Considered in Grand Committee
My Lords, the regulations were laid before the House on 28 January 2019. Their purpose is to increase the national living wage and all the national minimum wage rates from 1 April 2019. 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 positive impact on the earnings of the lowest-paid. Between April 2015 and April 2018, those at the fifth percentile of the earnings distribution saw their wages grow by almost 8% above inflation. That is faster than at any other point in the earnings distribution.
The labour market has continued to perform well. The employment rate is at a record high of 75.8% and the unemployment rate is at 4%, the lowest since the 1970s. Increasing the minimum wage is one more way in which the Government’s industrial strategy is boosting people’s earnings power and seeking to raise productivity throughout the UK.
From April, the national living wage for those aged 25 and over will increase by 38p to £8.21, which is a 4.9% increase. The 38p increase in April will mean that a full-time worker on the national living wage will see their pay increase by more than £690 over the year. The national living wage is on course to reach the Government’s target of 60% of median earnings in 2020. The annual earnings of a full-time minimum wage worker will have increased by more than £2,750 since the introduction of the national living wage in April 2016.
The 21 to 24 year-old rate will increase by 32p, meaning that those in that age group will be entitled to a minimum of £7.70, an annual increase of 4.3%. Those aged between 18 and 20 will be entitled to a minimum of £6.15, an annual increase of 4.2%. Those aged 16 and 17 will be entitled to a minimum of £4.35, an annual increase of 3.6%. Finally, apprentices aged under 19, or those aged 19 and over in the first year of their apprenticeship, will be entitled to £3.90. This is a 5.4% increase and is the largest increase of all the rates that we are debating today. All these above-inflation increases represent real pay rises for the lowest-paid workers in the UK.
The Government’s green-rated impact assessment estimates that more than 2.1 million people will benefit directly from the regulations. All 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 such 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 rates recommendations, all of which is set out in its 2018 report published in November. At Budget 2019, the Chancellor will announce the LPC’s remit in the years after 2020. The Government have an aspiration to end low pay. This year, we will engage with the LPC, workers and businesses to balance this ambition with the need to protect employment for lower-paid workers.
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, and 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 almost doubled the budget for enforcing the national minimum wage and national living wage. Funding reached £26.3 million this year, up from £13.2 million in 2015-16.
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. Increasing the budget allows HMRC to focus on tackling the most serious cases of wilful non-compliance. It also increases the number of compliance officers available to investigate national minimum wage complaints and conduct risk-based enforcement in sectors where non-compliance is most likely. In 2017-18, HMRC recovered pay arrears in excess of £15.6 million for over 200,000 workers.
Sustainable increases in minimum wage rates depend on strong economic fundamentals—and those of the UK are strong. The economy has now grown for 24 quarters in a row—the longest streak in the G7. Evidence has also long told us that investment 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 earnings power of the lowest-paid workers. Through these regulations, the Government are building an economy that works for everyone. I commend them to the Committee and I beg to move.
My Lords, I welcome this statutory instrument and the increases outlined by the Minister. As he knows, next month will be the 20th anniversary of the introduction of the national minimum wage, and I had the honour of being one of the founding members of the Low Pay Commission at the time. The recommendations we made impacted on and benefited 1 million women—and, incidentally, the world did not come to an end, which some forecasts had said would happen.
I am pleased that successive Governments have upheld the principles laid down by the original committee, and I hope that that will continue. Obviously, this was before the national living wage was introduced. However, one omission from our very first report in 1998, before the implementation, was the issue of accommodation offset. We were asked as a committee to look at that again, because we had not seen the significance of it.
I well remember being taken with the committee down to a convent in the middle of the Devon countryside to be gently lobbied by the Mother Superior and a number of nuns about the importance of having an accommodation offset. The Minister will know that it might have been gentle lobbying, but, my goodness, we were in absolutely no doubt whatever about the strength of feeling involved. The experience we had on the committee is a memory I will take with me for a long time. We were conscious that we were creating history, and I am very glad indeed that this is still here for us to admire.
My Lords, I will fulfil the promise I made to the Minister on the previous statutory instrument and be brief. It is also a great relief from Brexit to be discussing something that is current and not contingent on anything else happening.
The statutory instrument talks about the national minimum wage amendment regulations, but the table refers to the national living wage. It does not take much to confuse me. I just want to explore that difference for a minute or two. The uplift of 4.9% for over-25s to £8.21 is very welcome and I accept and welcome the comments from the Minister on the progress that the Government are making to get to 60% of median earnings by 2020.
The concept of the national living wage was introduced by the Government in 2015. I appreciate the Minister’s comments on how the amount has increased but my understanding is that it is not a national living wage because it is not based on actual living costs. The Living Wage Foundation currently calculates it—although presumably it is due for an uplift as well—at £9 per hour and £10.55 in London. It says that the living wage is what people need to earn to live. Citizens UK says that there is a moral imperative on employers to pay that if they can and 4,700 businesses and 104 local authorities do.
We know that 20% of all low-paid workers are in the public sector. Can the Minister say what percentage of public sector workers are in receipt of the living wage? It was very good to hear the Minister’s comments on enforcement. Can he tell me how many companies have been found to be paying below the minimum wage and how many of these have actually been prosecuted?
In conclusion, I hope that we will be moving towards the living wage very soon. It is proven to be good for business because it improves staff morale and retention. It is good for society and for the Government’s coffers too, because 35% of those earnings will go to the Treasury.
My Lords, I declare an interest as one of my children is an apprentice aged over 19. He is in the first year of the apprenticeship and so would benefit from the figures that we have in front of us today. I have not discussed it with him but I am sure he will be delighted to hear that there is more money on its way.
