Previous SectionIndexHome Page

National Minimum Wage

3.30 pm

The Secretary of State for Trade and Industry (Mr. Stephen Byers): With permission, Mr. Speaker, I would like to make a statement on the national minimum wage.

As the House will know, in June last year I asked the independent Low Pay Commission to produce a further report on the national minimum wage by July of this year. In particular, the commission was asked to consider whether there was a case for increasing the rate of the minimum wage. In considering any increase, it was required to take into account movements in earnings, the effect on employment, the impact on individual sectors, including small business, and the likely and future impact on the economy.

The commission announced at the end of January that this year it would produce its report in two parts. It had a clear message from employers that the length of notice given of any changes would be critical.

Today we are publishing volume one of the commission's third report. It looks solely at the main rate, and makes recommendations to have effect on 1 October this year and next. Copies will be placed in the Library of the House.

I thank the commission chairman, Professor George Bain, and its other members for the time, commitment and detailed consideration that they have given in preparing today's report. The strength of its recommendations comes from the detailed analysis, and also from the fact that it is a unanimous report, agreed by, for example, the deputy general secretary of the Transport and General Workers Union as well as the deputy director general of the Confederation of British Industry.

The report concludes that the minimum wage has been a success, with nearly 1.5 million benefiting without any adverse impact on employment or the competitive position of British business. More than 70 per cent. of those benefiting are women. The commission concludes that, in narrowing the gender pay gap, the minimum wage has had the most beneficial effect on women's pay since the introduction of the Equal Pay Act 1970 more than 30 years ago. It has also helped to close the gap in regional pay differences. Since its introduction, the largest increases in average earnings have been in traditionally low-paying parts of the United Kingdom. While the national average increase in earnings for the first year of the minimum wage was 3 per cent., average earnings in the north-east rose by 5 per cent. In Wales, the average increase in earnings was over 4 per cent., and in Yorkshire and the Humber it was 3.5 per cent.

The minimum wage is about ensuring that people throughout the United Kingdom share in the country's economic prosperity. Twenty years ago, pensioners made up the largest section of those in poverty. Today it is those living in workless working-age households who are in poverty. Simply compensating people for their poverty through benefits is not good enough; the task must be to deal with the causes of poverty. The best form of welfare is work, and having a job. That is why it is crucial to make work pay, and the national minimum wage makes a vital contribution to the achievement of that objective.

Of course, there are those who opposed the very concept of a national minimum wage. They said that its introduction was the height of irresponsibility. Some said

5 Mar 2001 : Column 22

that it was a cretinous idea. Others said that it would deal a blow to low earners and would cost more than 1 million jobs.

The critics have been proved wrong, wrong and wrong. Employment has increased by nearly 450,000 since the introduction of the national minimum wage in April 1999 and by more than 1 million since we were elected with a clear pledge to introduce it. The number of jobs in the hotel and catering sector, which includes a high proportion of low-paid jobs, increased by 14,000 between March 1999 and September 2000.

In recommending a new rate, the commission had to satisfy itself about the likely impact of any increase. A rate that was not manageable would hurt the prospects of the very people whom it was meant to benefit. The commission is confident that there is scope for a significant increase in the rate of the minimum wage. The aim has been to make recommendations that are bold enough to make a real difference, but prudent enough not to have an adverse impact on employment or the economy. The commission's report is unanimous. It recommends that the adult rate, currently £3.70 an hour, should increase to £4.10 an hour on 1 October this year.

The Government accept that recommendation. It will mean that someone on the minimum wage and working a 40-hour week will see their earnings increase by £16 a week. It will mean a £10 a week increase for someone working 25 hours a week. Coupled with the working families tax credit, the Government are ensuring that work pays. The commission also recommends that the adult rate should increase in October next year to £4.20 an hour. In principle, the Government also accept that recommendation, subject to the economic conditions prevailing at the time.

The commission's report looks in detail at the impact of an increase to £4.10. It finds that the estimated wage bill impact will be modest--lower than the wage bill increase that resulted from the introduction of the minimum wage--and that the minimum wage had no discernible impact on the main measures of inflation. Analysis shows that the rise in the wage bill that would follow from the proposed increase to £4.10 adds 0.07 per cent. to inflation in the first year and 0.05 per cent. in the second.

