Draft National Minimum Wage Regulations 1999 (Amendment) Regulations 2002

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Geraldine Smith: Is the hon. Gentleman not aware of how the working families tax credit has helped people on low incomes? The many tax changes, along with the national minimum wage, have meant that many people in my constituency who would have remained on benefit have decided to take jobs because the Government have made work pay.

Mr. Hammond: It will be interesting to see the figures, but I shall deal with means-tested benefits in a moment.

Many people on low incomes are earning above the national minimum; no one would suggest that the definition of a person on a low income is one who earns only the national minimum wage. Many people who earn more than that are still on low incomes. Everyone on lower incomes has been hit by Labour's stealth taxes. Labour gives with one hand and takes away with the other. At the same time—dealing with the point raised by the hon. Lady—Labour has massively extended the dependency culture.

Including most pensioners, nearly 40 per cent. of the population will be receiving means-tested benefits or receipts by 2003. In 1998, that figure was 24 per cent.

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The Government have not done away with the dependency culture; they have reinforced and fostered it. They have increased the benefit trap and thus increased dependency on the state. It is not so much a hand up as a handout. We cannot effectively tackle poverty while increasing taxes that bite hardest on the most vulnerable, which deepens the very benefit traps that keep people from being able to haul themselves out of poverty.

Mr. Michael Connarty (Falkirk, East): The hon. Gentleman has lumped in a number of factors to obscure his main argument. He mentioned pensioners a moment ago. To include pensioners in his analysis is obviously false, because the regulations are about wages. As for the pensioners, the Government have stepped in to rescue them from the poverty created by the destruction of the link between earnings and pensions set up by a previous Labour Government. The Government have addressed that poverty. The hon. Gentleman should discount pensioners from his analysis.

Mr. Hammond: That is an interesting argument, from which I deduce that the hon. Gentleman belongs to the half of the Labour party that does not support the reintroduction of the link between earnings and pensions, not the half that has been urging the Government to reintroduce the link. The simple point is that as well as taxing the least well off more highly, the Government have reinforced the dependency culture. I genuinely believed that in 1997 the Labour party was determined to tackle that, and it has not.

The Government's regulatory impact assessment suggests that the total cost of uprating the national minimum wage will be 0.05 per cent. of the total wage bill. As I said earlier, that figure is irrelevant. It is not the macro-economic effect of the uprating that is relevant but its micro-economic effect on marginal jobs and marginal firms and businesses. I was disappointed to see that the Government's analysis does not tackle the marginal effect of this uprating. Indeed, we should not talk only of this uprating—it is very small—but of upratings in general. Looking beyond today's uprating, I hope that the Government will ensure a proper analysis of the effect of upratings at the margins and their effect on the marginal business and the marginal job. That is how we should look at any future upratings.

I have four issues that I want to raise with the Minister. The first is the regional issue to which my right hon. Friend the Member for Bromley and Chislehurst (Mr. Forth) referred. Whether we like it or not, our economy is not homogeneous. A £4.20 minimum wage will have a minimal effect in London and the south-east, where the labour market operates in such a way that wages are usually substantially above that level. It will have a much greater effect in, for example, Northern Ireland, where living costs are 20 per cent. lower than in the south-east. North-east England is another area where living costs are relatively low. I therefore urge Labour Members not to

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fall into the trap of thinking that a single national minimum wage will help to redress regional economic disparities. If anything, it is likely to reinforce them by ensuring that its economic impact is felt more in some regions than in others in the next economic downturn.

It is hard to see how a single rate across the nation will achieve the central objective of tackling poverty. People who live in high-cost areas will have significantly higher living costs than those who live in low-cost areas. I accept that the differential will be smaller than global statistics suggest for those on the lowest incomes, because their housing costs will be less significant and less variable. None the less, it is indubitably the case that someone living in south-east England who earns £120 a week will have a less good lifestyle than someone on the same wage in Northern Ireland or north-east England, where the overall cost of living is lower.

The Government have a problem as long as they remain wedded to a single national minimum wage. Either they must recognise that it is almost totally irrelevant to people in south-east England, or they must set it at a level that will seriously damage areas that have built their economic structure on their lower cost base. Again, I cite the example of Northern Ireland.

The Government seem determined to refuse to consider the regional effects of the national minimum wage. On 23 June 2000, a former Secretary of State for Trade and Industry set new terms of reference for the Low Pay Commission, but they made no reference to regional issues. The commission is therefore not asked to report to the Government on a region-by-region basis on the impact of measures. There is some focus on sectoral impacts, but none on regional impacts.

The Government are committed to a single national minimum wage, but does the Minister recognise that it has differential regional impacts? Issues such as the impact of the minimum wage, its success or otherwise, and its effect on jobs, employment and business must be considered in a regional context. Will the Minister ensure that the Low Pay Commission is asked specifically to consider the regional context and to report to the Government on the regional impact of the minimum wage? Before approving any future upratings, we want to be absolutely sure that we are not in danger of destroying jobs and investment in low-cost areas.

My second point relates to the black economy. It is tempting to think that very low-paid jobs will disappear when a floor minimum wage is put in place and businesses have to move up the value-adding curve to survive. Indeed, the foreword to the abbreviated edition of the Low Pay Commission's report states:

    ''A minimum wage set at a sensible level provides an effective labour market floor that protects workers from exploitative pay levels and businesses from unfair competition.''

