HL Deb 05 March 2001 vol 623 cc61-71

5.55 p.m.

Lord Sainsbury of Turville

My Lords, with the leave of the House, I shall now repeat a Statement on the national minimum wage being made in another place by my right honourable friend the Secretary of State for Trade and Industry. The Statement is as follows:

"As the House will be aware, in June last year I asked the independent Low Pay Commission to produce a further report on the national minimum wage by July of this year. In particular, the commission was asked to consider whether there was a case for increasing the rate of the minimum wage.

"In considering any increase, it was required to take into account movements in earnings; the effect on employment; the impact on individual sectors, including small business; and the likely and future impact on the economy. The commission announced at the end of January that this year it would produce its report in two parts.

"The commission had a clear message from employers that the length of notice given of any changes would be critical. Today we are publishing volume one of the Low Pay Commission's third report. This looks solely at the main rate and makes recommendations to have effect on 1st October this year and next. Copies will be placed in the Library of the House.

"I would like to thank the chairman of the commission, Professor George Bain, and the other members of the commission for the time commitment and detailed consideration they have given in preparing today's report. The strength of the recommendations in the report conies from the detailed analysis and also from the fact that it is a unanimous report, agreed, for example, by the deputy General Secretary of the Transport and General Workers' Union as well as the deputy Director-General of the CBI.

"The report concludes that the minimum wage has been a success, with nearly 1.5 million people benefiting, without any adverse impact on employment or the competitive position of British business. Over 70 per cent of those benefiting from the minimum wage are women. The commission concludes that in narrowing the gender pay gap the minimum wage has had the greatest beneficial effect on women's pay since the introduction of the Equal Pay Act over 30 years ago.

"The minimum wage has also helped close the gap in regional pay differences. Since its introduction, the largest increases in average earnings have been in traditionally low paying parts of the United Kingdom. While the national average increase in earnings for the first year of the minimum wage was 3 per cent, average earnings in the North East rose by almost double that at nearly 5 per cent. In Wales, the increase in earnings was over 4 per cent and in Yorkshire and the Humber 3.5 per cent.

"The minimum wage ensures that people living throughout the United Kingdom share in the country's economic prosperity. Twenty years ago pensioners made up the largest section of those in poverty. Today it is those living in workless working-age households. Simply compensating people for their poverty through benefits is not good enough.

"The task must be to deal with the causes of poverty. The best form of welfare is work. That is why it is crucial to make work pay. The national minimum wage makes a vital contribution towards achieving this objective.

"Of course, there are those who oppose the very concept of a national minimum wage. They said that its introduction was the height of irresponsibility; that it was a cretinous idea; that it would deal a blow to low earners; and that it would cost over 1 million jobs.

"These critics have been proved wrong. Employment has increased by nearly 450,000 since the introduction of the national minimum wage in April 1999 and by over 1 million since we were elected with a clear pledge to introduce it. The number of jobs in the hotel and catering sector, which includes a high proportion of low-paid jobs, increased by 14,000 between March 1999 and September 2000.

"In recommending a new rate the commission had to satisfy itself about the likely impact of any increase. A rate that was not manageable would hurt the prospects of the very people it was meant to benefit. The commission is confident that there is scope for a significant increase in the rate. The aim has been to make recommendations which are bold enough to make a real difference but prudent enough not to have any adverse impact on employment or the economy.

"The report of the commission is unanimous. It recommends that the adult rate presently £3.70 an hour should increase to £4.10 on 1st October of this year. The Government accept that recommendation. It will mean that someone on the minimum wage and working a 40-hour week will see his earnings increase by £16 a week. It will mean a £10 a week increase for someone working 25 hours a week. Coupled with the working families' tax credit, this Government are ensuring that work pays.

"The commission also recommends that the adult rate should increase in October next year to £4.20 an hour. In principle, the Government also accept this recommendation, subject to the economic conditions prevailing at the time.

"The commission's report looks in detail at the impact of an increase to £4.10. It finds that the estimated wage bill impact will be modest—lower than the wage bill increase which resulted from the introduction of the minimum wage.

"With regard to inflation, it finds that the minimum wage had no discernible impact on the main measures of inflation. Analysis shows that the rise in the wage bill which follows from the proposed increase to £4.10 adds 0.07 per cent to inflation in the first year and 0.05 per cent in the second. This new rate for the minimum wage will apply across the board: to part-time and full-time workers; to agency staff and those who work from home.

