Considered in Grand Committee
My Lords, the purpose of these regulations, which were laid before the House on 31 January 2022, is to raise the national living wage and the national minimum wage rates on 1 April 2022.
We are committed to making the UK the best place in the world to work and build a business. The pandemic has presented extraordinary circumstances. The labour market shows strong signs of recovery but both workers and businesses will be concerned about the rising cost of living. Our approach must always balance the needs of both.
The UK labour market’s recovery from the pandemic is one to be proud of. The current number of payroll employees is over 400,000 more than pre-pandemic levels, and unemployment has fallen to 4.1%. This success is in no small part due to government intervention, most notably the Coronavirus Job Retention Scheme, which supported more than 11 million jobs over the course of the pandemic. The UK’s economic recovery has been no less impressive. GDP at the end of 2021 recovered to the pre-pandemic level and increased by an estimated 7.5% over the year.
However, we are aware that a key issue on people’s minds is the rising cost of living. We have already acted to support households with rising energy bills. We recently announced a package of measures worth £9.1 billion for 2022-23, including a £200 reduction in energy bills and a £150 rebate on council tax bills for all households in bands A to D in England. These are in addition to measures that we have already announced, such as cutting the universal credit taper rate and freezing fuel duty for the 12th year running.
Central to managing the cost of living in the long term is the creation of a high-skill, high-wage economy. We are committed to doing just that. Through policies such as the plan for jobs, we are helping people get into work and gain the skills they need to prosper, progress and succeed. We are also committed to supporting the lowest paid on this issue. Since 2015, we have increased the national living wage significantly faster than average wages and more than twice as fast as inflation, meaning more money for the lowest-paid workers. The increase in the rates this year will continue to protect the lowest paid against the increase in the cost of living.
These regulations will increase the rates of the national minimum wage and the national living wage from 1 April. We estimate that these will provide a pay rise to around 2.5 million workers. I am pleased to say that the Government accepted all the rate recommendations made by the Low Pay Commission in October 2021. The commission is an independent body that brings together the views of business and workers and is informed by expert research and economic analysis. Once again, I express my gratitude for its excellent work and well-informed recommendations.
The Government have a target for the national living wage to equal two-thirds of median earnings by 2024. Commissioners made their recommendations last October, taking into consideration the target and the strong economic and labour market recovery to that point alongside the remaining uncertainty and feedback from a wide range of stakeholders. We are delighted that this increase keeps us on track to reach our target for 2024; we remain committed to it. The Low Pay Commission made its recommendations on the basis of significant stakeholder evidence from business, workers and academic representatives. Businesses spoke of the variety of concerns they faced at that stage of recovery, as well as how they continue to plan for the future based on our target for the national living wage.
These regulations will increase the national living wage for those aged 23 and over by 59p to £9.50—an increase of 6.6%. A full-time worker on the rate will be more than £1,000 better off over the course of the year. The regulations will also increase the rates for younger workers and apprentices. Workers aged 21 and 22 will receive an increase of 82p an hour—a 9.8% increase—to see a minimum hourly rate of £9.18. Workers aged between 18 and 20 will be entitled to an extra 27p an hour, taking their rate to £6.83. Under-18s will have a 4.1% increase of 19p, to an hourly rate of £4.81. Apprentices aged under 19, or those in the first year of their apprenticeship, will receive an increase of 11.9% to an hourly rate of £4.81—51p more. This rate will remain equal to, but separate from, the under-18 rate. The regulations will also increase the amount that employers can charge workers for accommodation without it affecting their pay for national minimum wage purposes. From 1 April, it will be £8.70 per day.
Looking ahead, the Government have pledged to continue raising minimum wage rates. As set out in our manifesto, we have set a target for the national living wage to reach two-thirds of median earnings by 2024. To improve fairness for younger workers, we also have a target to further reduce the age threshold for the national living wage, making it apply to those aged 21 and over by 2024. These targets remain dependent on economic circumstances, and we will monitor the labour market carefully.
In conclusion, these regulations ensure that the lowest paid are fairly rewarded for their contribution to the economy. The Government will continue to monitor the impacts of increasing the minimum wage and will remain abreast of concerns about the cost of living. We will shortly publish the remit to the Low Pay Commission for 2022, asking it to provide recommendations for new minimum wage rates to apply from April 2023. I commend these regulations to the House.
My Lords, I thank the Minister for his introduction and welcome the fact that the figures are being increased. The support of the Government for having a minimum wage is to be welcomed. The Bible tells us that reformed sinners are to be welcomed. It does not say that we should not remind them of their previous sins. To be honest, I wasted a bit of time re-reading the Second Reading of the National Minimum Wage Bill in your Lordships’ House in 1998. I have several good quotes. The Conservative Front-Bench spokesperson said:
“If the Government go ahead with this legislation they will have to accept that business closures will lead to extensive unemployment in country areas.”—[Official Report, 23/3/98; col. 1078.]
There are several other statements on a similar theme. So I extend a welcome to a reformed sinner.
