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Power To Suspend The National Minimum Wage In The Event Of Local Or National Economic Emergencies

Volume 590: debated on Thursday 11 June 1998

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(" .—(1) The Secretary of State, after such consultation with the Low Pay Commission as may be reasonably practicable, may by order suspend the operation of this Act if he is satisfied that such suspension is required in the public interest by extreme economic circumstances.

(2) An order under subsection (1) may provide for the operation of this Act to be suspended in whole or in part and, in particular, may provide for the provisions of this Act to be suspended in respect of—

  • (a) any area or description of area; or
  • (b) any individual employer.
  • (3) No order shall be made under subsection (2)(b) above unless the employer has given the Secretary of State not less than 30 days' notice in such form as may be prescribed that, in the opinion of the employer, such an order is necessary in order to prevent the loss of jobs.

    (4) A statutory instrument containing an order under this section shall be laid before each House of Parliament after being made.

    (5) Unless an order under this section is approved by resolution of each House of Parliament before the end of the period of 28 days beginning with the day on which it is made, it shall cease to have effect at the end of that period.

    (6) In reckoning the period of 28 days for the purposes of subsection (3), no account shall be taken of any time during which Parliament is dissolved or prorogued or during which either House is adjourned for more than 4 days.

    (7) An order under this section which does not cease to have effect before the end of the period of 3 months beginning with the day on which it is made shall cease to have effect at the end of that period.").

    The noble Baroness said: There have been several amendments I have not moved, not because I do not think they are important but because I am aware of the lateness of the hour and I think it is inappropriate to detain the Committee even longer at this stage.

    This amendment concerns the power to suspend the national minimum wage in the event of local or national emergencies. I shall try to cut down on my notes. I remind those on the Benches opposite that one important rule in politics and indeed in government is that you never say "never". I do not possess the crystal ball that the Government claim to own, but I think there is bound to be a time when the Government may repent of their folly and wish there was some way they could put this whole Bill on hold, even if only for a temporary period. I shall not take up time by trying to conjure up any theoretical scenarios. I shall just give the Committee one taken from real life which many Members of the Committee on the other side of the Chamber will recall.

    Meridian Motor Cycles became insolvent and, with the encouragement of a former Labour government and with a great deal of public money, were taken over by an ill-fated workers' co-operative. I do not remember what the financial arrangement with the employees comprised, but supposing that in this or in similar circumstances the employees volunteered to forgo all or some of their wages in a bid to save their firm and their jobs. Under the Bill as drafted they could not do so for fear of running foul of the Bill and the penalties imposed by it.

    The proposed new clause would give the Secretary of State power to suspend the national minimum wage both as regards an area or as regards a particular employer if the circumstances warranted it, but only after consultation with the Low Pay Commission. We have made ample provision for a suspension to be brought before Parliament within a short space of time, and also for the time limit not to be affected when Parliament is not sitting. We have also made provision for the order to come to an end in no more than three months. Therefore there is no question of an unlimited suspension.

    Once again this is an option which the Secretary of State can have in reserve in case of need, even if she believes that there is no possible occasion when such a need might arise, and even if she believes there is no possible occasion when some emergency might arise when the good of the country or of some particular area or potential pocket of unemployment might override the Government's philosophical view that the Bill is to be regarded as being set in concrete. She has no obligation to exercise the discretion that this clause gives her; indeed she has no obligation to do anything. But, again, if circumstances arise where it might be imperative for her to do so, she will not find herself with her hands tied, or find herself constrained by the parliamentary timetable from introducing emergency legislation.

    This is an enabling provision in what is largely an enabling Bill. It in no way detracts from the initial operation of the Act in the present circumstances. However, the present circumstances are that we are at the beginning of a new recession. There is no point in entering into any recriminatory discussion about it. The fact is that what are the present circumstances may be vastly different in perhaps 12 or 24 months' time. The last thing that the Government, or indeed any of us, will want is to find small businesses going to the wall and crowds of disaffected youths findings themselves priced out of such jobs as might actually be available.

    I know that the Government do not believe that such circumstances could arise, especially under their benign rule. But they must make allowances or have contingency plans for the possibility that they might be wrong, even though they have a fervent and unshakeable confidence in their own infallibility. I trust that in accepting that there is no conceivable credible explanation, they will accept this entirely constructive amendment. I beg to move.