My noble friend Lady Donaghy’s comments were well made and it is astonishing that we are 20 years into what was seen at the time as quite a revolutionary policy and which is now, in the words of the Minister who introduced the order, settled between all parties as a feature of our working environment. It is a good thing as it works for all sections of society, particularly those at the lower end of the pay spectrum.
This is the fourth consecutive year that I have been reviewing this order, so I took the change of looking back to last year’s Statement, when the Minister was also responding, although that was only his first time. I will repeat some of the things that were said then because I think that the issues are still relevant. There are two important points to put on record. The document in front of us is an excellent piece of work. Again, I congratulate the team responsible for it. It reads very well indeed. It is a bit scary to go back to what we learned at university about the economics of wage policy and the impact of living and national wages but, nevertheless, it is important to see it all there. The document itself is good but also it plays back to the work done by the Low Pay Commission, in place for 20 years now, but doing fantastic work. It is very good to see its ability to move from the national minimum wage conditions when it was set up in 1998 to now, with the national living wage, which progressively moves the lower paid on full rates up to 60% of the median wage. The commission has adapted and continues to do its work in a way that is important and effective for society as whole.
Three points were made last year which I think have been picked up in the current document. One concerned whether the approach that has been taken to calculate the impact of the national minimum wage has stood the test of time. It was good that the department decided to take external advice from an expert body, and it is good to read the report and evaluation, which goes some way to answer some of the points I raised last time. That gives us a good basis on which to go forward.
My substantial second point concerns whether the straight line bite path—a rather curious phrase—will be on target to hit the position of 60% of median earnings in October 2020, which is not very far away. Echoing the noble Baroness, Lady Burt, it is not clear in the document before us whether we will hit the target on that date and, if not, what the issues are. It is clearly conditional and contingent on economic growth, but I think I heard the Minister say that he was confident that the essentials of the economy were sound, so that does not need to be a factor.
It is then simply a question of how one tracks what is obviously a moving target—the median wage—how it will move and how changes made annually in the current form can do that effectively. I do not think there is any problem, but if the Minister wants to say anything more about it, I should be grateful to receive it.
My final point is one raised by my noble friend Lady Donaghy. The only figure that sticks out from the table on page 1 of the Explanatory Memorandum as being out of sync is the accommodation offset rate, which has been set at 7.9%. Everything else has percentages beside it; this one does not, so I have had to make my own calculation; I hope it is approximately right. The rate of 7.9% is a bit different from all the others, which are between 4.9% and 5.4%.
I understand the logic behind that, which was explained well by my noble friend, but I do not understand the differential approach. There must be figures which support it, which may be in documents to which I have not had access, but will the Minister explain why it is necessary to raise it at the rate of 7.9%, which seems to be adverse in terms of remuneration—taken-home pay—when the rest of the percentage increases are at a more modest level? Is there a particular reason? Do rents in the areas we are talking about particularly differ from the rest of the country? Is there a particular reason or has a general approach been taken? I should be grateful for further information on that.
My Lords, I join both the noble Baroness, Lady Donaghy, and the noble Lord, Lord Stevenson, in offering my thanks to the Low Pay Commission. I had not realised that the noble Baroness was a founder member of it 20 years ago, and I offer congratulations on its 20th anniversary. Unlike her, I have never been lobbied by a Mother Superior from a Devon convent, but one looks forward to all new experiences in life. I will just say that I can imagine what it is like.
We are very grateful to the Low Pay Commission for the work it does. It is a good body that understands that it has to make difficult decisions in trying to come to the right figure for the different rates, representing the interests of those in work, those out of work, employers and the effect on employment. We are grateful to it for its advice.
The Government, as noble Lords will note, set an annual remit for it asking it to recommend the highest possible national minimum wage rates such that it does not increase unemployment. Again, we have that target, referred to in my opening marks and by the noble Lord, of getting to 60% of median earnings by 2020, subject to sustained economic growth. I hope we can do that; we are on track for it at the moment. As I made clear, my right honourable friend the Chancellor will set out further guidance in the Budget Statement for life beyond 2020. The duty of the Low Pay Commission is to advise us. It is then for the Government to produce a figure and put it into the regulations. That is what we are debating today.
The noble Baroness, Lady Burt, asked about the difference between the national minimum wage and the national living wage. The latter is just another phrase for the statutory minimum wage that applies to those aged 25 or over. It was brought in in 2016 and we are aiming to get that statutory minimum wage to that 60%. She asked why we could not follow what the Living Wage Foundation suggested. It is possibly better to follow the advice of the body that we have sought advice from—the Low Pay Commission—rather than another external body. I believe that setting the national living wage too high or increasing it too quickly could in the end lead to higher unemployment and harm the very people whom the policy is intended to help. That is why we look to the Low Pay Commission to set those rates; it will draw on economic, labour market and pay analysis, independent research and stakeholder evidence, as well as its own experience from trade unionists, business representatives and economists. I commend the work of the Living Wage Foundation, but the key distinction of the rates recommended by the LPC is that that body has to consider the impact on business.
The noble Baroness also asked about levels of non-compliance and about how many were underpaying. In 2017, 1,000 businesses were found by HMRC to have underpaid the national minimum wage. The cases resulted in £15 million of pay arrears being identified for more than 200,000 workers. There have been 14 successful prosecutions since 2007, but the important thing is to identify the businesses that are non-compliant and get them to comply. She also asked about the percentages of public sector workers receiving the living wage. I will write to her with any exact figures on that.
Finally, the noble Lord, Lord Stevenson, asked about the large increase in the accommodation off-set. The LPC seeks to raise the accommodation off-set to reach the level of the 21 to 24 year-old rate. A high rate for the off-set better reflects the cost of provision and enables investment in higher standards of accommodation by business. I hope that that deals with that point.
I think that that covers all the points that have been raised. I beg to move.