Considered in Grand Committee
My Lords, the regulations do three things. First, and most importantly, they increase the minimum wage rate for adults and apprentices, and increase the maximum amount for living accommodation that counts towards minimum wage pay. Secondly, they reflect changes to the names of the apprenticeship programmes in England. Thirdly, they make it clear that deductions or payments for accommodation do not affect minimum wage pay where the accommodation is exempt from the minimum wage accommodation rules because it is provided by higher or further education institutions.
I will concentrate my remarks on the minimum wage rates. As I am sure noble Lords will be aware, the increases contained in the regulations are those recommended by the Low Pay Commission in its 2012 report. In March, the Government announced that we had accepted all the commission’s rate recommendations. The regulations increase the adult minimum wage rate by 1.8% in October, from £6.08 to £6.19.
In making this recommendation, the Low Pay Commission concluded that caution was essential. While it recognised that real incomes have fallen, it believed that in the current difficult economic circumstances a large increase would carry too great a risk to jobs. We believe that this increase is appropriate. It is based on sound economic evidence, research, analysis and consultation by the commission. It maintains the relative position of the lowest paid and is one that businesses will be able to afford.
The Low Pay Commission also concluded that there is scope for an increase to the apprentice minimum wage that we introduced in October 2010. It recommended that the apprentice minimum wage should be increased by 5p to £2.65 an hour. We consider that this increase is appropriate.
At this point, I should mention what is not in this year’s regulations. Both the Government and the Low Pay Commission remain very concerned about the position of young workers in the labour market. I am sure your Lordships share that concern. Young people are more vulnerable than they have been previously as they have been hit harder by the difficult economic circumstances. That is why we asked the Low Pay Commission specifically to consider their position in the labour market. Their position has continued to be difficult and there is some evidence that in these tough economic conditions the minimum wage level may have an impact on their employment opportunities. This is because, over the last few years, youth minimum wage rates have increased faster than young people’s earnings generally. As a result, the so-called “bite” of the minimum wage for young workers—the minimum wage as a percentage of median earnings—has increased, while the bite of the adult rate has remained stable. Pay data from the Office for National Statistics shows the bite for 16 to 17 year-olds as being around 73%, with the bite for 18 to 20 year-olds at around 80%. This compares with the bite of the adult minimum wage of around 51%. The commission concluded that it would be imprudent for the bite to rise any further and therefore recommended, albeit reluctantly, that minimum wage rates for young workers should not be increased this year.
It is usually the case with economic downturns that the employment of young people turns down earlier and faster than that or older people, but then recovers faster. However, this time the employment of younger workers has yet to recover. In addition, since the start of the economic downturn, the number of younger workers who have never had a paid job or a place on a learning scheme has increased. We consider that the commission has taken the right approach. Freezing the youth rates has been a very tough decision. However, raising the youth rates would be of little value to young people if it meant it was harder for them to get a job in the long run.
I turn now to the other elements of the regulations. The names of the apprentice programmes in England have changed, so the regulations make consequential changes to reflect this. Last year, we implemented regulations to exempt higher and further education institutions from the minimum wage accommodation rules where they provide accommodation to workers who are enrolled as full-time students with them. Regulation 2(5) puts right a minor omission in those regulations. It makes clear, for the avoidance of doubt, that deductions or payments for such accommodation are not included in calculating whether the minimum wage has been paid.
The Low Pay Commission’s rate recommendations were made against a difficult economic background. They are based on extensive economic evidence and take account of the prospects for the UK economy. We consider that they are appropriate and balance the needs of low-paid workers against the challenges that businesses face. I ask your Lordships to consider these regulations.
My Lords, first, I apologise for missing the beginning. I had not expected things to go quite so quickly in the previous debate.
I only have a couple of points to make. I came in probably at the right time on the analysis in respect of young people. I do not disagree with the analysis that the noble Lord, Lord De Mauley, made about the “bite”. I noticed it was clearly a difficult decision because in the impact assessment it says:
“The labour market position of young people continued to worsen in 2011, with employment of young people continuing to fall and unemployment to rise (although the extent to which pay is a factor is not clear)”.
It concerned me a bit. They took, I thought, a very cautious view. If they had only increased it to £4 it would have been something, although admittedly marginal.
The only other question I would like to ask the noble Lord—I do not necessarily expect him to have the answer as I did not give him any warning of the question—is regarding enforcement, on page 13 of the impact assessment. I am interested to know whether the noble Lord has any information on the level of enforcement and whether that is improving—although one side of me would prefer the need for it to be less. Nevertheless, is any statistical information available from HMRC? If not, I should be grateful if the noble Lord could write and advise me. Other than that, I have no further comments to make.
