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National Minimum Wage (Amendment) Regulations 2015

Volume 764: debated on Thursday 16 July 2015

Motion to Approve

Moved by

That the draft regulations laid before the House on 23 June be approved.

Relevant document: 1st Report from the Joint Committee on Statutory Instruments

My Lords, the purpose of these regulations is to increase the hourly rate of the national minimum wage for all workers and to increase the maximum amount for living accommodation that counts towards minimum wage pay, in line with recommendations from the Low Pay Commission.

The national minimum wage is designed to protect low-income workers and provide an incentive to work by ensuring that all workers receive at least the hourly minimum rates set. The minimum wage also helps businesses by ensuring that competition is based on the quality of goods and services provided and not on low prices based on low rates of pay. Following advice from the Low Pay Commission, the Government are uprating the minimum wage from 1 October 2015 so that the adult rate will be £6.70 per hour. Young people aged between 18 and 20 will earn £5.30 and those between 16 and 17 will have a minimum wage rate of £3.87 per hour. This represents an increase of 3% for the adult rate and similar increases for the youth rates. This is the largest real increase to the adult rate since 2006, and low-paid workers will enjoy the biggest cash increase in their pay packets since 2008. It also means that the adult rate will be closer to the average wage than ever before. The adult rate increase will benefit more than 2 million low-paid workers on the national minimum wage, and will mean that full-time workers on the adult rate will receive an additional £416 a year in their pay packet.

Finally, the Government believe that it is important to improve the attractiveness of apprenticeships for young people by delivering a wage that is comparable to other choices of work. That is why we are increasing the minimum wage for apprentices by 21%—a 57p an hour increase to £3.30. This means that someone working full time on the apprentice rate will be £1,185 better off per year than last year. This is a departure from the Low Pay Commission’s apprentice rate recommendation of a 7p increase to £2.80. We would not depart from such a recommendation unless we felt strongly that our approach would benefit apprentices in the UK. In our view this increase to £3.30, alongside wider reforms, will encourage more young people to consider apprenticeships as a credible alternative to both higher education and jobs without training.

Since its introduction in 1999, the national minimum wage has been successful in supporting the lowest-paid UK workers. It has increased faster than average wages and inflation without an adverse effect on employment. It continued to rise each year during the worst recession in living memory and is now closer to the average wage than ever before. The Low Pay Commission has proven that a rising minimum wage can go hand in hand with rising employment. This increase is carefully managed through advice from the Low Pay Commission. The Government’s 2015 remit asked the Low Pay Commission to make recommendations for these new rates based on maximising the wages of the low paid without damaging employment opportunities.

The Low Pay Commission recommendations follow consultation with business and workers and their representatives, together with extensive research and analysis. The Low Pay Commission consists of three commissioners from employer backgrounds, three from employee representative backgrounds, and three independents. Its recommendations reflect the objectives of both employers and unions, and are unanimous. The Low Pay Commission has stated in its report that we are now in a period of faster real increases in the national minimum wage, provided that the economic recovery continues.

The Chancellor announced in the summer Budget the introduction of the national living wage for those aged over 25. The Government’s ambition is for the national living wage to reach £9 by 2020. However, the national living wage is not the purpose of today’s debate. It is for implementation from April 2016, and the Government will bring forward the regulations to bring it into effect in due course. Those regulations will also be debated in this House.

The Government believe that the rates set out in the regulations before you today will increase the wages of the lowest paid while being affordable for business. I commend these regulations to the House.

My Lords, I thank the Minister for his explanation of the draft statutory instrument. I welcome the proposals, although I see a certain irony when I look at the Conservative Party’s track record on the national minimum wage, which has gone from one of, shall we say, opposition to enthusiastic espousal. Nevertheless, this is welcome, and we are going beyond it now to the national living wage. I was going to ask for some further information on how the Minister sees that impacting on the national minimum wage, but he has given us an assurance that that will be the subject of a later debate, so I will not go into that area.

I want to focus on the apprenticeship rate. It is of course good news that the Government have gone beyond the recommendation of the Low Pay Commission by an extra 50p, but I have some concerns in this area. The question of apprenticeships, especially for young people, has attracted my interest over a number of years. If I have a complaint, it is not about the Government’s enthusiasm for apprenticeships, which I acknowledge, but about their conflating the overall figures. We get a very large figure, but when we examine the number of apprenticeships for young people, there is a significant reduction. Because youth unemployment is still a significant problem, we need to focus not just on the rate that young apprentices receive but on the availability of apprenticeships.

A recent investigation by the Local Government Association and the IPPR found that the majority of apprenticeships are being used to train older workers who are existing employees and are having little or no impact on youth unemployment. Almost four in 10 employers do not regard the qualifications that the Government describe as being apprenticeships in the same way, while 93% of those aged 25 or over who completed apprenticeships last year already worked for the employer beforehand. I am not complaining about the reskilling of more mature workers—we know there is a need for workers to constantly upgrade their skills in an environment where technology is constantly changing. My concern arises when we hear figures such as 2 million and then find that, in fact, the vast majority of those people are already employed. I question whether those should be given the title of apprenticeships. I am not the only one—the Richard report made a similar comment.

