Considered in Grand Committee
My Lords, I beg to move that the National Minimum Wage (Amendment) Regulations 2018, which were laid before the House on 5 February 2018, be approved. The purpose of the regulations is to increase the national living wage and all of the national minimum wage rates from April 2018. The regulations also include an increase in the accommodation offset rate, which is the only benefit in kind that counts towards minimum wage pay.
The national living wage has had a real, positive impact on the earnings of the lowest paid: between April 2015 and April 2017 those at the fifth percentile of the earnings distribution saw their wages grow by almost 7% above inflation. This is faster than at any other point in the earnings distribution and, according to the Resolution Foundation, wage inequality, as measured by the ratio between the top decile and the bottom decile of the earnings distribution, fell in all regions of the United Kingdom between 2015 and 2017 thanks to the national living wage. Increasing the minimum wage is one more way in which the Government’s industrial strategy is boosting people’s earning power and seeking to raise productivity throughout the United Kingdom.
From next month the national living wage for those aged 25 and over will increase by 33p to £7.83, which is a 4.4% increase. The 33p increase in April will mean that a full-time worker on the national living wage will see their pay increase by over £600 over the year. The national living wage is on course to reach the Government’s target of 60% of median earnings by 2020.
The 21 to 24 year-old rate will increase by 33p, meaning those in that age group will be entitled to a minimum of £7.38—an annual increase of 4.7%. Those aged between 18 and 20 will be entitled to a minimum of £5.90—an annual increase of 5.4%—and those aged 16 and 17 will be entitled to a minimum of £4.20, an annual increase of 3.7%. Finally, apprentices aged under 19, or those aged 19 and over in the first year of their apprenticeship, will be entitled to £3.70, which is the largest annual increase of all the rates at 5.7%.
All of these above-inflation increases represent real pay rises for the lowest-paid workers in the United Kingdom. For younger workers on the national minimum wage, it is the largest and fastest increase in more than 10 years. The Government’s green-rated impact assessment estimates that more than 2 million people will directly benefit from these regulations.
All of the rates in the regulations have been recommended by the independent and expert Low Pay Commission. The LPC brings together employer and worker representatives to reach a consensus when making its recommendations. The Government asked the Low Pay Commission to recommend the rate of the national living wage so that it reaches 60% of median earnings in 2020, subject to sustained economic growth.
For the national minimum wage, the LPC has recommended rates that increase the earnings of the lowest-paid young workers without damaging their employment prospects by setting it too high. I thank the LPC for the extensive research and consultation that has informed these rate recommendations, all of which was set out in its 2017 report, published in November.
The Government recognise that, as the minimum wage rises, there is a higher risk of non-compliance as a larger share of the workforce is covered by the minimum wage. The Government are committed to cracking down on employers who fail to pay the national minimum wage. We are clear that anyone entitled to be paid the minimum wage should receive it. Consequently, the Department for Business, Energy and Industrial Strategy has increased funding for HMRC national minimum wage enforcement to £25.3 million this year—up from £13 million in 2015. HMRC follows up on every complaint it receives, even those which are anonymous. These include those made to the ACAS helpline, via the online complaint form or from other sources.
In 2016 HMRC recovered pay arrears in excess of £10.9 million for more than 98,000 workers. Those employers who underpay their workers the minimum wage face public naming by the Government. Indeed, last Friday BEIS named 179 employers who had underpaid a total of £1.1 million to 9,200 workers.
Sustainable increases in minimum wage rates depend on strong employment growth. Over the past year the UK labour market has reached a record high employment rate, and the lowest unemployment rate since the 1970s. Evidence has long told us that investing in human capital is crucial for the long-term productivity of the workforce. The industrial strategy sets out our long-term vision for increasing productivity, including through raising the minimum wage and so boosting the earning power of the lowest-paid workers. Through these regulations the Government are building an economy that works for everyone. I commend the regulations to the Committee.
My Lords, I thank the Minister very much for his introduction. I will not go back over the recent history of the introduction of the national minimum wage, because I think it is now a settled agreement between all the parties that it is a good thing. It works for all sections of society, but particularly for the lower paid, and we have evidence before us that shows that.
While we are in congratulatory mode, I thank the LPC, as the Minister did, for its work. It is often unsung and not very visible, but it is well rooted in the interest it has in this area and I know that Ministers value the work that it does. I also congratulate the team responsible for the paper before us. It is a bit of a shock to have to read back through some of the stuff one thought one had forgotten a long time ago about microeconomics and the impact of some of the very narrow points raised in the 51 pages or so of the supplementary work, which I am sure the Minister has in his mind and can quote extensively from memory. It is a very good read and very interesting. It agonises a lot about issues that we do not need to detain the Committee with, but it is important that that work is done. I appreciate the fact that it is there and we should publicly recognise the contribution made by it.