"I understand that there are some who would exclude businesses which employ fewer than 100 people from all legal requirements apart from health and safety. That would mean nearly 8 million people being denied basic decent rights in the workplace. We reject such an approach. That is why the minimum wage will apply to all of those in work whatever the size of organisation that employs them.

"The introduction of the national minimum wage has been one of the great achievements of this government. It has already had a real and much needed impact on the lives of many hard-working people and their families—helping to raise the pay and standard of living of almost 1.5 million people. The minimum wage combines economic efficiency and social justice. Increasing it to £4.10 an hour will take people further out of poverty pay. It is a significant increase which is both affordable and will make a real difference to those who receive it. It brings reality to the phrase 'dignity of work'".

My Lords, that concludes the Statement.

6.3 p.m.

Baroness Miller of Hendon

My Lords, I thank the Minister for repeating the Statement made in another place about the national minimum wage. I also thank him for letting me have sight of the Statement more than two hours ago.

Last October the national minimum wage was increased by 10p and there was no oral Statement about it in the House. Today, the national minimum wage is to be increased by 40p and there is a Statement. Does the difference in the amount of the increase and the treatment of it in this House have anything to do with an impending general election, or am I just being somewhat cynical?

As from tomorrow, businesses will plan for this increase and adjust their payrolls accordingly, so when we come into office there will certainly be no intention to change it. However, perhaps the Minister can answer a few of our concerns. The British Chamber of Commerce estimates that since this Government have been in power the annual burden of new regulation costs is about £10 billion. Can the Minister confirm that that figure does not include the national minimum wage?

Can the Minister say how this burden, together with the new increase of 11 per cent in the national minimum wage, will affect small businesses and the impact that that will have on jobs and our competitiveness? There could be an effect on small shops, sub-post offices and care homes, to give just a few examples. I am sure that the noble Lord is aware—I refer to it anyway—that care homes receive funding of between 1 and 2 per cent from the Department of Social Security and local councils. How is the uprating of 11 per cent on the one hand and the 1 to 2 per cent funding on the other to be managed? It was said today that an average 20-bed home would have to find an extra £2,600 a year. This will probably be a problem for them. Can the noble Lord say whether the Government have given thought to such issues?

Interestingly, about a week ago I heard about a new kind of business which employs house-sitters. When a house-owner is away, people move into the house so that the property is not left empty. The reality is that the house-sitter is glad to live in a comfortable home for a while, and perhaps also feed the cat, and the owner is happy in that he does not have to pay a huge salary for that service. I read an article in a newspaper which stated that that new type of activity, which until then I had been unaware of, might go out of business because the costs would make it impossible to continue. Have the Government given thought to such businesses?

It is true that there has been a decline in unemployment over the past six years. I should be most grateful if the Minister can confirm that unemployment fell more slowly in the first three years of this Government than in the last three years of the previous Conservative government. Can the noble Lord also confirm that it is the Government and not the Low Pay Commission that must be concerned with the economic effects of the increase? I note that the Statement says that the Low Pay Commission has taken all of that into account, but at the end of the day the economic effects must be dealt with by the Government. As this particular increase is above inflation and salary increases, is the Minister absolutely satisfied that it will not have any adverse effect on jobs? Could Her Majesty's Government do anything if there was a downturn in the economy? Is there a failsafe method in case something happens?

Finally, can the Minister confirm the report of the Office for National Statistics that the sharpest rise in taxation has fallen on the poorest one-fifth of households? Since the Labour Government came into power, the tax burden on the poorest 20 per cent of households has risen from 37 to 40 per cent of gross income in 1998–99. I believe that this is a serious matter. If the House is concerned with the lowest paid—I believe that everybody is—it should be concerned equally about the extra tax burden on the poorest households as with the national minimum wage.

Lord Razzall

My Lords, I join the noble Baroness in thanking the Minister for repeating the Statement made in another place. We on the Liberal Democrat Benches agree with the Statement. No one can deny that manifestly the national minimum wage has been one of the achievements of this Government. This is perhaps the moment when noble Lords on the Tory Opposition Benches should admit that they were wrong. When the national minimum wage legislation passed through this House, they forecast that it would have a dramatic effect on employment and spell disaster for large areas of the economy of this country. The report of the Low Pay Commission, not the Government, manifestly demonstrates that that analysis was wrong. It well behoves politicians of all parties when they are wrong to say so.

