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National Minimum Wage (Amendment) Regulations 2013

Volume 747: debated on Monday 15 July 2013

Considered in Grand Committee

Moved by

That the Grand Committee do report to the House that it has considered the National Minimum Wage (Amendment) Regulations 2013.

Relevant documents: 4th Report from the Joint Committee on Statutory Instruments.

My Lords, the regulations before us increase the minimum wage rates for all workers and increase the maximum amount for living accommodation that counts towards minimum wage pay.

These regulations increase the main minimum wage rate—that is, the rate that applies to workers aged 21 or over—by 12 pence an hour from October, from £6.19 to £6.31. This increase follows the recommendation of the Low Pay Commission. It takes into account the need for caution as we recover from this recession. Even though the economy remained weaker in 2012 than had previously been forecast, levels of employment in the low-paying sectors have been relatively resilient. The commission concluded that an increase of 1.9 per cent will go a long way towards maintaining the relative earnings of the lowest paid, while at the same time being affordable to businesses of all sizes.

The Low Pay Commission’s recommendation for the adult rate was based on extensive and sound economic evidence, analysis, research and consultation. We are confident that the commission was right to take a prudent approach. We believe that it is important that we do not do anything that would reduce employment or employment opportunities for the lowest-paid workers.

I will now speak about the minimum wage rates for young people. In the debate on last year’s minimum wage regulations, noble Lords discussed the Government’s decision to accept the Low Pay Commission’s recommendation that the youth rates should be frozen at the same level as 2011. While this was not an easy decision, it was one that we felt was needed to avoid jeopardising the employment of young workers. The Low Pay Commission found that the labour market position of young people has stopped deteriorating and that there were some signs of improvement, although it is too early to know if these will become a trend. As a result, the commission concluded that a further freeze in the youth rates was not necessary. However, it recommended a smaller increase than for adults in order to help to protect the labour market position of young people. The draft regulations increase both the 16 to 17 year-old rate and the rate for 18 to 20 year-olds by 1% to £3.72 and £5.03 per hour respectively.

I am sure that noble Lords share the Government’s concern about the position of young people in the labour market. Their employment prospects have suffered more than those of other workers in the difficult economic circumstances. We believe that the tough decision that we made last year has helped to stabilise their position and that the 1% increase in the youth rates set out in the regulations is the correct approach. It strikes the right balance between retaining the attractiveness of work for young people and not deterring employers from taking on someone who may require more training in the first instance.

Lastly, I shall explain why the Government rejected the Low Pay Commission’s recommendation to freeze the apprentice rate and, instead, are increasing the rate by 1%. I should start by saying that the Government fully recognise the challenges that the commission has faced as a result of the uncertain economic environment. Its report contains substantial detail about the evidence that it considered and we thank the commissioners for all the hard work that they have put into developing their recommendations.

The commission’s underlying analysis of the labour market is of its usual high standard and the Government entirely accept its assessment of the low-paid labour market. However, rather than accept the freeze that the commission recommended, we have decided to take a different approach. The Government entirely share the concerns expressed by the commission about non-compliance with the apprentice rate. We are clear that employers must pay their staff at least the minimum wage. The Government are fully committed to the minimum wage and its effective enforcement. That is why we are increasing compliance activity, raising awareness with employers at risk of unintentionally falling foul of minimum wage rules, and ensuring that individuals are up to date about their rights. We are also ensuring that our guidance is as clear, comprehensive and consistent as possible. However, we believe that concern about non-compliance does not translate into a freeze in the apprentice minimum wage rate.

After careful consideration, we concluded that there are important reasons why we should make a modest increase in the apprentice rate. Apprenticeships are a key government policy and it is important that they are truly beneficial for both employers and apprentices. Increasing the apprentice rate by 1% will maintain its relative position compared with benefits and the youth minimum wage rates. This should ensure that apprenticeships remain an attractive route into work for young people.

As with all the minimum wage rates, the apprentice rate needs to balance affordability for employers with a fair deal for the lowest-paid workers. Many employers go further and pay more to reflect the value that a worker adds to their business. However, the apprentice rate acts as a safety net for many, and we do not want to see these young people falling further behind their peers in other areas of the labour market.

Although we are increasing the apprentice rate, I emphasise the need for caution. That is why we concluded that a rate which reflects the increase in benefits and public sector pay and which is in line with the increases in the youth minimum wage rates is appropriate. Evidence in the Low Pay Commission’s report concluded that the majority of apprentices paid on or just above the apprentice rate are young people.

We believe that the commission has played, and continues to play, a vital role in achieving the success of the minimum wage. Going against a commission rate recommendation is not something that this Government have done before; nor is it something that we took lightly. The commission has provided high-calibre analysis and advice since its inception in 1997 and we will continue to work with it to ensure that the minimum wage continues to support as many low-paid workers as possible while, simultaneously, not damaging their employment prospects.

