Considered in Grand Committee
My Lords, the purpose of these draft regulations is to increase the hourly rate of national minimum wage for all workers, including those who are entitled to the national living wage. The regulation also includes an increase in the accommodation offset rate, which is the only benefit in kind that counts towards minimum wage pay.
This Government are committed to delivering an economy that works for everyone by spreading wealth and prosperity across the country. Through the national minimum wage and the national living wage, the Government are ensuring that the lowest-paid are fairly rewarded for their contribution to the economy. The latest figures show that the employment rate is now at a record high of 74.6%. The unemployment rate is at 4.8%, and wages are up 2.6% on a year earlier.
I turn to aligning the national minimum wage and national living wage cycles. From this April, the Government will be uprating the rates for the national minimum wage and the national living wage simultaneously. The new rates will be effective from 1 April 2017 to coincide with the new tax year. Our aim is to simplify the implementation of the rates to make it easier for businesses to comply, as well as reducing the administrative burden on business.
The Government have sought independent and expert advice from the Low Pay Commission and have carefully considered and accepted all of its wage rate recommendations as set out in its autumn 2016 report. The Low Pay Commission is asked to recommend the highest possible increase in the national minimum wage rates without damaging the employment prospects of low-paid workers, and to recommend the rate of the national living wage such that it reaches 60% of median earnings by 2020, subject to economic growth. The Low Pay Commission considers a large and diverse body of evidence before making its recommendations to government.
From 1 April 2017 the national living wage rate will increase by 30p to £7.50. The Low Pay Commission has projected that up to 2 million workers may benefit from this increase. To be clear, a full-time worker in receipt of the national living wage will see their pay increase by more than £500 over the course of the year. All of the national minimum wage rates will also be uprated above the rate of inflation.
The specific details are as follows. Those aged 21 to 24 will be entitled to a minimum of £7.05, which is an annual increase of 3.2%. Those aged 18 to 20 will be entitled to a minimum of £5.60, which is an annual increase of 3.1%. Those aged 16 or 17 will be entitled to a minimum of £4.05, which is an annual increase of 2.8%. Apprentices aged 19 or those aged 19 and over in the first year of their apprenticeship will be entitled to £3.50, which is the largest annual increase of all the rates at 4.5%.
The accommodation offset was introduced in 1999 to provide protection to workers who live in employer-provided accommodation against an excessive reduction in their income, while giving some recognition of the value of the benefit. Following advice from the Low Pay Commission, the rate will increase from £6.00 to £6.40 per day.
The Government continue to use age-related rates to protect the employment prospects of younger workers. It is felt that prior to the age of 25, people in employment are gaining experience and that the most important thing for them is to be in work and looking at their prospects in the workplace. It should be noted that the Government are setting minimum thresholds only. We recognise and commend those employers who seek to pay younger workers the same as older workers where they can afford to do so.
On the important issues of non-compliance and enforcement, the Government also recognise that as the national minimum wage rates continue to increase, so too does the risk of non-compliance. We are actively taking steps to mitigate non-compliance. We are serious about increasing compliance with minimum wage law and are committed to cracking down on employers who break it. This is why the Government continue to invest heavily in minimum wage enforcement, increasing the budget to £25.3 million for 2017-18, up from £13 million in 2015-16. By using civil sanctions and criminal prosecutions we are keen to send a forceful deterrent message to any employer who wilfully flouts the minimum wage rules. Furthermore, to promote awareness of minimum wage rights and responsibilities among employers and workers, we are spending £1.7 million on a minimum wage publicity campaign, which launched in January this year and is due to ramp up as we approach 1 April. Finally, as I said, to simplify the system, the dates for operating the national minimum wage and national living wage will be aligned, effective from April this year.
This Government want an economy that works for everyone. This is why we are committed to ensuring that everyone shares in our economy’s success. The ongoing success of the UK labour market proves that a rising minimum wage can go hand in hand with rising employment. I beg to move.
