administration.

When the Act and regulations came before the House we had reservations about two issues. The first involved whether there should be a regional variation of the minimum wage. In dialogue with the Minister in recent years, we have indicated that from these Benches we have changed our mind with regard to regional variation. We accept the position of the Government and of the Low Pay Commission that regional variation, as we originally advocated, was not a sensible policy. At the levels at which the minimum wage has been introduced, we accept that a regional variation would not be acceptable.

I listened carefully to the Minister's remarks on a differential rate for 18 to 21 year-olds. We have significant concern about that. The experience of 18 to 21 year-olds, in particular in the catering industry in the south of England, leads one to believe that a differential rate for 18 to 21 year-olds may be unfair. If the Minister cares to attend almost any public house or restaurant south of a line from the Wash to the Bristol Channel I doubt that he will be served by anyone born in the United Kingdom. He is most likely to be served by an Australian, a South African or someone from the Balkans or the European Union. In the south of England, therefore, I do not think that there would be unemployment fears if the rate were brought into line with the adult rate.

The Minister indicated that the Low Pay Commission wanted to keep in mind the differential rate. I hope that the Government will retain art open mind should the Low Pay Commission recommend a narrowing of the differential or its elimination.

I have two final points, the first of which I have made previously to the Minister. In debate on the Act, we were concerned that the permanence of the Low Pay Commission should be enshrined in government thinking. I welcome confirmation from the noble Lord that the Low Pay Commission will be with us for ever. I believe that he gave that commitment previously. It is important that we have objective surveys if the minimum wage is always to be part of our life.

With the current operation of the national minimum wage, what is the position regarding evasion? Do the Government have statistics on the extent to which employers of the wrong kind are evading the regulations? To what extent is that regarded as a problem?

Lord Lea of Crondall

My Lords, in welcoming the regulations perhaps I may ask two questions. First, does the Minister agree that the introduction of the regulations on the basis of the evidence of the first year or so of implementation is a tribute to the whole process? The Government are to be congratulated, as are the social partners involved in the strategy and its implementation. It is a good demonstration of how to close the gap between Parliament and the people. It is perhaps the best example of something that the Government have done that is immediately recognised on the doorstep, along with the legislation on four weeks' holiday. Interestingly, it is also a reform of particular relevance to the most marginalised in society. We hear a lot about the marginalised in debates among the chattering classes—we have to include ourselves in that group—but this is a practical measure that is targeted, laser beam-style, at the most marginal in our society.

It is good to hear that, albeit with some caveats, the Opposition now admit that they got it wrong, at least for a period of time. I think that period of time will continue. It is also fair to say that the Opposition are tacitly conceding that they got it wrong when they said that the whole of industry and commerce would be smothered in red tape as a result of the introduction of the minimum wage. Leading on to the question asked by the noble Lord, Lord Razzall, does my noble friend agree that the national minimum wage, which is a remarkable innovation in the tradition of British industrial relations of voluntary collective bargaining, has been carried through with a light touch? The lack of regional variation also means that the figure is easily recognisable. Whatever the figure—£4, £4.10 or £4.20—it is known to everybody.

It is also worth congratulating our friends in the Inland Revenue. Those are not words that we hear very often. The fact that no one ever hears about the Inland Revenue's enforcement department suggests that it is doing its job pretty well.

Does the Minister agree that the figure for nonpayments—it is hard to be certain about this, but one hears informal guesstimates of 200,000—should be kept under active review together with the Low Pay Commission to see whether some fine-tuning is needed in due course?

Lord Monson

My Lords, the eve of a Summer Recess is no time to start arguing with the Minister about the principle of the minimum wage, which compels employers to pay above the market rate. I shall leave that to economists associated with the Institute of Economic Affairs, though, alas, none of them seems to be present this afternoon.

I am sure that the Minister will concede that a minimum wage is not the same as a minimum standard of living. A minimum standard of living is a highly desirable objective, but it can be achieved without introducing a minimum wage. Indeed, the latter might even lower the standard of living of certain unskilled prospective employees if it is set so high that employers no longer feel that it is worthwhile to employ them.

The Minister has given some interesting statistics and things seem to have turned out better than expected so far, but, as was said from the Conservative Front Bench, we are in uncharted waters. The rate is going up by about 11 per cent. Things may look different a year from now, particularly as the country appears to be going into recession.

I have no interest to declare on this point, but the least desirable aspect of the issue is the derisory allowance made for accommodation provided by the employer. The figure of £22.80 a week is probably half what it really costs an employer to provide accommodation for an employee anywhere in London or the South-East and about two thirds of what it would cost in the West Country or the North of England. I think that is an error, but there is nothing that I can do about it, so I shall simply sit down.

Lord Sainsbury of Turville

My Lords, I do not know whether the general acceptance of the regulations is due to them being very good legislation or the fact that the summer holidays start after this debate. It is encouraging that there is now such wide support for the national minimum wage.

People will note that, even at this late stage, the Opposition are suggesting that they are not fully supportive of the measure. It is not a measure which one can support in good economic times but decide not to back in bad economic times. One must be either for or against it. I believe that people will note that, even at this point, the Opposition are not enthusiastic about this piece of legislation.

I am glad that it is accepted by the noble Lord, Lord Razzall, that it is right to set a national level. As was said later in the debate, I believe that that is a simplifying factor which is desirable in this case. Of course, it is always open to any pub owner to pay more in order to attract workers. This is a national minimum wage, not a national minimum maximum. However, given the fact that substantial international research shows that countries which have a uniform national minimum rate have seen increases in unemployment in the 18 to 21 age range, I believe that it is right to be cautious about a national minimum wage for people aged 18 to 21.

The Government have confirmed that the Low Pay Commission is now permanent and will be given full terms of reference in due course. There remain some problems in relation to enforcement, but they are not substantial and we shall keep them under review.

We are, of course, always happy to accept that the success of any government scheme is due to its excellent implementation by the Government. I am also happy to agree that little red tape is involved in this measure. The cost of it to business is simply the cost of paying decent wages.

The question of the minimum wage and the minimum standard of living is important. The report of the Low Pay Commission shows that the national minimum wage has not led to a lowering of standards. There is absolutely no evidence of that; if anything, the reverse is true. Of course, this is not the only part of our policy which deals with the problem of low standards of living; the working families' tax credit is another.

Equally, there is no doubt that for many people the national minimum wage plays a key part in maintaining the minimum standard of living.

I hope that I have explained that it is almost impossible to provide a clear economic figure for the accommodation off-set. Equally, we want the national minimum wage essentially to be paid in the form of wages rather than accommodation. That is why we have consistently accepted the report of the Low Pay Commission which states that the figure which is set cannot be said to be the clear economic figure applying across the country but is one which provides some off-setting effect for accommodation.

I hope that I have answered all the questions that were raised. I believe that this is an excellent piece of legislation which is showing its worth. On that basis, I am very happy to commend the proposals to the House.

On Question, Motion agreed to.

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