Certainly, I am prepared to say that I was wrong in relation to the representations to the Government by these Benches about the regional impact of the national minimum wage. We were very concerned that to introduce an across-the-board rate for the minimum wage which applied equally to central London as to Cornwall would have distorting effects on the economies of those different regions. I am delighted that the Low Pay Commission's report demonstrates that our fears were unnecessary. I am particularly delighted by the indication in the report, which the Minister highlighted, that there have been significant regional increases in income as a result of the introduction of the minimum wage. There has been the regional disparity that we feared would not occur.

Having said that, perhaps I can ask the Minister to clarify one or two points. As he knows, and as is clear from these remarks, the Liberal Democrats have fundamentally supported the Government on the introduction of this long-needed provision. First, can I ask him to confirm—I suppose it is a statement of the obvious—that the movement of the minimum rate to £4.10, rising to £4.20, will not bring low-paid employees into the marginal tax rate problem that so bedevilled low-paid employees in the past? In other words, the marginal tax difference between being employed and not being employed was very dramatic in relation to unemployment benefit as against low pay. Perhaps the Minister can confirm that the Government have taken that matter on board.

Secondly, I would welcome some clarification on what will happen in October 2002. We can calculate that a £4.10 increase this year is a significant increase over and above the current rate. I enjoyed the reference of the noble Baroness to the pending general election and whether that might have something to do with the issue.

The Minister indicated that the rate will go up to £4.20 next year if economic circumstances permit. Perhaps he can help us on what those economic circumstances might be. An increase from £4.10 to £4.20 as a percentage is so de minimis that he cannot be contemplating that the increase to £4.20 will not happen. Therefore, is he actually saying that if economic circumstances remain buoyant, the rate will go above £4.20, or is he simply saying that the Treasury will never take the view that a year is short enough in politics to be able to give a definitive answer or a definitive commitment? I cannot see any possible prevailing economic circumstances under which £4.20 would not be a minimum appropriate figure if £4.10 is appropriate one year earlier. I would welcome the Minister's views on that matter.

My final point is one that again is consistent with the line that the Liberal Democrat Benches have taken on the Bill. We were very concerned to ensure that the Low Pay Commission stayed in place. The third report of the Low Pay Commission demonstrates the wisdom of having the commission, which in many ways takes the politics, or certainly the partisan politics, out of these issues. Can he confirm that the Low Pay Commission will remain in place and that we can look forward to many more reports from that body?

6.13 p.m.

Lord Sainsbury of Turville

My Lords, I emphasise once again that this was a unanimous report from the Low Pay Commission. It has nothing to do with a general election. We received the report, and it seemed right, having taken a decision on the matter, that we should come to the public and this House and say how we were going to treat it. I am sure that if we had left it until after the general election the noble Baroness would, as usual, have said, "Well, of course you were concealing it during the course of the general election so people didn't know the cost to industry". I am sure she will accept that it has nothing to do with a general election whatsoever.

The costs are quite clear. What the British Chamber of Commerce has in its figures is for it to say. All I need to say at this point is that there are no administrative costs involved in this issue at all. The only costs involved are the costs of paying a decent wage to people. We hope that the British Chamber of Commerce will at some point acknowledge that the national minimum wage figures in their Burden's Barometer are based on the draft regulations back in 1998 before the Government dropped certain administrative requirements. If it cares to correct that point, that would be very helpful.

Figures of £10 billion have been bandied about. May I emphasise once again that the total administrative costs are about £50 million? The rest is simply the cost of paying additional wages or giving additional holiday pay. If the other parties in this House want to say that they will roll back the national minimum wage or they will change the Working Time Directive, it is their prerogative to do so. But to confuse that with the administrative costs is constantly to try and make something of the administrative costs which is completely inappropriate.

I do not have the answer to what happens with regard to care homes, but I shall write to the noble Baroness to let her know about that particular situation. In answer to a question about the jobs of people who house-sit people's homes for them while they are away, we discussed such subjects when we introduced the national minimum wage. It was said then that all kinds of jobs would disappear. That has not proved to be the case.

