Motion to Approve
My Lords, I am pleased to present these regulations to the House. My Government are committed to the national minimum wage as we believe that it gives protection to low-income workers and provides incentives to work.
The regulations implement recommendations contained in the Low Pay Commission’s report of 2010. They do three things. First, they increase the hourly rate of the minimum wage for adults and younger workers, and they increase the maximum amount for living accommodation that is allowed to count towards pay for minimum wage purposes. Secondly, they provide that from 1 October this year, 21 year-olds are eligible for the adult rate of the minimum wage. Thirdly, they remove the existing exemption from the minimum wage for apprentices who are either aged under 19 or aged 19 or over and in the first year of their apprenticeship. The regulations replace that exemption with a new apprenticeship minimum wage rate.
I turn first to the increases in the minimum wage rates contained in Regulations 3, 5 and 6. The Low Pay Commission recommended that the adult minimum wage rate should increase by 2.2 per cent in October. We believe that this increase strikes the right balance between ensuring that low-paid workers are treated fairly and preventing adverse economic effects. It is based on sound evidence and consultation, and takes into account the present economic circumstances.
The commission considered carefully the position of young workers in the labour market. It found that the employment prospects for younger workers have deteriorated consistently over a period of years, with a more substantial decline during the recession. For that reason, it concluded that it was appropriate to increase the youth rates by slightly lower proportions than the adult rate. We consider that this is the right approach.
That brings me on to the treatment of 21-year-olds. The Low Pay Commission has consistently recommended that they should be entitled to the adult minimum wage. The commission looked again at all the evidence in its 2010 report and continues to believe that the adult rate should start at 21. The Government have accepted that view.
It is, of course, important that any changes to the rules on entitlement to the minimum wage should not adversely affect people’s employment prospects. I do not consider that starting the adult rate at 21 would do so. Around 90 per cent of 21 year-olds are already paid at or above the adult minimum wage rate, and earnings and employment data suggest that 21 year-olds are already more closely aligned to 22 year-olds than to their younger counterparts. Research undertaken for the Low Pay Commission concerning the effects on labour-market behaviour of people turning 22 concluded that lowering the starting age of the adult rate to 21 would do little harm to their employment prospects.
We estimate that around 85,000 21 year-olds will benefit from this change and that it will increase labour costs by £48 million. In view of the small differential in earnings between low-paid 21 and 22 year-olds, we believe that the businesses affected should be able to absorb the additional costs imposed by this change.
The Low Pay Commission’s report reaffirmed its long-standing belief that lower minimum wage rates for younger workers are still justified to protect employment and, at the same time, reflect the training element attached to younger workers. We agree with this approach. There is little point in pushing wages up if it means that jobs are no longer available. Once young people are in work, they are gaining important skills and experience that will help them progress. They are not doing so if they are out of work.
The third area of change in the regulations relates to apprentices. At present, certain apprentices are not eligible for the minimum wage. Employed apprentices who are either under 19 or who are 19 or over and in the first year of their training are not eligible; neither are non-employed apprentices. The Low Pay Commission has carefully considered whether the treatment of waged apprentices is appropriate. It has concluded that there should be a new apprentice minimum wage rate of £2.50 per hour, and that this should apply to employed apprentices. We have accepted this recommendation. It is perhaps worth setting out the guiding principles that the commission used in designing the apprentice minimum wage. These are that such a wage should: support a competitive economy; be set at a prudent level; be simple and straightforward; and make a difference. We believe that the recommendations fully reflect these principles.
The new rate will apply only to employed apprentices who are either aged under 19, or who are over 19 and in the first year of their apprenticeship. These apprentices are either employed under a contract of apprenticeship or are engaged in certain government-funded apprenticeship schemes. However, the current exemptions from the minimum wage will continue to apply to non-employed apprentices, including those who may be receiving an allowance paid by the state instead of a wage.
Apprenticeships offer those who undertake them the prospect of higher future earnings and better employment prospects. We consider that the new apprentice minimum wage is measured and practical. It will provide important legal protection for apprentices without compromising the commitment of employers to providing apprenticeships.
The programme for government which we published in May stated that the Government are,
“inspired by the values of freedom, fairness and responsibility”.
The regulations before us today play their part in this. The changes to the minimum wage which they contain balance the needs of low-paid workers against the challenges that remain for businesses. They reflect our commitment to the fair treatment of low-paid workers as well as to business. I beg to move.
My Lords, I welcome the Minister’s support for the previous Government’s proposals and what appears to be a Damascene conversion to the cause of the minimum wage. However, I do not wish to be churlish. The relevant adult rate was also proposed by the previous Government, and so I welcome it. The challenge for the Government in announcing 50,000 new apprenticeships is to create apprenticeships for 16 to 18 year-olds, which we always regarded as a key target area. I would welcome confirmation that the Government will not embrace the view of Mr Christopher Chope in the other place who proposed a Private Member’s Bill which would allow people to be paid below the minimum wage. I would welcome confirmation from the Government that they will not support that approach. Other than that, I welcome and support this statutory instrument.
My Lords, we welcome these proposals. Unlike our view on the measure we discussed earlier, where we considered that the Government’s plan to protect and support people on low incomes was poor, we believe that the minimum wage is an unambiguous success. It is interesting to recall that when the minimum wage was being proposed siren voices suggested that hundreds of thousands of people would be put out of work as a result. That did not happen at all. All that happened was that hundreds of thousands of people were paid a decent wage instead of an indecent wage. That has undoubtedly helped to make society fairer.
It is therefore extremely welcome that the Government have approved and implemented the recommendations of the Low Pay Commission. The commission now clearly has bipartisan, or tripartisan, support and is almost beyond reproach in terms of a body assisting government to come to sensible conclusions. I seek an assurance from the Minister that this support this year for the Low Pay Commission and its work is likely to inform the Government’s view going forward and we can expect next year and in subsequent years that when the commission comes forward with its report the Government will approve it, as they have done this year. We are happy to support this statutory instrument.
My Lords, I am very grateful to the noble Lord, Lord Young, and to my noble friend Lord Newby, who have in principle supported this measure and asked one or two questions. The noble Lord, Lord Young, mentioned the challenge of the 50,000 new apprenticeships and 16 year-olds. Yes, it is a challenge; there is no doubt about that. But we will strive to do the best we can on this. He asked me to confirm that the Government will not embrace the Private Member’s Bill about the minimum wage. I do not know anything about this Bill, so I certainly cannot support something that I do not know anything about. So that is all right.
My noble friend Lord Newby said that this was beyond reproach. That is absolutely splendid. He asked for an assurance that the Government, who are supporting the Low Pay Commission this year, will do the same next year. If it says good things next year, I am absolutely sure that we will. So there we are.
The issues that we have been discussing are important because they concern the economy, employers and workers, so it is therefore right that we give careful consideration to these issues. I am very grateful to the noble Lord, Lord Young, and to my noble friend Lord Newby for their support. I commend these regulations to the House.