The other concern I have is that an alarming number of apprentices are still not receiving their legal minimum wage. I have some information from the Library, which I hope the Minister will agree is a safe and independent assessment. I will quote a few points:

“Looking only at Level 2 and 3 apprentices for whom compliance can be assessed, 15 per cent were paid below the appropriate NMW. (Across all apprentices results indicate that 78 per cent of all Level 2 and Level 3 apprentices across Great Britain were paid at or above the NMW”.

That means that 22% were paid below it, so there is a very significant number of young people whom employers are illegally paying less. What are the Government doing about that? This is not a new problem, it has been going on for a while. I do not expect perfection and do not expect it to be solved overnight, but I feel that we owe young people a response from the Minister which shows that, first, the Government treat this seriously and, secondly, they will put in place the means to resolve the issue.

There are some other instances:

“Young apprentices will be more likely to be earning less than the minimum wage, with nearly a quarter (24 per cent) of Level 2 and Level 3 16-18 year olds having non-compliant pay levels, compared with 20 per cent of 19-20 year olds, 17 per cent of those aged 21-24, and eight per cent of those aged 25 or older”.

The younger you are the more likely you are to be exploited, unfortunately. This is the message that we are getting.

On the question of formal training on the apprenticeship, the information shows:

“Eight in 10 (79%) apprentices have received formal training of some kind”.

That means that 21% did not. We had an assurance from the Government that they were going to crack down on apprenticeships that were not really apprenticeships, so there is still a lot of work to be done. This continues:

“This figure was derived by combining the proportion of apprentices that trained with an external provider and apprentices saying that they received formal, off-the-job training, and represents a significant, if small, increase from the figures in 2013 (77%) and 2012 (76%)”.

It has gone up a little, but more than 20% are still not getting any formal training.

Moving on from apprentices’ training to when they get into an employer environment, surely the one thing we owe them is a safe working experience. I was horrified when I was flicking through the pages of Metro yesterday and saw a report on a case that happened in 2013. It said:

“A company owner has been jailed over the death of a teenager who worked at his factory on a government-funded apprenticeship”.

The CEO of the company, Zaffar Hussain, went to jail for corporate manslaughter, a piece of legislation which the previous Government introduced. The article reports,

“the death of Cameron Minshull, 16, who became trapped in a steel-cutting machine. Cameron earned £3 an hour and was employed by Hussain, 59, at Huntley Mount Engineering Ltd. The court heard there was no safety regime at the Bury company, where young people were left untrained and unsupervised. Safety guards had been removed from machinery and Cameron, from Bury, was wearing oversized overalls when he died in January 2013”.

Hussain admitted neglect and has gone to jail. He was fined £150,000, but the last bit of this article I found even more appalling:

“Recruitment agency Lime People Training Solutions, which received £4,500 in government payments, was fined £75,000”.

That does not bring back the life of that innocent young teenager. He and his parents deserved to believe that in a government-backed training provider, Cameron would be going to an employer who treated him fairly and safely. I do not expect the Minister to give me an answer today, but that appalling case has implications that there are government-backed providers who are not ensuring that the work placements they are finding for apprentices are checked beforehand and are safe working environments. It almost makes me think of the first Industrial Revolution. You cannot believe that that can happen today.

I shall conclude my contribution—I could not resist; I can resist anything except temptation, as Oscar once said—with an article I found in the Times. It was written by Clare Foges, who was the Prime Minister’s speech writer. She wrote:

“Last week George Osborne tackled low pay with his living wage; his next task must be to bring high pay under control”.

I sent the Minister a copy of the article for his delectation. It continues:

“One nation is a philosophy that prioritises the coherence of Britain as a community, which is why—brilliant though the living wage is—it is not enough just to act at the bottom of the pay scale: Tories must act at the top, too.

Skyrocketing executive pay is the issue that will not go away, a running sore which, left to fester, threatens to turn nasty for the Conservatives. The income differentials between CEOs and the workers in their companies grow ever more outrageous. The average FTSE 100 chief executive now earns 130 times more than the average worker in their firm.

Defenders of soaring boardroom pay claim this must be seen in the context of global market forces; that we are competing for a small pool of exceptional talent; that more modest pay would be like putting Wayne Rooney on Bobby Charlton’s wages circa 1965 and watching him head off for Real Madrid.

But of the Fortune Global 500 of the world’s biggest corporations, only some 1 per cent poached their CEO from an international rival. As for long-term performance: from 2000-2013 the total earnings for FTSE 350 directors increased by nearly five times the rate of returns to shareholders.

This is less market forces than a market stitch-up. A relatively small group of extremely highly-paid directors sit on their peers’ remuneration committees”.

It is not me saying this; it is the Prime Minister’s former speechwriter. She reflects:

“So what to do? In the last parliament the coalition introduced binding shareholder votes on pay packages but this has made little difference. It is time to be bolder.

Companies should be made to publish the pay differentials between the top earners and the bottom and median wage in their firms”.