    I rise to speak as a member of a Government with unshakeable confidence in our own infallibility. Now I know I am infallible. I have tried to convey that to the rest of the Committee.

    The circumstances in which the noble Baroness seeks to invoke this rather extreme measure are unnamed, unidentified, and not defined; and the phrase, "extreme economic circumstances", used in the new clause has no meaning. I reject the idea that it is right to assume that poverty wages might be reinstated by suspending the national minimum wage in these undefined circumstances. I cannot accept that. Nor do I think the noble Baroness was under the impression that I ever could. It is in periods of economic difficulty that poverty pay becomes even more unacceptable. We do not wish to get into the realm of discussing the power to suspend the national minimum wage, particularly in the ill-defined circumstances suggested by the noble Baroness.

    Why are we seeking to acquire these powers to deal with the minimum wage? It is because exploitation has to be tackled. I believe that noble Lords on the Liberal Democrat Benches would go along with the Government in that view. It leads to a lack of motivation and a lack of involvement on the part of people who are working. All these practices are contrary to the public interest. We need to be able to encourage firms to engage on the basis of competition, higher competitiveness and higher productivity. Quality in terms of pay and conditions is extremely important in that. I do not believe in poverty wages.

    I simply cannot see how acquiring this power could be in the public interest. Who would benefit from this situation? It would be the very unscrupulous employers who have motivated the actions that we seek to take. Anyway, the new clause would not work in practice. Every time an individual employer got into difficulty he would come running along to the Secretary of State asking for an order, rather than exploring ways of avoiding the crisis.

    If economic circumstances were to change, the Low Pay Commission could be called to review the rate at any time. That is the very reason for the flexibility that we seek to introduce in Clauses 5 to 8. Of course, it is possible for an unexpected crisis to develop. It happened in south-east Asia very recently. But we have, I hope, developed a mechanism to try to deal with that situation. I do not believe that what is proposed in the amendment is the route we ought to be going down.

    I am aware that there is a power in the Bank of England Bill to cover action in extreme economic circumstances. But that Bill deals with the macro-economy and allows the economic levers controlled by the Bank to be returned to the Treasury in certain circumstances. This Bill is not about that. This Bill is about individual rights and covers a relatively small part of the economy.

    I believe that the line taken by the noble Baroness is not the right one. We cannot go down that route. If workers deserve protection, they deserve it all the time.

    Before the Minister sits down, I should like to follow up the point made by my noble friend Lady Miller in relation to where there is, for example, a management buy-out. The Minister did not respond to that point and I seek guidance. Am I wrong that, if a group of workers decide that they wish to keep their project or business going, there is in those circumstances no way in which they can forgo their wage to keep the business going? I am uncertain as to the position and should be grateful if the Minister could elucidate a little further.

    The noble Baroness raises an interesting point; but there would not be an exception in that event. However, one has to examine the totality of the circumstances affecting the company. One cannot just say that the company has gone down the drain because of a particular situation which would be affected by the national minimum wage. I do not see that I can isolate that particular circumstance—which is hypothetical anyway—and say that that is the whole cause to which the company's failure is attributable. One would have to look carefully at the situation. I do not accept the conclusion reached by the noble Baroness.

    I thank the Minister for that reply; but there have been such circumstances in the past, and I suspect that there will be in the future. If this attitude is taken to its fullest extent, those who are temporarily employed at that stage will cease to be employed. They will be worse off because they are not even given the opportunity for a short period of time—as has happened in the past—to decide to forgo their wages or take lower wages to keep the company buoyant and afloat so that it can continue in business. The Minister has just told me that is precluded in the Bill, and I am anxious about that.

    If one is considering a buy-out, one has to look at all the circumstances. It is not possible for me to respond to the noble Baroness on the spur of the moment. I will write to her about it. We can always return to the matter at a later stage.

    I thank the Minister for that. This is an important point. I shall certainly not press him tonight but, if he could come back to me on it, I should be very grateful.