My Lords, this has been a short but important debate. I thank the noble Lord, Lord Young, for his contribution. He initially commented on the youth rate, and I understand why he would do that. As I think I explained, youth unemployment is a major problem that we are trying to address. We do not believe that increasing the cost of employing young people would help them, quite apart from businesses, for example. 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 to progress. The noble Lord would have made that point to me from this Dispatch Box a couple of years ago. They are not gaining those skills and experience if they are out of work. Hard times mean that we have to make hard decisions. The decision was a hard one, as the noble Lord knows. However, the evidence found by the Low Pay Commission makes a compelling case that it would not be prudent to increase the minimum wage for youth workers.
The noble Lord asked about enforcement. The Government are firmly committed to the minimum wage and to effective, risk-based enforcement. Paying anything less than the minimum wage is totally unacceptable. If we find examples of businesses breaking the law, we crack down on them. The Government actively target employers who flout their responsibilities and investigate any complaints made against them, taking them to court if required. We are clear that an effective compliance regime goes much wider than just enforcement. It must reach employers that are at risk of underpaying their workers as well as those who have already fallen foul of the rules. With this in mind, our strategy for minimum wage compliance focuses on how the compliance and enforcement landscape should look over the next three to five years. It recognises that our approach must continue to be based on intelligence and data.
Clearly, in the context of reduced budgets, we will need to prioritise. However, underpayment of staff wages is not an option. Our strategy is helping us to make informed choices, and ensures that we have the right tools for the job and that resources are focused where they are most effective. I can tell the noble Lord that in 2011-12, HMRC completed 2,534 minimum wage investigations. It found non-compliance in 879 cases and identified arrears of £3.5 million that were owed to 17,300 workers.
The Government are committed to the minimum wage because of the protection it provides to low-paid workers and the incentives to work that it provides. The Low Pay Commission’s rate recommendations strike the right balance between pay and jobs. It is important that we have a minimum wage that helps as many low-paid workers as possible, but it is equally important that we do not damage employment prospects by setting it too high.
I thank the noble Lord for the information on enforcement, which was helpful. I did not realise that it was lurking there.
I want to say something further about youth unemployment because the latest figures have come out. I do not want to score points on this because I applaud some of the things that the Government are doing. The focus on apprenticeships is one of the good things. However, I did not want to lose the opportunity of saying that it is still not enough. The situation out there is very serious. In some areas, the levels of youth unemployment are alarmingly high. I am just using this opportunity to call on the Government to have a careful look at some of their policies. There is still a reluctance from the Government to accept that there ought to be a requirement in public sector contracts for companies who bid successfully to indicate how many apprenticeships they will take on. There is still an abysmally low number of companies that offer apprenticeships. That in itself might not solve all the problems, but when only something like 4% to 8% of companies are offering apprenticeships, there is a long way to go. Although the total figures for apprenticeships always look good, a significant number are adult apprenticeships. I do not say that there should not be adult apprenticeships, but that does not address the areas of major concern.
When going around a local estate, I could not help noticing four young teenagers—it was difficult to know how old they were, but they were definitely in their teens—who were certainly not at school, in college, in training or at work. It was the middle of the day. That is a wasted opportunity and potentially an opportunity for them to get into trouble. That is a situation in microcosm of the challenge we face. However, I thank the noble Lord for the information he has given us.
Apart from the minutiae of how the issue is addressed, I would like to say that the noble Lord and I are at one in appreciating how important this problem is and the fact that it must be addressed. He might like to know that overall, with the investment announced in this year’s Budget, we will deliver at least 250,000 more apprenticeships over the next four years—I am not trying to score points here, but just as a comparison with the previous Government’s plans—which will total 360,000 places. That includes funding for training for up to 40,000 apprenticeship places over the life of this Parliament that will provide additional capacity to support young unemployed people, in particular through progression from the department’s work experience programme. The Government are launching a new £75 million programme of training and other targeted support focused on SMEs to help access advanced level and other higher apprenticeships. I hope that that is helpful to the noble Lord.
The regulations we have been discussing support the Government’s commitment to delivering fairness and supporting business. I believe that the provisions are fair and appropriate. The increase in the adult rate will maintain the relative position of the lowest paid while also being one that businesses will be able to afford. I hope that noble Lords can accept the regulations.