The second, brief point I will make is that of course this is not the real national living wage, as I am sure the Minister is aware. There was a national living wage before the Government co-opted the title, and it is somewhat greater than the figure being presented to us today. So I ask the Minister: have the Government considered the continued gap between their version of the national living wage and what I regard as the real living wage?
Finally, my main point, and why I am here today, is on the issue of pensions. I argue, and ask the Minister to accept, that a national living wage has to have built into it sufficient resources so that people can retire on a decent pension. A national living wage should encompass not just the day to day but a reasonable pension when the recipient of the national living wage comes to retirement. The Low Pay Commission reported on a submission from the TUC setting out that point in some detail—it reported on it but did not respond to it. If you dig down through what the Government are doing on pensions, you see that they are simply adding a margin that reflects what a typical employer does. It begs the question: is that sufficient to provide a decent pension when people get to retirement? The answer is that it is not.
Of course, some low-paid workers miss out on any pension at all. A worker on the minimum wage working less than 12 hours a week will miss any opportunity of an automatic enrolment pension because they are not entitled to one. If they work less than 20 hours a week, they have to request employer pension contributions. There is no automatic entitlement, and we know from experience how important that is in incorporating people into the pensions system.
So we have a minimum wage that fails to deliver an adequate pension. A worker on 32 hours a week on the proposed level of the minimum wage will earn a bit under £16,000 a year. That results, given next year’s earnings limits, in an annual pension contribution from employer and employee of £765. If they maintain this level of contribution for 40 years and we assume average investment returns of 2.5%, they end up with a pension pot of less than £50,000. That is insufficient to provide that worker with an adequate pension.
Clearly, there are other things. The Government are on record as “sometime, sometime, never” increasing the minimum contributions. In the meantime, the Low Pay Commission should build into its calculations the cost of providing a decent pension. I invite the Minister to pass on the message to the Low Pay Commission that pensions are part of pay and that the minimum wage should cover the cost of a decent pension.
My Lords, I thank the Minister for his introduction to these proposals, and the Low Pay Commission for the thorough and very persuasive way it has drawn up its recommendations. The labour market during the Covid era was undoubtedly worrying, but it is good to see the evidence that, since the economy has started to pick up, pay growth has been the strongest for low-paid workers. As a result, the proportion of the workforce reliant on the national living wage has fallen from 6.5% to 5.4%.
We therefore welcome the decision of the Low Pay Commission to get back on course to meet the national living wage target of reaching two-thirds of median earnings by 2024. We therefore support the increase of 6.6% in the rate, lifting it to £9.50 an hour for those aged over 23, and the subsequent rates that follow on from that.
These recommendations were finalised in December 2021, but since then we have had rising inflation, a rising cost of living and now the reality of huge increases in energy bills. The Minister referred to that. Has any provision been made for the Low Pay Commission to monitor those significant surges in the cost of living, and potentially to make emergency adjustments to the pay rate to ensure that the lowest-paid workers can survive the coming financial crisis without falling into debt? In the first instance, I suggest that the Government could go further and scrap the national insurance increases, and indeed adopt Labour’s policy of a minimum wage of at least £10 an hour, which would go some way to alleviate the pain.
I also support my noble friend Lord Davies’s point about pensions. He made an important point about pension payments needing to be factored into the living costs of the lowest paid. They therefore should be included as part of the statutory scheme.
Moving on from that, I ask the Minister: what happened to the other recommendations in the Low Pay Commission report? Will they come before us separately? I read the report, and it is clear that the commission has, for example, done a great deal of work on the domestic workers exemption, where staff such as au pairs and domestic servants live with a family. As it says in its report, it heard a great deal of distressing evidence from individuals whose hidden voices are rarely heard. As a result, it made a definite recommendation to remove the domestic worker exemption in Regulation 57(3) of the 2015 regulations. What happened to that recommendation?
Secondly, the commission addressed the issue of the pay for individuals involved in sleep-in shifts in social care. This was subject to a Supreme Court ruling this year, leading to calls for more clarity and consistency. The Low Pay Commission identified that there was a variety of practices across the sector, with payments “unregulated” and
“determined by negotiation between commissioning bodies, providers and the workforce.”
It concluded that any further clarification should be “linked to wider plans” for social care funding currently being considered by the Government. Can the Minister confirm that this issue is being considered in the context of the social care reforms, and that adequate money is being set aside to encourage new people into the sector, including those required to sleep over with those for whom they are caring? If we are not careful, this issue, which the Low Pay Commission has flagged up, will fall between all of these stools: it will not be delivered as part of the minimum wage recommendations and it will not be part of the social care reforms either. Once again, those care workers will fall through the crack.
Finally, we welcome the fact that the commission will carry out further work on the impact of low pay on those with protected characteristics, including younger, older, disabled and women workers, and workers from ethnic minorities. We recognise the complexities of untangling the cause and effect of these trends, but given the undoubted pay gaps that we know exist, we believe further measures may be required to rebalance the pay and employment opportunities of these disadvantaged groups.
I hope that the Government’s remit to the Low Pay Commission for next year will ask it to do further work on this issue so that we can be completely satisfied that the pay rates are being sufficiently addressed. I look forward to the Minister’s response.