    I am grateful to my noble friend for reiterating what I said in moving my amendment. I do not think the Minister took note of it. The point I was making, and which was repeated by my noble friend, was that Meridian Motor Cycles became insolvent. With the encouragement of a former Labour Government, and a great deal of public money, it was taken over by an ill-fated workers' co-operative. I have no idea what kinds of salaries they were paid or what kinds of salaries they drew. The point I was making was that in such cases the employees volunteer to forgo some of their wages in a bid to save their jobs. As the Bill is presently drafted, that could not happen.

    All I am saying is that I was disappointed with the Minister's answer, but I hope that he will look at this again, because we are talking about events that happen from time to time and it would be foolish if a business were not able to survive simply because of that situation. In the circumstances, I beg leave to withdraw the amendment.

    Amendment, by leave, withdrawn.

    Clause 5 [ The first regulations: referral to the Low Pay Commission]:

    [ Amendments Nos. 49 to 60 not moved.]

    Clause 5 agreed to.

    Clause 6 [ Referral of matters to the Low Pay Commission at any time]:

    11 p.m.

    After Clause 4, page 4, line 45, at end insert—

    (" ( ) The Secretary of State shall also, without prejudice to his other powers under this section, refer to the Low Pay Commission any proposal which would result in any increase in the actual hourly rate, whether by the application of some formula or in percentage terms or by a general amount; and the provisions of section 5 shall apply to any subsequent recommendation of the Low Pay Commission.").

    The noble Baroness said: Clause 6 enables the Secretary of State to refer any matters relating to the Bill to the Low Pay Commission at any time. It is, as with so many other provisions of this Bill, entirely permissive. As the DTI's explanatory note says, it is up to the Secretary of State to decide whether, and if so when, to consult the Low Pay Commission. Again, the Secretary of State is not obliged to follow any of the recommendations of the Low Pay Commission, though she is obliged to explain to Parliament her reasons for not doing so. What would happen if Parliament disagreed with her reasons is not clear. But we would be grateful if the Minister could perhaps tell us.

    In other words, these provisions are largely cosmetic. The Secretary of State can refer matters to the low pay unit if she wants to, but if it does not sanctify whatever course she favours, she can ignore it. On the other hand, she can act unilaterally if she wants to. There is no regulation or criterion as to which of the two courses she should adopt. She does not have to act consistently from one case to another and does not have to explain why she preferred one course to another.

    It is unclear what the Low Pay Commission will actually do after its first burst of activity in recommending what is called in Clause 5(1) "the first regulation". After that, it is presumably to go into hibernation until the Secretary of State, like the prince in "Sleeping Beauty", rouses it from its slumber and asks it to give her some advice on something or other, which she can ignore or override if she does not like the advice. After that—mixing up the fairy tales—it will be sent back to sleep again, just like the dormouse at the Mad Hatter's tea party.

    According to the financial statement, the Low Pay Commission will cost between £500,000 and £1 million a year to run. But to do what? Absolutely nothing, if that is what the Secretary of State so decides. It may become involved in some pointless exercise if the Secretary of State decides to ignore its findings and advice. It will have to produce an annual report and accounts, but that report might conceivably say, "We have not done anything this year". It does not have to study and report on the economic effects of its own activities and of the Secretary of State's independent actions. It does not have the power to recommend that the Secretary of State should consult it on anything connected with the Bill, whether on the current rate or the desirability of altering it, creating modifications or exemptions where they are required. No. The Secretary of State will command it to sit like a well-trained dog, and sit it will, until instructed to the contrary.

    There is one important task however that it can and should be given, and that task is the subject of this amendment. It requires the Secretary of State to refer to the Low Pay Commission any proposal which will have the effect of increasing the national minimum wage. There are two important—indeed vital—reasons why that should be done, and not merely at the discretion of the Secretary of State. She still retains the discretion given to her under Clause 5(4)(d) of the Bill as to whether to follow any new recommendation.

    The first of the two reasons is economic. There may be cogent reasons why there should be no increase in wages at a given time, reasons why pay restraint should be exercised. We have all seen it happen in the past, and doubtless circumstances will require it again in the future.

    What has to be avoided is some automatic increase for one group of workers inserted into what is called "the annual pay round". Apart from the inflationary effect that that will have and the consequences to our international competitiveness, it will also have a disastrous effect on the pay claims of workers earning well above the national minimum wage, and that is because of the resulting demands to restore differentials.

    In the debate in your Lordships' House on 23rd March, the noble Lord, Lord Clinton-Davis, said.

