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Ninth Standing Committee on Delegated Legislation
Thursday 15 July 2004
[Mr. Peter Pike in the Chair]
Draft National Minimum Wage Regulations 1999 (Amendment) (No. 2) Regulations 2004
9.55 am
The Parliamentary Under-Secretary of State for Trade and Industry (Mr. Gerry Sutcliffe): I beg to move,
That the Committee has considered the draft National Minimum Wage Regulations 1999 (Amendment) (No. 2) Regulations 2004.
Welcome to the Chair, Mr. Pike. I am pleased to present the regulations to the Committee today. Without doubt, the minimum wage remains one of the Government's finest achievements. It has made a substantial difference to at least a million low-paid workers in the United Kingdom every year for the past five years. Last July, the Government asked the independent Low Pay Commission to report by February 2004 on two issues connected with the minimum wage. We asked it to review the rates that it had previously proposed for October 2004 in the light of the latest economic position and to consider the possible introduction of a new minimum wage rate for 16 and 17-year-olds.
The commission reported in February 2004 and the Government announced in March that we accepted its recommendations. In particular, the regulations implement the increases recommended by the commission to the adult and development rates of the minimum wage. As recommended by the commission, they also introduce a new rate payable to people under 18.
It may be helpful if I briefly explain the regulations. Regulation 1 provides for the regulations to come into force on 1 October 2004. That will give employers sufficient time to prepare and plan for the rate increases that the Government announced in March. Regulations 2, 4(a) and 4(c) deal with increases to the minimum wage rates. Having laid firm foundations for the minimum wage in the first four years, the Government accepted the commission's recommendation last year that the adult rate should be increased by about 7 per cent. This year, the commission recommended further increases of about 8 per cent. in the adult rate, which increases the amount to £4.85 an hour, and 5 per cent. in the development rate, which increases the amount to £4.10 an hour.
The commission concluded that those increases were justified, as the overall economic outlook remains favourable, with continuing high levels of employment and very low levels of unemployment. The increases would extend the coverage of the minimum wage
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substantially, so that 1.6 million to 1.9 million low-paid workers stand to benefit. Regulation 3(a) provides that workers who are under 18 and over school leaving age qualify for the minimum wage, and regulation 4(b) sets a minimum wage rate of £3 an hour for such workers.
Last year, the Government agreed that the commission should consider this issue, following the commission's findings in its 2003 report that some full-time jobs offered extremely low pay and minimal training to young workers. The commission found evidence that some jobs in this age group continue to offer very low rates of pay and little or no training. It concluded that it is important to introduce a minimum wage for 16 and 17-year-old workers to stop exploitative rates of pay. The Government agree. It is, however, clearly important to set any rate for this group cautiously. The Government's main priority for people in this age group is for them to remain in education or training, which would be in their long-term interest, rather than to take up low-paying jobs.
The commission concluded that a rate of about £3 an hour would have little impact on young people's decisions to remain in education. The implementation of education maintenance allowances this autumn also seems likely to encourage young people to stay in education rather than to opt for low-paying jobs. The Government therefore accepted a £3 an hour rate. The National Minimum Wage Act 1998 covers only someone who
''has ceased to be of compulsory school age.''
The new £3 rate will therefore apply only to people under 18 who have ceased to be of compulsory school age. We believe that it is right that youngsters who are still at school should be encouraged to focus on their education.
Hon. Members may know that apprentices aged between 19 and 25 are currently exempt from the minimum wage for the first 12 months of their apprenticeship. We have left that position unchanged. Regulation 3(b) simply updates the titles of the Government apprenticeship schemes operating in England and Wales. A key consideration is the position of very young apprentices. We know that many 16 and 17-year-old apprentices earn less than the new rate of £3 an hour, and we are very concerned to ensure that employers continue to offer apprenticeships. However, the commission recognised that it was breaking new ground and that caution was needed, and recommended that apprentices aged under 18 should not be entitled to the new rate. The Government accepted that recommendation. The commission also recommended that people under 18 who are on schemes at a pre-apprenticeship level should be exempt from the new rates. The Government believe that it is sensible that all workers on those schemes should be exempt.