My Lords, I thank the Minister for her helpful and cogent introduction. Low wages have been the bane of certain regions of the United Kingdom. I think most of all of Wales and the north-east. The minimum wage has been a very good measure for the people of Wales, and Prime Minister Blair has good grounds for being very proud of enacting it. My recollection is that it was opposed in another place, but it is now acknowledged universally as a just, helpful and necessary measure.
Who now chairs the Low Pay Commission and how many members does it have? Although this is a beneficial measure, does the Minister have any statistics to exemplify its beneficial effects, particularly in Wales? How many will benefit from the helpful measure that she has spoken to in the Committee? Will it be of particular help to the tourism industry, which is important and widespread throughout the Principality? How many people in Wales are benefiting from the national minimum wage, and how many will benefit from this measure?
I thank the Minister for her introduction and my noble friend Lord Jones for his contribution, which raises the important question of Wales, and agree that the Minister’s case was cogently put. It presents an important annual ritual of ensuring that the national minimum wage and the national living wage are uprated.
I commend the policy and want to say how important this has been as a measure to create a real basis for enhancing the opportunities and life chances of people, and for ensuring that employers are unable to use inequality and asymmetry of power to the detriment of people who are giving up their labour. The way this has been presented and the detail behind it is outstandingly thorough. It is a perfect measure. All the complaints that I have had about other measures are more than adequately addressed by what is an outstanding piece of analysis of not just why this policy decision was made, but previous policy decisions, what alternatives could be chosen and challenges to the assumptions on which it was based. All of this is contained in the accompanying documents to the statutory instrument, which are of outstanding quality. I commend the department for its work in putting it all together and, in particular, the Low Pay Commission, which has done an outstanding job. We are truly blessed to have a mechanism that seems to work well, that people understand and that tends to comes to sensible and just decisions.
I wish to raise two areas for the Minister to consider. First, as we look to expand the apprenticeship programme and increase the number of young people who can move into employment through the use of this mechanism, so that they can adopt skills and become much more focused on the needs of businesses or even public sector organisations now the duty is on them, I would be very interested to know whether any evaluation is being made on what the likely impact of that will be—especially as we may create a cascade effect—to make sure we do not affect the employment opportunities of those at younger ages. I would also like to evaluate whether this is now distorting the opportunities at younger ages, and whether it is worth reviewing in the next review of the national minimum wage and the national living wage.
Secondly, I again ask the Minister whether the enforcement mechanisms she has outlined are sufficient. It is to be welcomed that the Government are applying more resources and a little bit more focus on making sure that companies meet their national minimum wage obligations. It is very instructive to see the number of incidents that take place in large organisations and companies with very prodigious finance departments. It shows a sense not just of non-compliance, but of callous disregard—of the abdication of duty in the most extraordinary fashion. To use an example I mentioned earlier, which I am more than happy to mention again, it is utterly shocking that Debenhams was able to get away with what it did and that its chief executive was able to take his bonus. Look at the explanation of the long-term incentive plans in company reports. Look at the reports to shareholders about remuneration for the senior executives—in particular how it affected the chief financial officer and the chief executive officer—and at the number of consultants that they brought in to make sure they got the right remuneration. I know that they spent time with their remuneration executives to make sure that they can play their games with the board to do this. The sheer fact that they have allowed their employees to suffer in this abject way is absolutely appalling.
Unless we have mechanisms that address the problems of culture, of having effective measures to counterbalance it and incentives that affect people, then we will have this terrible story time and again. I applaud the Government for putting more towards the enforcement, but the measures have to be targeted in the right way. If you run a company, you run it properly. If your duty is to pay people, you pay them properly. If you do not, you bear the consequences.
I thank noble Lords for their very helpful contributions to this short debate. I begin by responding to the noble Lord, Lord Jones. The measure that was introduced back in I think 1998 was a huge step change in clarity, fairness and respect for people who are low paid.