The new rate for the minimum wage will apply across the board: to part-time and full-time workers, to agency staff and to those who work from home. I understand that there are some who would exclude businesses that employ fewer than 100 people from all legal requirements, apart from health and safety. That would mean nearly 8 million people being denied decent rights in the workplace. We reject such an approach. That is why the minimum wage will apply to all those in work, whatever the size of organisation that employs them.

The introduction of the national minimum wage has been one of the Government's great achievements. It has already had a real and much-needed impact on the lives of many hard-working people and their families, helping to raise the pay and standard of living of almost 1.5 million people.

The minimum wage combines economic efficiency and social justice. Increasing it to £4.10 an hour will take people further out of poverty pay. It is a significant

5 Mar 2001 : Column 23

increase that is affordable and will make a real difference to those who receive it. It brings reality to the phrase "dignity of work." I commend the increase to the House.

Mr. David Heathcoat-Amory (Wells): I am grateful to the Secretary of State for giving me some notice of his statement today.

Last October, the national minimum wage was uprated by 10p an hour. Before that, the Secretary of State made no oral statement to the House. Today, however, he has announced in the House that there will be a 40p uprating in the minimum wage. Is the difference in the announcement and the way in which it was made anything whatever to do with the fact that there will shortly be a general election?

When we take office after that general election, businesses will be planning that uprating and adjusting their payrolls accordingly. We shall therefore not oppose this uprating--[Interruption.] I want to make that clear at the outset. However, I do have various conditions and questions for the Secretary of State--[Interruption.]

Mr. Speaker: Order. The right hon. Gentleman is entitled to a hearing. The Minister received a hearing; the right hon. Gentleman is entitled to one.

Mr. Heathcoat-Amory: I am most grateful, Mr. Speaker.

Why has the Secretary of State been so anxious to make this announcement on the minimum wage while at the same time adding to the regulatory burdens on the very businesses that will be delivering the jobs in future? I remind him that, according to the British Chambers of Commerce, over the lifetime of this Parliament, that regulatory burden amounts to an extra £10 billion on British business. Would he like to confirm that, contrary to his earlier claims, that £10 billion figure does not include the financial costs of the minimum wage?

Is the Secretary of State aware that small business organisations are extremely alarmed at the damage caused by those regulations--which are added now to a substantial uprating later this year--particularly in vulnerable sectors such as village shops, sub-post offices and care homes?

I should like the Secretary of State to deal specifically with the point about the costs on private care homes. Is he aware that, this year, most care homes are receiving a funding increase from the Department of Social Security and from local authorities of between 1 and 2 per cent., whereas those same homes will now have an increase in their total costs of more than 7 per cent? For an average 20-bed care home, that will increase those costs by £2,600 annually. That is a Government responsibility. This is a Government problem that is being made worse by the Secretary of State's announcement. What offsetting arrangements is he making to get over and solve that crisis in care?

Will the Secretary of State also confirm that it is not within the Low Pay Commission's remit, but up to the Government, to assess the economic effects of increasing the national minimum wage in that manner? What could the damage be if this turns out to be at the top of the economic cycle? Will he confirm that unemployment

5 Mar 2001 : Column 24

decreased more slowly in the first three years of this Government than in the last three years of the previous Government? Will he therefore give his own assessment of the effect that the uprating will have on future employment growth, on which national prosperity and the prosperity of the low paid depend?

Will the Secretary of State comment on the report today by the organisation Incomes Data Services--which is authoritative in this sphere--which shows that pay settlements are running substantially ahead not only of inflation, but of last year's equivalent wage settlements? Those data were not available to the Low Pay Commission when it drew up its recommendation.

The Secretary of State gave a very low figure for the inflationary consequences of his announced uprating. Will he tell us whether that takes account of the preservation of differentials when the national minimum wage is increased by 11 per cent. and also of the earnings figure that has now been disclosed by IDS?

Finally, will the Secretary of State confirm that, in "Economic Trends", the Office for National Statistics records that under this Government, the tax burden on the poorest 20 per cent. of households has increased from 37 per cent. of gross income to 40 per cent.? So the sharpest rise in taxation under this Labour Government has been imposed on the poorest fifth of households. Will he confirm those Government figures? If the House takes seriously its duty to help the lowest paid, as it should, it will pay at least as much attention to that problem, and to the problem of future employment growth, as it does to this uprating of the national minimum wage.

Next Section

IndexHome Page