HL Deb 23 March 2004 vol 659 cc684-90

9 p.m.

Lord Davies of Oldham rose to move, That the draft regulations laid before the House on 23 February be approved [12th Report from the Joint Committee].

The noble Lord said: My Lords, there has been a slight procedural hiccup in relation to these regulations. There is a mistake on the Order Paper. The Motion refers to a draft laid on 23 February and the 12th Report of the Joint Committee on Statutory Instruments. It should refer to a new draft laid on 18 March and the 13th report of the JCSI, which was published today. Furthermore, until 7 o'clock, the Printed Paper Office was distributing the 23 February text, not the 18 March text. That has been corrected in the intervening two hours. I do not believe that either error was entirely the Government's fault. Nevertheless, I apologise on behalf of the Government. The usual channels have agreed that we should debate these regulations today, as planned, at the end of which I shall withdraw the Motion because it is not accurate. The correct Motion will then be moved and hopefully agreed formally on Thursday.

The only difference between the drafts relates to paragraph 26A(1)(a), which has been clarified in response to the recommendation made in the 12th Report of the JCSI. Today's 13th Report of the JCSI clears the new regulations without comment. I therefore believe that, far from wasting our time today, we shall be engaging in a debate to which we have all looked forward, and I apologise for that small hiccup in the proceedings.

The House will recognise that discussion of the national minimum wage always represents an occasion of joy for these Benches, because it is one of the Government's great successes. The regulations before the House today are concerned with how the minimum wage applies to output workers, including home workers. They replace the present system of fair estimate agreements with a system of fair piece rates linked to the minimum wage.

As noble Lords will know, the Government introduced the minimum wage in April 1999. We were absolutely determined that the minimum wage should be successful and that it should not lead to increased unemployment for the very people we were trying to help, nor that it should damage the economy. I believe that we have succeeded in achieving both goals.

Last week we announced that the minimum hourly rate would go up from £4.50 to £4.85 in October and that a new hourly rate of £3 would be introduced for 16 and 17 year-olds where there has been some evidence of exploitation. The minimum wage has made an enormous difference for more than a million low paid workers in the United Kingdom and has helped us to tackle the very low rates of pay that were so prevalent under the last government. There has been little or no evidence so far of any adverse impact on the employment prospects of low-paid workers. The minimum wage has been widely recognised as a success. In my view the Government can be proud of their achievement.

However, we cannot be complacent. The vast majority of employers are complying with the minimum wage. But there is some evidence that homeworkers are not receiving it. The regulations we are discussing tonight will attempt to remedy that. They will help all workers who are paid on the basis of the number of goods they produce or tasks they perform rather than the hours they work. The main beneficiaries are likely to be homeworkers who include, as I think will be recognised in all parts of the House, some of the most vulnerable people in the workforce.

The regulations replace the system of "fair estimate agreements" with a new system called "rated output work". Under the fair estimate agreements system, employers set a fair estimate of the hours needed to complete a block of work and then pay the worker the hourly rate of the national minimum wage for the hours actually worked up to the limit set in the estimate. Such a limit must be fair and will not be if it is less than four-fifths of the time that an average worker would take to do the same amount of work in the same conditions.

It seems clear that the "fair estimates" regime has been widely ignored. Part of the problem is that it is complex and difficult to administer. In practice, it has been difficult to predict the estimated hours for each block of work taken on by an individual homeworker from week to week. Also, the fact that an estimate will be fair if it is only four-fifths of the time that an average worker takes to do the block of work is very unpopular among workers. Most employers who apply the fair estimates system routinely set the estimate at this four-fifths level; that is, they do not take into account all of the time spent by the average worker. The regulations we are debating provide for a more straightforward system which will be easier for employers and employees to understand and apply.

We consulted all interested parties fully when drawing up the regulations. Perhaps it would help if I explain them in more detail. They extend to Great Britain and Northern Ireland and amend the National Minimum Wage Regulations 1999. They mainly come into force on 1 October 2004 with an amendment coming into force on 6 April 2005.

Regulation 1 provides for the new "rated output work" system to come into force on 1 October 2004. That will give affected employers sufficient time to prepare and plan for the changes. In addition, Regulation 1 provides for the coming into effect of an amendment to the system on 6 April 2005.

Regulation 2 amends the principal regulations by substituting new Regulations 24, 25 and 26 and inserting Regulation 26A. The effect of new Regulation 24 of the principal regulations is t o provide that, in relation to a type of piece produced or a type of task performed, output workers must be paid the hourly rate of the national minimum wage for all hours actually worked unless the work in question is "rated output work". Work will be rated output work only if various conditions are satisfied.

New Regulation 25 of the principal regulations sets out the various conditions. Those are that the work in relation to a type of piece produced or type of task performed is work in relation to which the contract between the employer and the worker does not set any normal minimum or maximum working hours; that the employer does not control the hours that the worker works (for example, does not set his starting or finishing time or the length of time spent in producing the piece or performing the task); that the employer has arrived at the "mean hourly output" (the average number of pieces that can be produced or tasks that can be performed in an hour) in relation to a piece or task; and that a written notice containing specified information has been given to the worker to whom the "rated output work" system is to apply.