Having said that, while I give an alpha plus for the work that has been done, I give it a beta minus for presentation. I came to this slightly late, otherwise I would have raised it earlier, but it is unfortunate that some of the pagination has been lost in the form that the document comes to us. The pagination matters because, for instance, on page 15 of the copy we have from the Printed Paper Office there is a box that should be on one page but which has gone on to several pages. It makes it very difficult to pick up where we are on that. On page 17 there is a rather complicated and important wage distribution graph that is only really readable in colour, although it is printed in black and white. It therefore does not make sense. You have to spend quite a lot of time working out which of the confidence limits percentages are being referred to in the text. If they had been colour coded one would have been able to do so. I am not complaining about this; I am just pointing out that intelligibility would be improved if we could think more about a reader who is not directly involved.
I will make three points—but before I do, I will say that this is the third time that I have responded to this particular instrument, so I am quite familiar with the process, and in particular the rather neat shuffle that took place this time last year, or maybe six months ago, when we moved from October to April. Last time the instrument came partly under the national minimum wage and partly under the living wage. It did the work of assessment and thinking in terms of the minimum wage but prefigured how we would move to the living wage. This is a simpler and more straightforward document than we had the last time we went through this.
Having said that, we have lost a little bit of the context for the decisions that are quite important in this area, which is that the move from the minimum wage to the national living wage is one of significant increases over a relatively short period of time to jump-start an increase in funds at the lower end of the pay spectrum. We absolutely welcome that, but I have lost the thinking of why we are doing it over three years. Also, the Minister used the phrase “subject to satisfactory economic growth”. Well, economic growth is not very satisfactory. For reassurance’s sake, may I have a confirmation that there are no red lights about the future of this and that, as far as we are able to say at this stage, we are still on track to do this oddly phrased equal bite, or single bite, or whatever it is called—it is called the “straight line bite path”—movement from the current position to hit 60% of the median earnings in October 2020, and that there is nothing I have missed in this that would suggest there is any doubt about whether we will do that, subject obviously to the overriding concern about economic growth? It is important to give reassurance if we are at that stage.
Another minor point is that the percentage increases in individual hourly rates are good. One could perhaps make a little too much of 5.7% arising from a 20p per hour rate increase for apprentices, but nevertheless it is valuable in itself. However, the rates are significantly higher than they would have been otherwise and indeed contrast with the reduction in real wages which we are seeing elsewhere in the economy—so to that extent it is doubly welcome.
Having said that, the LPC has recommended, and as far as I can see the Government have accepted without comment, a much bigger increase in the disregard for accommodation rates. I wonder if the Minister could give me some thoughts on that. This is a sensible way of treating those who have accommodation benefits. I do not dispute the principle, but the particularity of squeezing cash in the pocket or the purse, as it were, by raising the disregard for accommodation at a higher rate than the increase in pay seems a little unfair. Is there any context around that in documentation that we have not seen? I would be grateful if the Minister could tell me that today. If not, I will be happy to receive a letter.
My final point concerns compliance issues. When we discussed this on the last occasion we were concerned because we were aware of reports in the press that quite a number of people were complaining that they had not been given the statutory entitlement of the national minimum wage at that stage and were concerned that as the national living wage came in they might again be differentiated. It is therefore good to hear about the activity that is going on in terms of the statutory powers that the Treasury can take to name and shame, which the Minister referred to, and the penalties that could apply to persistent offenders. I make no comment on that, but there is nothing much in the memorandum as presented on that. I hope that the next time around we could be given a little more detail rather than relying on the Minister’s response.
Finally, on the 20 or so pages around the counterfactual, this is a matter for deep economic consideration and analysis. Perhaps I may put it to the Minister that if it is clear—and I think that it is clear now—that the vast majority, if not the entirety, of employers are now moving to wage increases on an annual basis, which the evidence suggests they are, and they are broadly taking as given that the national minimum wage is the wage that is offered at the low end of the wage spectrum, the wish to have a counterfactual against which one measures the impact this is having on employment, efficiency and to some extent productivity seems, as the paper concludes, rather a lost cause. Might it be more effective to think about wider issues rather than simply concentrating on what would be the best way of measuring a totally hypothetical wage that cannot be paid and will not be paid either now or in the future so that we can measure whether the national living wage has any effect at all, other than accidentally, on the overall economy?