I thank the noble Lord, Lord Davies, and the noble Baroness, Lady Jones, for their valuable contributions to the debate. The points raised demonstrate the importance of providing a pay rise to workers, and both noble Lords welcomed the increases.
The national minimum wage and national living wage make a real difference to millions of workers in this country, and I am obviously glad that there is cross-party agreement in the House that these increases, which will help to protect workers in all parts of the UK from increased inflation and protect their standards of living, should proceed. It is just a shame that the Liberal Democrats obviously did not consider it important enough to join us for this debate, but I am glad that the other two noble Lords have. The national minimum wage and national living wage have increased every year since their introductions. The regulations mean that, on 1 April, full-time workers on the national living wage will earn over £5,000 more than they did in 2015, when it was introduced.
Everyone will note that, once again, the Government’s impact assessment has received a green fit-for-purpose rating from the Regulatory Policy Committee, which is just as well because I am the Minister responsible for that committee. The impact assessment estimates around 2.5 million low-paid workers will benefit from the minimum wage increase. We estimate there will be a total wage benefit to workers of about £1.3 billion. The total cost to employers for implementing the LPC’s recommended rate is estimated at £1.6 million. This marks a 42% increase in the national living wage since the policy was first announced in 2015. Of course, younger workers will also get more money from the increases to the national minimum wage.
I turn to the points raised by the noble Lord, Lord Davies. The Government of course consider the expert and independent advice of the Low Pay Commission when setting these rates. We reward workers with the highest possible minimum wage, while considering the impact on the economy and, of course, the affordability for businesses. The Low Pay Commission draws on economic, labour market and pay analysis, independent research and stakeholder evidence. The key distinction between the Low Pay Commission rates and the other rates, such as the Living Wage Foundation’s voluntary living wage, is that the Low Pay Commission has to consider the impact on businesses and the economy.
I turn to the next point that the noble Lord, Lord Davies, raised on pensions. From April, the full yearly basic state pension will have increased by over £2,300 in cash terms since 2010. The overall trend in the percentage of pensioners living in poverty is a dramatic fall over the recent decade. There are 200,000 fewer pensioners in absolute poverty, both before and after housing costs, than there were in 2009-10. The Low Pay Commission considers all aspect of low pay when making its recommendations for minimum wage rates.
I move on to points made by the noble Baroness, Lady Jones. In response to the points about the Low Pay Commission considering the change in the cost of living, we consider the expert and independent advice of the commission when setting the rates. The LPC’s remit is for the national living wage to reach two-thirds of median earnings by 2024, subject to wider economic conditions. Since its introduction, the national living wage has grown more than twice as fast as consumer prices. This year’s increase will be the largest ever in cash terms and will help to protect the income of 2 million low-paid workers against the cost of living. In April, a full-time worker on the national living wage will see their annual earnings rise, as I said, by over £1,000. I also said in my introduction that we will shortly publish this year’s remit for the Low Pay Commission, which will once again continue to consider a wide range of stakeholder and academic evidence.
On the point made by the noble Baroness about social care, we are incredibly proud of all the work that our health and social care staff do and recognise their extraordinary commitment. The 1.5 million people who make up the paid social care workforce provide an invaluable service to the nation—and did so especially during the pandemic. The noble Baroness will be aware that we recently brought forward our strategy for the adult social care workforce in the People at the Heart of Care: Adult Social Care Reform White Paper. That was backed by at least £500 million to develop and support the adult social care workforce over the next three years. This historic investment will enable a fivefold increase in public spending on the skills and training of our direct care workers and their registered managers. This will include hundreds of thousands of training places, certifications for care workers and the professional development of the regulated workforce. It will help support our commitment to ensure that those who receive care are provided with choice, control and support to live independent lives, that they receive outstanding quality and tailored care, and that people find social care fair and accessible.
Since the introduction of the national living wage in 2016, care worker pay has also increased at a faster rate than ever. So I hope that the noble Baroness will accept that we remain committed to supporting worker protections through this crucial policy and to ensuring clarity for businesses on how the policy will develop over the next few years. We will also run a communications campaign alongside the uprating, thereby helping workers to check their pay and supporting businesses to make the necessary changes. We will also continue to monitor the labour market closely over the coming months. We will continue to prioritise enforcement of the minimum wage through HMRC’s ongoing work and the naming scheme, where we will continue to name employers who have underpaid their staff. We named 208 employers on 9 December 2021, including some of the UK’s biggest household names. To date, we have named more than 2,500 employers.
As the noble Baroness also mentioned, the Minister for Small Business, my colleague Paul Scully, confirmed in the House of Commons that we will bring forward regulations to remove the exemption from minimum wage legislation for so-called live-in domestic workers such as au pairs. This change will newly extend this right to them, ensuring that those workers receive the wages that they deserve and that we thereby do our bit to help tackle exploitation.
I again thank the Low Pay Commission and its staff for gathering the extensive evidence and providing well-reasoned recommendations. It gives me pleasure to commend these regulations to the House.
Committee adjourned at 3.30 pm.