That is something we have been saying for a long while. She continues:

“Reporting on pay, bonuses, share options and pension entitlements could be much more transparent. There must be loud praise for those, like TSB, that impose maximum pay multiples, and public shame for those who turn a deaf ear to the clamour for change.

Most importantly, it is time for workers to sit on remuneration committees”.

I must say, I am into that. The article continues:

“It’s no good leaving it all to shareholders, usually large institutional investors who inhabit the same world of sky-high pay. Worker representation would challenge the groupthink and may actually smash the closed shop”.

That is the closed shop to determine CEOs’ remuneration and pay. I do not apologise for introducing that and stretching the remit slightly because it has genuine relevance. If we are serious about trying to improve productivity, this has a part to play.

In conclusion, of course I welcome the increase in the national minimum wage, but I do not think that we have solved the problem. I do not expect the Minister to be able to deal in detail with every point that I raised, but I look forward to answers on the serious points I made in relation to the illegal underpayment of the national minimum wage and concerns about the safety and welfare of apprentices.

My Lords, everybody should be reassured that I do not think that there is much need to detain the House for very long. One of the coalition’s last decisions was to improve the minimum wage. It was initiated by my right honourable friend Vince Cable, to whom I pay tribute, particularly for his work on apprenticeships. It should be particularly gratifying to him to see the special work in these regulations to help those undertaking apprenticeships.

My other, final point is that this procedure was arrived at through the Low Pay Commission. The one concern we have when we come to debate the living wage in future months is whether the procedure will continue or whether we will see the end of a very successful consensus operation that has led to the improvement of minimum wage discussions in this country over the 10 years since the minimum wage was introduced. I support these regulations and I look forward to the Minister’s reply.

My Lords, I thank both noble Lords for their valuable and largely supportive comments during this debate. These regulations will increase the national minimum wage for more than 2.4 million people from 1 October this year. This increase will ensure that the low paid share the benefits of economic growth without damaging their employment prospects. The independent Low Pay Commission plays a crucial role in advising the Government about the minimum wage, and I thank it for its detailed report and recommendations.

A number of specific points were made by the noble Lord, Lord Young. He mentioned apprenticeship starts. More than 2 million apprentices have started employment since 2010. We have seen 440,400 starts during 2013-14, of which 278,700 are young people between the ages of 16 and 24. The noble Lord also mentioned more about apprenticeships and youth unemployment. Youth unemployment continues to fall in both the recent quarter and the year. This now still stands at 729,000, but below the peak during the recession of 1 million.

The noble Lord, Lord Young of Norwood Green, also mentioned apprentices being paid below the minimum wage. I thank him for giving me notice of these questions. The Government are committed to cracking down on employers who break the national minimum wage law; we have already taken action to reduce non-compliance with the national minimum wage. The 2014 apprenticeship pay survey shows that the level of non-compliance for apprentices is 14%. This non-compliance rate represents a fall from the previous levels of 29% in 2012 and 20% in 2011. The 2014 apprenticeship pay survey estimated that among level 2 and level 3 apprentices, the median basic pay was £6.31 per hour, and among higher apprentices on level 4 and level 5 provision, the median pay was £9.68 per hour.

The noble Lord also mentioned the death of an apprentice, which he read about in the Metro newspaper. I could not agree with him more that any death of any person, particularly a young person at the start of their career, is absolutely horrific. As I understand it, the Health and Safety Executive has confirmed that employers of apprentices are subject to the same health and safety rules as other employers, with additional rules covering younger employees. There are clauses in all Skills Funding Agency contracts imposing requirements in relation to the health and safety of learners, with all the providers and their subcontractors required to comply. However, the primary responsibility for the health and safety of an apprentice sits with their employer.

Before the noble Lord sits down, while I welcome that, given the circumstances—that it was a government-supported training provider—surely there ought to be some further review of the actual process of allocating young people to these employers. Of course, we know where primary responsibility lies, but if we are entrusting young people to a training provider and they are allocating them to an employer, never mind what the primary responsibility of the employer might be, the provider also has a primary responsibility. The reassurance I am seeking from the Government is that they will go away and look at exactly what training providers are doing. What are the checks, balances and procedures to ensure that this does not happen again? I would welcome some report back at a later stage.

Yes, I will write to the noble Lord on that issue, but I can assure him that my colleagues in the department will be looking very carefully at what has been said this evening.

The noble Lord, Lord Stoneham, asked about the Low Pay Commission and its future involvement with the national living wage and the national minimum wage. The Government published the Low Pay Commission’s new remit on 8 July 2015. The Government are asking the Low Pay Commission to recommend the level of the path of the national living wage going forward, with the target total wage reaching 60% of median earnings by 2020. The Low Pay Commission will also continue to provide recommendations for the other national minimum wage rates, as it has done previously.

The Government are committed to the national minimum wage because of the protection that it provides to low-paid workers and the incentive to work that it provides. The regulations that we have been discussing today support the Government’s commitment to delivering fairness, supporting business and delivering world-class apprenticeships. I believe that they are fair and appropriate. The increase in the adult rate will maintain the relative position of the lowest paid while also being one that business will be able to afford. I commend the regulations to the House.

Motion agreed.