My Lords, I have two or three points to make on these regulations. We welcome the move to increase the rates and we support that policy. Obviously, evidence over the past few months has shown that the economy is slowing. We have some quite serious problems in the retail sector and cutbacks in catering, with a lot of chains in financial difficulty. The other sector I would like to mention—here I must declare an interest as the chair of Housing & Care 21, a housing association with considerable care interests—is the whole care sector, which is under huge pressure. Obviously, this is a further burden in terms of costs—and not just for the operators because, given that the health service does not protect a lot of people in this sector, those costs are coming straight out of the pockets of consumers. I hope that the Government are paying some attention to these sectors and I should like to ask the Minister what they are doing.
A key issue is the degree to which productivity will increase in order to absorb some of the significant costs that are being imposed on these low-wage sectors. What are the Government doing? We have various estimates of productivity, but what initiatives are the Government taking to encourage productivity growth in these sectors? What case studies are they implementing to judge the impact of labour costs in these sectors? What policy initiatives are being speeded up—particularly, I hope, in the care sector—to address the fact that the sector is very labour-intensive and that inevitably the costs will impact directly on some very needy people who are not catered for by the National Health Service? The Government’s delay in producing their social care policies is a major consideration as this policy of increasing the living wage continues towards the Government’s targets.
Finally, as we seek to improve to improve rates of low pay, the best scenario in which to do it is one in which the economy is growing well, living standards are increasing and we have no undue pressures. We know, however, that we are now facing a period of low growth and that, because of the movement in the exchange rate and the rise in costs—particularly those imposed by these measures—living standards will be squeezed. On top of that, the Government will impose on the economy the huge costs of Brexit. The Prime Minister has admitted that Brexit will affect jobs and standards of living, regardless. I would therefore like to know what specific measures and initiatives the Government are taking to deal with these problems, which could undermine their low-pay strategy.
My Lords, I thank both noble Lords for their helpful contributions to this debate and their broad welcome for these regulations. I will deal with the regulations and their attached documentation, and the concerns of the noble Lord, Lord Stevenson, that they were not set out exactly as they should be. I will ask the officials to send him a more readable version. More importantly, we take note of what he said. I will make sure that we do somewhat better at setting these documents out and making them clear to the noble Lord and other noble Lords taking part.
The noble Lord was also rather worried about why I used the expression “subject to economic growth”. The important point here is that the Low Pay Commission makes its recommendations in the light of an array of matters, and—as the noble Lord will know—it includes representatives of employers, employees and others. Ultimately, it makes recommendations and it is for the Government to make the decision. Those who are somewhat higher up in the Government—the Chancellor and others—have to take into account the effect on the economy of the Low Pay Commission’s recommendations, though we hope that it will also have considered the effect its recommendations might have on increasing unemployment by making it less affordable to employ people. The matter is, therefore, considered by the Low Pay Commission but, more importantly, my right honourable friend the Chancellor and others consider what lies ahead.
I join the noble Lord, Lord Stoneham, in wishing to see greater growth, but—as my right honourable friend the Chancellor set out recently—we are seeing steady growth over the coming years and I see no particular red lights in this area. We are still on track to achieve the target that we wanted to achieve—I think the noble Lord asked about this—which is 60% of median earnings by 2020. The Low Pay Commission will take all evidence into account in trying to get there.
The noble Lord also asked about the bigger change in the disregard for accommodation. Again, the Low Pay Commission took evidence to determine that off-set and its report summarises its view that the rate is a fair balance of the employer’s and the worker’s interests. Obviously I am happy to write to the noble Lord in greater detail on that if he so wishes.
I move on to the comment of the noble Lord, Lord Stoneham, that this imposes particular pressure on certain sectors. He singled out one that he knows particularly well, the care sector, for which we accept it can be difficult, and similarly for retail and other areas where wages tend to be on the lower side. That is why we are very grateful that there are representatives of employers on the Low Pay Commission to make sure that that point is made. There is no point raising rates too far if it will increase unemployment or create difficulties for certain businesses. Obviously it means that there will be extra costs for businesses but, as I think the noble Lord will accept, we want to make sure that workers are fairly rewarded.
There are certain things that Governments can do to recognise the increased costs for businesses. We give employers up to £3,000 off their employer NICs bill through the employment allowance. Last year more than 1 million employers benefited from that, saving some £2 billion. That will apply in all sectors. We cut corporation tax, as the noble Lord will be aware, from 28% to 19%, and that again benefits a large number of firms. As the noble Lord will remember, my right honourable friend announced reductions to business rates in the Budget.
I appreciate that things can still be difficult. The point behind having the Low Pay Commission, with representatives from both sides and others, is to make sure that we try to take all factors into account and, I hope, achieve greater balance. The noble Lord would like me to discuss the Government’s care policies more generally, but I do not think I am the right person or that this is the right place for me to do that at this stage, so I shall restrain myself from being tempted to take up his offer. No doubt he will find other opportunities to raise this matter with others in due course.
With what I take to be the support of both noble Lords, I commend these regulations to the Committee.