So far as concerns this Government's record on unemployment in the past three years compared with the last three years of the previous government, again I do not have the figures. However, I shall be very happy to write to the noble Baroness, but I do not believe that they are totally relevant. The argument always was that there would be a sharp rise in unemployment because the national minimum wage existed. The Low Pay Commission has made it very clear that that has not happened.

I do not have the answer to the question on the marginal tax rate and how this minimum wage impacts on it. I shall write to the noble Lord, Lord Razzall, on that matter. I agree with him that it is very unlikely that there will be circumstances in which we might not want to go ahead with the £4.20 rate. But it seems right, in giving industry warning of this increase, also to be cautious and prudent and to say that if there are economic changes, it will be looked at again.

I can confirm that the Low Pay Commission will stay in place. Its latest report is a further example of how extremely valuable it is to have an independent body. It has done a great deal of work on this matter and has produced an excellent and very fair report.

6.18 p.m.

Lord Lea of Crondall

My Lords, does my noble friend agree that this welcome announcement demonstrates that the regular reporting from the Low Pay Commission—a consensus body with representatives of trade unions and employers—has stood the test of time? Although this announcement is not timed to do with any general election, nevertheless, it has been a notable achievement of the Government to get the rate up to £4.00. That was, I remember, at one stage, thought to be a far-fetched campaigning objective of the trade union movement.

Does my noble friend also agree that it is particularly welcome that the emphasis is consistent with the idea that opportunities at work are relevant and a key to dealing with the problem of endemic poverty, both in particular regions of the country and among those under-privileged sections of society and people who have normally taken the most low paid and menial jobs?

Lord Sainsbury of Turville

My Lords, I agree with my noble friend that the Low Pay Commission has done a remarkably good job. It has looked at issues that are always of great concern to government; for example, whether it would lead to a rise in unemployment or bear heavily on particular industries with low wages and therefore create unemployment. The Low Pay Commission has done that in a very detailed and fair way and its advice has been extremely helpful.

As the Secretary of State made clear in the Statement, it is fundamental to make work pay for people because that is the best way to deal with poverty. It is important, therefore, that the national minimum wage is not seen as a one-off increase, which is then allowed to wither away. It should be kept in line with the growth in earnings.

Baroness Hogg

My Lords, I apologise to the Minister for having missed the first part of his Statement: my desk, I am afraid, is in the rather far-flung territory of Abbey Gardens. However, I am reasonably confident that he has not dealt with the point I wished to put to him, as it is an example of where the right and left hands of government are not working entirely well together.

As I am sure the Minister is aware, the Inland Revenue runs a simplified deduction scheme for employers with one or two employees, but it is available only if they pay less than £160 a week to an employee. This figure is wholly out of date and becoming more so with every movement in the minimum wage; and indeed it has been out of date for some time for those who wish to pay rather more above this level. Will the Minister look at this figure to see whether he can lift the burden of filling in a number of forms which are more appropriate to a supermarket than to small employees in the economy?

Lord Sainsbury of Turville

My Lords, I would be very happy indeed to look at this matter. It has been our intention throughout to minimise problems of administrative work. We will certainly look at the situation.

Lord Davies of Coity

My Lords, having represented low-paid workers for 30 years, I welcome the Government's decision to increase the national minimum wage. However, I am a little disappointed that Her Majesty's Opposition have not also warmly welcomed this development. I think that they should acknowledge today that their prophesies of doom, which they made when the minimum wage was introduced, have not been realised.

The Opposition have asked what will be the economic effect of the increase. We are talking about raising the standards of the most vulnerable workers in this country, who represent 1.3 million out of a labour force of up to 28 million. Seventy per cent of them are women and two-thirds are part-time workers. It would be incredible even to think that by increasing the wages of low-paid workers economic disaster will follow. That reminds me of a point in the 19th century when it was said that if we did not take children out of the mines and the mills there would be economic disaster in this country. It did not occur then, and it will not occur today.

I am well aware that on 1st December 1994 in another place, when the issue of the minimum wage was raised, the right honourable Michael Portillo stated: Attempts to increase wages through legislation do not work".—[Official Report, Commons, 1/12/94; col.1366.] When I worked on wages councils, low-paid workers benefited tremendously, and I think that the Opposition should support this development.

Lord Sainsbury of Turville

My Lords, I do not think that that question was directed at me, but I should like to say that it will represent 0.14 per cent of the total wage bill, and the impact on inflation will be very small.