Regulation 3(c) lists the apprenticeship schemes that are exempt from the minimum wage. Regulation 5 increases the value of the accommodation offset. The amount recommended by the commission has increased from £3.50 a day to £3.75 a day.
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Regulation 6 makes minor amendments as a consequence of the fair piece rates regulations that were passed by the House in the spring. It requires businesses employing output workers to keep copies of the written notices and details of how they set the fair piece rate paid to their workers. Regulation 7 contains some minor technical transitional provisions. I commend the regulations to the Committee.
10 am
Mr. Andrew Tyrie (Chichester) (Con): I am glad to be here, particularly because it seems that I do not need to be, and I am pleased that you are chairing the Committee, Mr. Pike.
I did not catch everything that the Minister said, but I have read the good explanatory memorandum that he produced. It is better than the short one that is attached to the statutory instrument. I know that explanatory memorandums are not part of orders, but it speeds matters up if Committee members read them in advance. I shall not rehearse any of the points in the explanatory memorandum.
The main changes that we are considering are the fine tuning of the minimum wage and the introduction of a minimum wage for 16 and 17-year-olds. A minor point that I noticed when I went through the details with a calculator is that the increase in the development rate is slightly higher than that in the adult minimum wage. Is that just a statistical freak? One is 7.75 per cent. and the other is 7.89 per cent. In any event, the increase is three times the rate of inflation, and well above wage rises generally.
We are considering not a small change to the regime but a substantial one that will increase labour costs. It has been estimated, on the basis of some reasonable assumptions, that it will cost business £344 million. That is a lot of money. Can the Minister tell the Committee—now if he has the information, or by letter if not—what the Government estimated would be the cost to business of a minimum wage when the 1999 regulations were introduced? I should also be grateful if he could ask his officials to do a small calculation on our behalf. The Department of Trade and Industry has prepared a full regulatory impact assessment of the measure. It is an interesting paper. Such assessments are important, but they are often substandard. This one is not; it is a thorough piece of work. On various assumptions, longer-term estimates are made of the cost of the measures to business. Can the Government go back to the 1999 regulations and, on a straight-line basis and on the original assumptions, give us an estimate of the total extra cost to business today of the introduction and operation of the minimum wage? That cannot be done on the spot, but I should be happy to receive the details in a letter in due course, and it would save me the trouble of tabling a parliamentary question. The information might already be published—I am sure that others are interested—but I have been unable to find it.
Whatever the figure is, it will be sizeable. The overall economic effect of the measure cannot be ignored. We are discussing in economic terms what could be called an extra tax on business of some £340 million, on top
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of the extra burden that was imposed by the original minimum wage legislation. The ''tax'' is hypothecated for a specific social purpose, in this case, handing money back directly to a particular group of workers. It has many economic characteristics in common with employers' national insurance contributions, which hand that money back indirectly, at least in theory, to enable people to obtain certain welfare provisions.
I have one great concern about such legislation. I welcome the fact that it helps people on low pay, and especially several groups who often miss out. The regulatory impact assessment points out that the people who particularly benefit will be women, ethnic minorities, and disabled and part-time workers. None the less, it is important that we also look at the competitiveness of the economy as a whole.
In the debates prior to the introduction of the 1999 regulations, many Conservative Members worried that a relatively low minimum wage would have a slow cumulative effect, much larger than the initial impact. The question of whether the minimum wage might have been introduced at too low a level caused some tension in the Government ranks. We are now seeing increases, which are beginning to concern Conservative Members.
Mr. John Lyons (Strathkelvin and Bearsden) (Lab): Does the hon. Gentleman accept that most employers' organisations have welcomed the progress of the minimum wage, and that some have welcomed the inclusion, for the first time, of 16 and 17-year-olds?
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