We consider that the changes to the minimum wage rates contained in the regulations are appropriate and that they balance the needs of low-paid workers against the challenges that businesses face. I ask your Lordships to consider these regulations.

My Lords, I had not intended to speak in the debate but I am pleased to do so now that I have heard the Minister’s explanation of the regulations.

I was a founding member of the Low Pay Commission when it was first established. We created its infrastructure and recommended the first minimum wage. The Low Pay Commission has always been thorough and has always acted on an evidence-based footing. It is fair to say—the Minister implied this—that it has always been conservative with a small “c” on the issue of youth rates and apprentice rates for the reasons he set out. It had to get the balance right between making sure that the rates were not so large as to discourage employers and not so small as to discourage apprenticeships. Therefore, the Government have got this right.

The only additional point I would make is that there is an extra challenge coming in from the side on the issue of unpaid internships, which complicates apprenticeships in many areas. It is extremely important that we support the recommendations but also bear in mind that the issue of youth rates, internships and the application of the minimum wage is becoming more and more of a grey area.

I have always maintained, and I do now, that although there were staff whose job it was to maintain the application of the minimum wage, there were never enough. I would like the Minister to respond on that. Certainly, in many areas of industry it was quite clear that there were two levels of pay—one declared and one undeclared—but the difficulty was in getting people to complain. In areas such as the textiles centre in the south-west of Birmingham, people might go to their advice centre but they would not want their name reported because they knew that they would probably never get another job in the area if they made the complaint. They worked the legitimate number of minimum wage hours but then, off the books, they would be asked to work an extra seven or eight hours and, therefore, the average made it clear that it was not any longer the statutory national minimum wage. That practice is still happening and, if anything, is probably worse.

So, in supporting the general idea—I do not want to go against the Low Pay Commission normally, but I think in this case it has acted on the side of generosity—I would ask the question about ensuring the application of the statutory national minimum wage and that the law is carried out on the ground.

My Lords, I, too, in principle welcome the Government’s proposal. I am always pleased to see their conversion to supporters of the national minimum wage. As someone else remarked in another context, it was not always thus. However, it is good to see that there now seems to be an enthusiastic endorsement of both the principle and application of the national minimum wage. We do not want to be in a situation where it decreases the number of jobs. We could argue that what has a major impact on jobs and the number of jobs available is the amount of growth we can get in the economy, but I do not think that this is the right place to debate the Government’s economic strategy. However, it is well known that we do not feel they have got it right—said he with the gift of understatement.

I endorse the comments of my noble friend Lady Donaghy. The Minister referred to the importance of effective enforcement and the problem of non-compliance. Are there any statistics of the number of complaints going into either ACAS or any of the other bodies? There is an employment rights helpline and I would be interested to know what the statistics are on complaints about non-compliance with the national minimum wage.

Other than having those concerns, we endorse the proposal.

This has been a valuable short debate and I thank noble Lords for their important questions. A couple of specific points were raised and I shall respond to them in a moment. However, first, I should like to emphasise that the Government are committed to the minimum wage because of the protection that it provides to lower-paid workers and the incentives to work that it provides.

These regulations support the Government’s commitment to delivering fairness and supporting business, and I believe that they are fair and appropriate. The increase that the Government have recommended is reasonable, bearing in mind that the personal allowance of a large number of low-paid people has gone up in the past 18 months, which will help them to earn more money net of tax.

The noble Baroness, Lady Donaghy, and the noble Lord, Lord Young, both raised two very important issues. The LPC was established with the right infrastructure in 1997 and it does excellent work. It is quite independent of the Government and represents people from trade unions and other organisations. With the minimum wage, there is widespread acceptance that what we are recommending is appropriate.

With regard to enforcement figures, in 2012-13 the Pay and Work Rights Helpline received around 58,000 calls. Of these, the overwhelming majority—over 90%—were dealt with by the helpline. Just under 3,000 calls were referred on to the enforcement agencies for further action. We are making a real effort to ensure that employees are aware of the minimum wage and that employers are aware of the onus on them to pay the minimum wage to their employees.

I hope that noble Lords feel that they can accept the regulations. I trust that my response has been appropriate. If it has not been, I shall be very happy to write to noble Lords.

I thank the Minister for that. For clarification, when he said that out of the 58,000 calls to the helpline 3,000 were referred to the enforcement agencies, I presume that that meant 3,000 calls from those receiving the national minimum wage. Am I right in that presumption?

That is correct. In fact, the information that I have is that just under 3,000 calls were referred on to the enforcement agencies for further action—in other words, the enforcement agencies were going to take further action to resolve any outstanding issues or discrepancies between employers and employees.

Motion agreed.