    "I fully expect that we shall encounter the ogre of the 'restoration of pay differentials—"'.

    He went on to cite a study by Income Data Services which claimed that,

    "Arguments about the … effect of minimum wages and the restoration of differentials had been highly partial and prone to exaggeration".—[0fficial Report, 23/3/98; cols. 1031–2.]

    I do not know how and where this think-tank conducted its research. Perhaps it should have consulted the noble Lord, Lord Healey, who said in 1994, "Don't kid yourselves": the minimum wage is something on which unions will build differentials. Therefore, the minimum wage becomes the floor on which one erects a new tower, but then, of course, he is only a former Chancellor of the Exchequer, so what would he know about inflationary cycles?

    Has this think-tank, on whose over-optimistic predictions the Government are relying to justify their head-in-the sands forecasts, ever heard of the Amalgamated Engineering and Electrical Union, one of the largest, most powerful and influential trade unions? Perhaps not, because they would then have read its policy paper on the national minimum wage which states,

    "The AEEU will seek to restore differentials in wage settlements. While the AEEU agrees with the long-term aim of increasing the earnings of the lowest paid, it should not be at the expense of those slightly better off. The AEEU will seek to restore differentials".

    I do not believe that the noble Lord, Lord Healey, and the AEEU deserve the dismissive description by Income Data Services, quoted by the Minister, of being,

    "highly partial and prone to exaggeration".

    I have tried very hard this evening not to be political. The second reason that I mention as regards this amendment is entirely political. If there is an unfettered discretion to increase the national minimum wage without even going through the motions of seeking the advice of the Low Pay Commission, there will be the temptation arbitrarily to increase it at the time of a general election or an important by-election. After all, the incumbent of the office of Chancellor of the Exchequer of either party is frequently accused of having give-away budgets for electoral purposes. I cannot believe that the Secretary of State will not be subject to similar political pressure by the strategists in her party and by the unions which influence its policies.

    Needless to say, I readily assume that the Secretary of State, whether the present one or any future incumbent, will be able to resist such crude pressures. However, elsewhere in the Bill on the question of exemptions the Secretary of State has strenuously tried to avoid any discretion. To be consistent, she should simply eschew any discretion as to whether it is time to consider a reversion to a national minimum wage only—the Committee will note, only to consider whether it is time—still without being bound to follow the commission's advice in whole or in part. Involving the Low Pay Commission will at least partially absolve the Secretary of State from having a political agenda.

    Before the Secretary of State presses the button to start an inflationary wages spiral, perhaps she ought to commit herself to obtaining independent advice and to come to Parliament to explain her reasons if she declines to take it. As I have already pointed out, the Low Pay Commission will cost up to £1 million a year to run. That is about £19,000 a week or £4,000 a working day. For a party that used to complain about quangos, surely it is not about to create one in this Bill, which is also nothing but a sinecure for its members and staff.

    Once again, this amendment does not affect the principles of the Bill. It merely adds a necessary safeguard in the manner of its operation. I beg to move.

    The main effect of the amendment is that it would require the Secretary of State to refer any proposal which would result in a higher national minimum wage to the Low Pay Commission. In other words, it would remove the ability of the Government to change the rate without first referring the matter to the Low Pay Commission; and that is, at first sight, particularly in the hands of the noble Baroness, an entirely reasonable proposition. The Government have already made clear in another place that they do not believe that the minimum wage should be varied by some kind of automatic formula. They have also made it clear that the Low Pay Commission is the right model to ensure ownership of the policy by the social partners—a vital ingredient if the minimum wage is to be introduced effectively.

    Perhaps I may remind the Committee of what the Bill says at present. It is deliberately flexible regarding future changes to the national minimum wage. It says in Clause 6:
    "The Secretary of State may at any time refer to the Low Pay Commission such matters … as [she] thinks fit".
    We have been asked both by the noble Baroness and in another place why that wording, with its discretion, has been chosen. The reason is this: to cater for the possibility that the regulations setting the minimum wage and establishing its operation may require amendment at some future time because they do not cover particular detailed circumstances that have been overlooked or missed for some reason.