It was historic—the noble Lord is absolutely right. I bear the scars of one who at that time, as vice-chairman of the Conservative Party, had to appear on “Question Time” when the minimum wage came in. The noble Lord is quite right: Her Majesty’s then Opposition initially opposed the measure. Being on a television programme such as “Question Time” and having to face an audience while trying to defend our opposition to the minimum wage was one of the most difficult moments in my life. As I said, it was historic and I am so pleased that my party has not only over the years changed its view about this, but taken these measures forward. We are very proud that we now have a national living wage. That is certainly something I feel strongly about.
The noble Lord asked who the chairman of the Low Pay Commission is. The new chairman is Mr Bryan Sanderson, who was appointed on 17 February for one year. He has eight commissioners working with him.
With respect to Wales, I am pleased to say that an estimated 100,000 workers in Wales will benefit from the national minimum wage and the national living wage. This figure is published on page 79 of the impact assessment. I hope the noble Lord is encouraged by that.
I was very appreciative of the opening remarks of the noble Lord, Lord Mendelsohn. I absolutely agree that the Low Pay Commission should be commended for the work it has done on the development of this policy. Obviously, we continue to work with the commission in this regard.
The noble Lord asked about young people and the likely impact of encouraging more apprenticeships. I have also been involved in the Technical and Further Education Bill, so I am very aware that the Government are encouraging more apprentices, which we hope will have a huge impact on the number of young people in work. I will give a bit more detail on the national minimum wage with regard to young people. The age-related rates protect younger workers, who are more vulnerable in the labour market; for example, in the fourth quarter of 2016 the unemployment rate for people aged 16 to 24 was 12.6%, compared with 3.6% for those aged 25 and over. So we are more cautious for this group and how their wages are set. But we are also conscious of the fact that we need to encourage more young people into work through apprenticeships.
We set minimum pay thresholds. Businesses are free to set higher rates of pay if they can afford and choose to do so. As I have just said, youth unemployment is persistently higher than for those aged 25 and over. For younger workers, the priority in those first years is to secure work and gain experience—something that has always been reflected in the national minimum wage rate structure.
The noble Lord also referred to enforcement. If the Committee will bear with me, I will give a bit more detail about enforcement, given that this is such an important area. I take on board his reference to the situation at Debenhams, which is not acceptable. The Government are committed to cracking down on employers who break national minimum wage law. We are absolutely clear that anyone entitled to be paid the minimum wage should receive it. BEIS is responsible for the policy on national minimum wage compliance and enforcement, and HMRC enforces the National Minimum Wage Act on behalf of BEIS. All businesses, irrespective of their size or business sector, are responsible for paying the correct minimum wage to their staff. The vast majority of responsible employers make sure that they get it right. As I said earlier, we have increased the enforcement budget because we recognise that accurately predicting the true level of non-compliance across the country is difficult. With the increase in wages comes the increased risk of non-compliance. HMRC follows up on every complaint it receives, even those that are anonymous. This includes those made to the ACAS helpline and those it receives from other sources.
I touched on sanctions earlier. There is a civil route, where HMRC conducts an investigation and identifies that there has been an underpayment. A notice of underpayment is then issued, instructing the employer to pay the workers the arrears they are owed and a penalty of up to 200% of those arrears. In addition, we have a system of naming and shaming. Employers risk facing reputational damage through being named and shamed in a government press notice, which is then picked up by local and national press. All employers who have underpaid their workers by more than £100 are eligible to be named. To date, we have named more than 1,000 employers.
I hope I have covered the questions raised regarding these regulations. The Government estimate that more than 2 million workers will directly benefit from the uprating of the national minimum wage and national living wage. The fundamentals of the UK economy are strong and our economy continues to grow. GDP growth was 0.6% in the fourth quarter of 2016—above market expectations—and the economy is currently 8.7% larger than its pre-crisis peak. The labour market has continued to perform well, with robust employment growth in low-paying sectors.
A number of specific points were raised in this debate that I hope I have responded to. The Government are committed to ensuring that work pays and that the lowest paid enjoy the benefits of a strong economy. I commend the regulations to the Committee.