New Regulation 25 of the principal regulations also provides that the written notice must be given to the worker before the beginning of the pay reference period (which, broadly speaking, is the period of work for which a worker is paid) and sets out the specified information to be included in the notice.

Regulation 26 provides that where the conditions relating to "rated output work" are satisfied, to determine whether the worker has been paid the minimum wage the employer must calculate the number of hours that the worker is deemed to have worked. The number of hours taken by a worker in producing the piece or performing the task is deemed to be the same number of hours as a worker working at the "mean hourly output rate" would have taken. New Regulation 26 also defines "mean hourly output rate", that is, the average number of pieces or tasks produced or performed by workers of the employer.

New Regulation 26A of the principal regulations contains provisions relating to the determination of the "mean hourly output rate" in relation to a type of piece or task. The employer must test the speed at which all his workers, or a representative sample, who produce—in similar working circumstances—the piece or perform the task work, and then divide the number of pieces produced or tasks performed in an hour by the number of workers thus tested.

Alternatively, the employer may, in certain circumstances, estimate the average speed by making an adjustment to a pre-existing test result. He may do so where the piece or task is reasonably similar to, but not the same as, the piece or task that has been the subject of the test and is being produced/performed in the same working circumstances; or where the piece or task is the same as the piece or task that has been the subject of the test, but is being produced/performed in different working circumstances.

Subsequent changes in the identity or number of the employer's workers producing the piece in question or performing the task in question do not, generally speaking, require the employer to retest or re-estimate to determine the average speed.

The effect of these provisions is that the average worker will be entitled to the national minimum wage from October this year. We want to provide some time for employers to understand and operate the new system. But by definition this means that workers who are a little slower than the average—which could be half of the relevant homeworkers—will not receive the minimum wage.

Accordingly, the effect of Regulation 3 is to provide that, from 6 April next year, most people, including those who work a little slower than the average worker, will be entitled to the minimum wage. That is achieved because Regulation 3 will ensure that the number of hours taken by a worker in producing pieces or performing tasks during the pay reference period will be treated as being 120 per cent of the number of hours that a worker working at the mean hourly output rate would have taken to produce or perform the same number of the same type of pieces or tasks.

According to the regulatory impact assessment prepared by the Department of Trade and Industry, approximately 170,000 homeworkers will be covered by the new "rated output work" system from April 2005, equating to an average benefit per worker of around £3,000 per year, before adjusting for taxes and any benefit entitlements. These proposed changes to the law will be especially important to ethnic minority and women workers, who make up a large proportion of people who work at home.

We recognise that some people are concerned about possible job losses. That is why we have agreed that the full effect to the proposals—the 120 per cent uplift—should be delayed until April next year to give business the opportunity to plan for its introduction. But the current position with tens of thousands of homeworkers earning less than the minimum wage is completely unacceptable. We will never be able to compete with countries such as India or China on the basis of pay costs, nor should we even aim to do so. We need to build the skills of our workforce to achieve high performance work places delivering quality output and not of course on low wages.

Finally, we are aware that employers and homeworkers need to be aware of the new regulations and have already produced draft guidance which we will update once the regulations have been approved by both Houses of Parliament. We are discussing with the National Group on Homeworking how we can generate publicity surrounding the changes, but our aim will be first to warn employers about the changes, encouraging them to prepare by conducting necessary tests, followed by a campaign in the autumn advising homeworkers of their new rights. I commend the regulations to the House.

Moved, That the draft regulations laid before the House on 23 February be approved [12th Report from the Joint Committee].—(Lord Davies of Oldham.)

Earl Attlee

My Lords, I thank the Minister for his detailed explanation of these important regulations.

We fully understand the difficulties with the drafts explained by the Minister and we have no problem with the proposed solution.

The fact is that workers on piece work are among those likely to find that they are being paid less than the national minimum wage, and those who work from home are faced with, in a phrase coined by my right honourable friend the Member for Rushcliffe, "a double whammy".

People who do piece work at home are among the most vulnerable in society. I refer, for example, to the disabled, or those who have family commitments which prevent them from seeking regular outside work. These same people are often the least able to complain about exploitation by unscrupulous employers, or the most fearful about their already small income to risk doing so.

Of course, not all companies employing outworkers are wicked exploiters, and I have no doubt that most of them behave honourably. It is also probably true that for various reasons it may be difficult for the Inland Revenue, which is responsible for catching out those defaulting on their national minimum wage obligations, to do so in this case. However, that is no reason why a proper legal framework for calculating outworking pieceworkers should not be established and what appears to be a loophole in the existing regulations should not be closed. We support the regulations.

Baroness Miller of Chilthorne Domer

My Lords, we note the drafting problem, and we are happy that the regulations be formally moved on Thursday. I will not repeat the benefits of this, which have already been welcomed by the noble Earl, Lord Attlee. We too welcome the regulations, in particular since they apply to a large number of people—170,000. That is a lot of people who will, I hope, benefit from the regulations.

Lord Davies of Oldham

My Lords, I am most grateful to both noble Lords, not only for their comments on the regulations, but for the understanding way in which they have accepted our apology for the slight hiccup with regard to the regulations, which we will put right at the earliest opportunity. We can all finish today united in this commitment to a fair day's work for a fair day's pay. Accordingly, I commend the regulations, but I beg leave to withdraw the Motion.

Motion, by leave, withdrawn.