    A component of pay, for example, may not have been considered fully. Problems of a technical nature to do with the pay reference period may be discovered. Obviously, we will do our best to avoid this situation but such problems can and do arise, under any administration, especially in a new area of legislation. Ministers have in any event made a commitment to consult on these and other issues in the form of draft regulations, before implementing the rate. There will plainly be cases where it will be unnecessarily cumbersome, bureaucratic and time-wasting to refer the whole matter to the Low Pay Commission. That is why the Bill is drafted as it is. It is right that there is no requirement on the Secretary of State to refer every last detail of such matters to the Low Pay Commission before making changes.

    At the same time it remains perfectly open to the Government to refer matters of a more substantial nature, including any review of the need to vary or increase the level of the minimum wage. I am not convinced by the arguments that the Secretary of State should be required to consult the commission on the face of the Bill. At the same time, as was made clear in another place, I would not wish to rule out any such future consultation. It is plain that in many cases it would be appropriate. The whole arrangement needs to be bedded down, monitored and analysed before we can begin to think about how to make changes to the rate.

    The noble Baroness referred to the members of the Low Pay Commission having sinecures and to the commission lying fallow, doing nothing and not even producing annual reports, while revving up expenses. That is a slight misunderstanding of the way in which the Low Pay Commission would work. From time to time, the Secretary of State, as she thinks appropriate, will refer matters relating to the Bill to the commission. When it does not have matters to consider, it will not be doing anything. It will not be sitting around incurring expenditure, as it were. The picture that the noble Baroness created of the Low Pay Commission may not be the model that the Bill envisages.

    Finally, if there is a reference to the Low Pay Commission on any matter and if the Secretary of State determines that he or she will not accept any particular suggestion of the Low Pay Commission, under the existing provisions of the Bill the Secretary of State is required to lay a report before Parliament, giving her reasons. I think that deals with the point made by the noble Baroness about the need to explain why advice is not being accepted.

    I very much hope that in the light of the explanations that I have given—I fully understand the reasons behind the amendment—the noble Baroness will feel able to withdraw her amendment.

    I was interested and pleased to hear from the Minister that the Low Pay Commission will, from time to time, do something and that sometimes it will be busy while it may not be so busy at other times. Given the amount of money that it will cost, it would be hateful to think that it had nothing at all to do! This reminds me of an earlier amendment when I said that sometimes people are very busy and sometimes they are not; it is then difficult to work out a pay reference period.

    Having listened carefully to what the Minister has said, at this stage, I beg leave to withdraw the amendment.

    Amendment, by leave, withdrawn.

    Clause 7 [ Referrals to, and reports of, the Low Pay Commission: supplementary]:

    [ Amendment No. 62 not moved.]

    Clause 7 agreed to.

    Clause 8 [ The Low Pay Commission]:

    11.15 p.m.

    Page 7, line 3, leave out ("may at any time appoint a") and insert ("shall, not more than 12 months after this Act comes into force, appoint a permanent,").

    The noble Lord said: In moving Amendment No. 63 I should like to speak also to Amendment No. 64. In our view the two amendments are linked. Reverting to the discussion that the Committee has just witnessed between the Minister and the noble Baroness, Lady Miller, we take the opposite position as to the status of the Low Pay Commission. As an aside, far from worrying about the members of the Low Pay Commission obtaining a sinecure of some kind and the annual cost of £1 million, we believe, as fervent supporters of the national minimum wage, that in the next few years it is important that proper resources are devoted to enforcing this measure and providing the necessary mechanisms to ensure that it is a success. Therefore, we fundamentally disagree with the Conservative Opposition. We should like to press the Government for confirmation, as happened in another place, without tying the hands of the Chancellor of the Exchequer, that adequate resources will be provided to ensure that that happens.

    The fundamental point on which we wish to push the Government is that the national minimum wage will be a success only if permanent status is given to the Low Pay Commission. The Committee will be aware that as it stands Clause 8 gives the Government the right within a period to give the commission permanent status. That is a mistake. We believe that the Government should now be in position to appoint a permanent commission to provide a framework for the ongoing administration of the Bill. In moving Amendment No. 63, we hope that the Government are prepared to go the last mile and confirm that they will give permanent status to the Low Pay Commission.