That would be fine if it worked, but businesses that cannot or will not comply with the national minimum wage and other legislation often move into the black economy. No one would condone that, but I hope that all hon. Members recognise that a substantial black economy operates in this country.

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I have neither the necessary data nor the resources to acquire them, but I strongly suspect that many of the marginal businesses cited during the proceedings of the Standing Committee that considered the National Minimum Wage Bill are still in business. We talked about sweat shops that paid people £1 or £1.20 an hour to sew up clothes, workers in shoe factories on similar piecework rates and outworkers who stuffed envelopes for 60p or 70p an hour. The Minister for Pensions revelled in giving many other examples. I doubt whether those businesses now pay £4.20 an hour and whether they have all gone out of business.

I am prepared to bet that a significant number of those businesses continue to operate in the black economy, not only gaining the unfair competitive advantage of not paying the national minimum wage, but gaining a further advantage by not paying taxes and not complying with regulations. As workers have lost the protection of health and safety and other regimes and have been pushed into the totally unregulated black economy, the Government have not improved the position of those workers through the measure.

Mr. Mole: The hon. Gentleman referred to a significant number of businesses moving into the black economy, yet said that he did not have the research capability to identify what that number might be. Before he places his bet, will he suggest what he believes it to be?

Mr. Hammond: The hon. Gentleman will know that the black economy is by definition extraordinarily difficult to measure. I would not be surprised to find that, as a percentage of the formal economy, our black economy is now larger than that of Italy, which is traditionally cited as a place where a substantial black economy operates.

The hon. Gentleman pre-empted me slightly, as I was going to ask the Minister a second question. Will the Minister ensure the proper evaluation of the effect of the national minimum wage on the black economy as part of the monitoring of its impact, which is the responsibility of the Low Pay Commission? That would allow us to see whether some such marginal enterprises simply evade the issue by moving into—[Interruption.] The Minister is chuntering from a sedentary position, but the figures are difficult to record by traditional statistical methodology.

I suggest specific sampling studies in sectors in which we know that wages are low. I am thinking of sectors where the tradition has been to pay by the piece. It would be interesting to have a picture of how many such firms now pay the national minimum wage and how many of them have disappeared. They may have disappeared totally, or gone into the black economy. I would be grateful if the Minister bluntly said something about how the Government ensure that the measure does not have the perverse effect of forcing workers out of the protection offered to them by the formal economy. He has sought to enforce that protection through the national minimum wage, so it would be perverse if it forced workers into an unprotected and unregulated environment.

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The third issue that I want to raise concerns 21-year-olds. Throughout debates on the subject, the Government have sheltered behind the Low Pay Commission and basically adopted what I have termed the ''Not me, guv'' approach. The Minister will be familiar with that idea. The Government say that the LPC considers the matter and makes its recommendation, and that they follow its line. They have certainly done that on the LPC's first three reports, with the single, salient exception of its recommendation that 21-year-olds should enjoy the main rate. The rather bogus economic appraisal to which I referred earlier, insofar as it shows anything at all, does not appear to make any case for leaving 21-year-olds on the development rate. The Government will struggle to show that the data set that they used in that appraisal supports their rejection of the LPC advice on that issue. The Minister has already told the Committee that he will explain the Government's reasons for not accepting the LPC advice on that matter and I look forward to that explanation.

Finally, on the problems of the social care sector, last night in the House we debated care homes, an issue that concerns and affects almost every Member of this House. The Government's economic analysis purports to deal with workers in the social care sector. It says that care sector job numbers have remained static since the introduction of the national minimum wage. That is a frightening statistic, if it is true. We all know that demands on the care sector are rising significantly, that we have an ageing population and that failure to deliver appropriate levels of social care causes bed blocking in our NHS hospitals, which continues to create misery and third-world conditions across the acute hospital sector. If the Government are introducing a measure that, according to their own economic analysis, will leave job numbers in the care sector static, I suggest to the Minister that we need to very concerned about that.

The LPC, in its report, states:

    ''The social care sector is in an almost unique position because of its reliance on public funding.''

It also states:

    ''The Government should ensure the . . . concordat''—

the concordat on the commissioning of care, to be endorsed by central and local government—

    ''makes clear that policies on commissioning care, particularly places in care homes, should reflect the costs of provision.''

The Government, in their response, say:

    ''Accept. The Concordat already specifies that purchasers should take account of providers' costs when commissioning care services.''

It does, but the problem, as that most famous of nurses Florence Nightingale observed, is that reports are not necessarily self-implementing. The mere fact that the Government have observed and a concordat has stated that payment should reflect the increase in costs does not mean that it is happening.

Care home providers throughout the country and their representative organisations can cite countless examples of local authorities that have failed to uprate payments for care homes and nursing homes to reflect the significant increase in the operation costs of those homes caused by the national minimum wage. Wages

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account for roughly 70 per cent. of the cost of operating a nursing or care home and for historical reasons largely related to levels of Government funding, many care workers earn very low wages at the minimum wage level or at a level related by differentials to that level.

This is a serious issue for the care sector and all the Government's fine words about wanting to eliminate poverty pay and do so in a way that will not cost jobs are meaningless if, in a sector where they are effectively paying, they refuse to deal with the issue and allow real damage to be inflicted. It is a question not just of damage to business and job losses, but of damage to our health service through the knock-on effects of the inadequacy of care provision on acute health services.

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