Lord Monson

My Lords, does the Minister agree that a national minimum wage is not the same as a national minimum standard of living? We are all in favour of a national minimum standard of living, even if actors, hill farmers and many other self-employed people do not achieve that at present. A national minimum standard of living is a desirable objective, but can it be achieved other than by compelling employers to pay certain employees more than what their output is worth to the employer, thereby leading inevitably to their speedy unemployment?

Finally—and this is a different point from that raised by the noble Baroness, Lady Miller—what about the preposterously low maximum set-off for accommodation that is provided free by the employer to the employee? At present, that allowance equates to only one-fifth over the country as a whole of the cost to the employer of providing accommodation, perhaps one-quarter in rural areas and up to one-eighth in London. Are there any plans to raise that set-off to a more realistic level?

Lord Sainsbury of Turville

My Lords, we have been working towards a national minimum standard, and the working families' tax credit is part of that strategy. It is equally important that work should pay in the context of the wages that people receive. There is an interesting relationship: if there is no national minimum wage but the working families' tax credit, then it is likely that wages will not respond as they should do. Both have to form part of a national minimum standard.

I should like to emphasise again that this unanimous report clearly states that it has not led to speedy unemployment, as some people predicted. We have seen a rapid increase in employment, and those fears were unfounded.

The accommodation point is exactly the kind of issue that the Low Pay Commission is reviewing.

Baroness Turner of Camden

My Lords, I should like to thank the Minister for repeating the Statement and for the emphasis placed on the position of women. The introduction of a national minimum wage for low-paid women has always been a priority. When I was on the EOC we expressed continued concern about the ghettos of women's employment. Women were nearly always underpaid, and it became increasingly difficult to do anything about it. As my noble friend rightly says, the minimum national wage is as much of an advance for low-paid women as the original Equal Pay Act.

I am not happy, however, about possible exceptions. The issue of care homes has already been raised. I should like to see the employees in these homes also paid the national minimum wage. Standards in some of these homes have been criticised, but if people are paid at substandard rates, that will contribute to a low level of care, something to which we should all be opposed.

Nevertheless, this is a remarkable step forward, and I am obliged to the Low Pay Commission. which has done a marvellous job. I am very grateful that we now have at least a reasonable standard for very low-paid people.

Lord Sainsbury of Turville

My Lords, I had not understood that an exception was being sought for people employed in care homes but that it was a right hand/left hand government issue about whether the care homes would be compensated and how that would be treated. On that basis, I had intended to obtain further information.

Baroness Fookes

My Lords, I urge the Minister urgently to remit to the Low Pay Commission the issue of the value of accommodation and the point raised by my noble friend Lady Miller about house sitters. It is my understanding that previously they were not classified as workers, and therefore there was no obligation to pay them the minimum wage, but the change has put the whole little industry in doubt.

Lord Sainsbury of Turville

My Lords, as far as I know, that has not been changed. I shall certainly look into the matter to see whether it has been changed and house sitters are now classified as workers. However, as far as I know, that is not part of the Statement today.

Lord Goodhart

My Lords, I wish to refer to a matter that arises out of the point mentioned by the noble Baroness, Lady Fookes. Is there a problem in the Government's eyes with avoidance? I have in mind particularly the possibility that those who are in reality employees may be told that they have to become independent contractors and that what they receive under their contracts will be less than the minimum wage.

Lord Sainsbury of Turville

My Lords, as far as I know, there is no general problem of avoidance. In fact, the extent to which industry has conformed to the national minimum wage is remarkable. It has done so almost always before the actual legislation has come forward. As far as I know, there has been no major attempt at avoidance.

Lord Brookman

My Lords, who could not be pleased to hear the Minister's announcement? After all, there are 1.5 million beneficiaries, the majority of whom are women. There are also the regional benefits, to which the noble Lord, Lord Razzall, referred. I have one question for my noble friend the Minister. He may have covered the point but I did not catch it. What is the position of young workers—those aged 18 to 21, those aged 16 to 18 and those on the magnificent New Deal, with which Labour has been so successful?

Lord Sainsbury of Turville

My Lords, we are dealing with the first part of the report of the Low Pay Commission. Volume 2 of the report is expected in May. That will cover the whole question of the rate for young workers and any other regulatory changes that are felt appropriate.