    Turning to Amendment No. 64, this is the crux of our belief that the commission requires permanent status. We were disappointed that the Government were not prepared earlier in the debate to accept the need for a mechanism for the annual uprating of the minimum wage. We are nervous that, as has happened in the United States and other countries with a minimum wage, there will be an annual row—which we believe is now going on in the Cabinet—about the level of the minimum wage. Obviously, Ministers will not comment on that. Those who wish the minimum wage to be a success do not want this to be a political football every year. We believe that, particularly in years when the economy is not as strong as it is currently, this will be a political football. We want to enshrine in the Bill as many powers as possible for the Low Pay Commission to be divorced from that and to have an objective structure in which it can make recommendations in the public arena on which the Government will act. One knows that in fixing the initial rate the Government have set their face against the particular point that we make; namely, that regional variation is important.

    If the Government are going to fix the rate at a low figure, the regional variation may not be as important as it would be if the rate were fixed at a higher figure, as the trade union movement has been advocating. We shall wait to see what the rate is and whether the Low Pay Commission has commented upon a regional variation for the fixed rate. We shall return to that point.

    It is paramount that there should be an annual review by the Low Pay Commission of that and other issues. If it agrees that there is no case at the moment for a regional variation, so be it. Clearly the Government will act on that, and we will accept that. However, one, two, three, four or five years down the track, rates of unemployment in Cornwall may be significantly different from those in London, and average wage rates in the north-west may be significantly different from those in London and the south-east. Without committing themselves in any way to accepting the principle of regional variation, perhaps the Government can move towards agreeing that the Low Pay Commission will have an obligation to look every year at that and other issues and to make a report. We shall then see whether we or the Government are correct. We should like the Government to commit themselves to setting up the Low Pay Commission as a permanent body. It is not in the Bill, but we should like an assurance that the Low Pay Commission will be given adequate resources to enable it to perform its work correctly.

    Amendment No. 64 reflects the type of report that we should like to see the Low Pay Commission produce. I beg to move.

    From what the noble Lord said in relation to this matter and others, I have identified that we have many common denominators in relation to the Bill. We both support the Government's objectives. I thank him for that. His concern is to ensure that the Bill, when enacted, works well. I choose to differ from some of the prescriptions that he offers, without closing off all the routes.

    The Government see the commission as continuing to play an important role, particularly in the early stages of the operation of the minimum wage. Clearly, the Secretary of State should have the valid option of being able to consult the Low Pay Commission before she uses the powers under Clause 3. That is a likely situation. We have already set up the consultation process. That is a good indication of how things will work in the future.

    As this is a novel form of legislation, we need to keep open certain options for the future. I am not sure that one of those options will necessarily be the appointment of a permanent body within one year of the Act being passed. How do we know that there will be any task for it to carry out then? The minimum wage may have been in place for a few months only by then. There may be a degree of impracticability there.

    Amendment No. 64 prescribes particular issues which must be covered in the Low Pay Commission's report. It is to be made annually, but it does not limit the commission to looking at those issues only. Thus the amendment is over-prescriptive and open-ended.

    The noble Lord identified some important areas which any review of the Bill would need to examine: different sizes of business, different areas, gender, race, and so on. But we do not need to spell it out in this way on the face of the Bill. The commission is already obliged to look at economic and competitiveness factors in coming to its recommendations. In addition, under Clause 6(5)(b) the Government may specify other factors for the commission to consider.

    I think that that is a rather more sensible and less prescriptive approach to the answers that the noble Lord seeks. I hope that he will agree with that and will not press the amendment to a Division tonight.

    I have listened to the Minister with interest. He is right that we share the Government's objectives as regards the Bill to ensure that the slave wage rates prevalent in certain parts of this country should be a thing of the past. To that extent, we are arguing about methods rather than about principle.

    I have listened carefully to what he said. Once the initial wage rate is fixed, if the Low Pay Commission is not given the permanent status and functions that we advocate, we are concerned that problems will arise in future and we shall be revisiting each year a number of the issues that are being debated here and elsewhere.

    We shall reflect on the Minister's comments. We may wish to return to the issue at a later date. But at present I beg leave to withdraw the amendment.

    Amendment, by leave, withdrawn.

    Clause 8 agreed to.

    [ Amendment No. 64 not moved.]

    Moved accordingly, and, on Question, Motion agreed to.

    House resumed.