Draft National Minimum Wage Regulations 1999 (Amendment) Regulations 2002

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Dr. Vincent Cable (Twickenham): I apologise for missing the introductory remarks. That was caused not by over-sleeping but by the fact that the Sandler report was issued this morning and some of us had to respond to it.

I support the statutory instrument and the uprate. I shall make a couple of general points about the operation of the minimum wage system.

In the mid-1990s, before I became a Member of Parliament, I wrote critically about the minimum wage, citing the standard economic arguments that it is not a good way of dealing with labour markets. At that time, there were high levels of unemployment. I argued that from the experience of countries such as France, whose minimum wage is now around £5.50, we can see that it can do a great deal of harm to employment levels. I spoke and wrote against it. However, we acknowledge that the minimum wage has worked well due to the way in which it was introduced, with a consensus between businesses and labour, through an economic evaluation and operating at moderate levels. It has not had the negative effects that were predicted, and I admit that I have changed my view of it for that reason.

A central issue in the functioning of the minimum wage is its interaction with the benefits system. The simple point, which has been made at some length, is that in a system in which people on low pay are supported through benefits, whether they are called working families tax credits or whatever, the Exchequer carries the cost of low pay. Moreover, in such a system those with low-paid jobs have no incentive to improve their wages through training or moving, because they would lose their benefits.

One argument for having a minimum wage is that it improves the working of the labour market in terms of people's motivation, their willingness to move or to get training and upgrade their position in the labour market. From a general economic point of view, and particularly in terms of the impact on the Exchequer, the minimum wage system has been a success. If we

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have a recession in five or 10 years, some negative aspects of the system may emerge, but so far they have not done so.

I welcome the approach to regulation shown by the regulatory impact assessment. It would be helpful if we had a more thorough-going approach to such assessments. I was not sure why the Conservative spokesman, the hon. Member for Runnymede and Weybridge, said that it was ''bogus'', because it is a practice that we ought to be encouraging. I would like regulatory impact assessments to be conducted by an independent unit within the Government, such as the Office of National Statistics. That would ensure that they were consistent across government and were performed according to a consistent methodology, so that we could have complete trust in their findings.

Having examined that assessment, I found its conclusions to be perfectly sensible and I am not sure why the process is being denounced.

Mr. Hammond: For the record, it was not the regulatory impact assessment that I described as bogus; it was the economic evidence assessment, which is a separate document in which the Government assess their own economic tests.

Dr. Cable: I take the point.

I have two points in conclusion, both of which were raised by the Conservative spokesman. On the regional impact, I sensed that he was traversing ground that my colleagues and I had gone over three or four years ago, when we advocated a regionally differentiated minimum wage. Given that I persuaded my colleagues to drop the idea then, perhaps I should briefly go over the arguments that I used.

First, it is not easy to divide the country into regional labour markets. In London, my Twickenham constituency has little social housing and a chronic shortage of all kinds of unskilled workers, which means that services often do not function. However, four miles down the road in Lambeth, there is much social housing, large pockets of unemployment and a lot of people on low pay. Given that those circumstances exist in the same region, how could we have a regional minimum wage that applied across all of south-west London, let alone the whole city?

In Scotland, there are enormous differences between the labour market in Glasgow and that in Perth and Aberdeen, so having a standard regional minimum wage makes little sense. The reasoning behind the argument--that people's cost of living varies from region to region--is valid, but if we applied that argument across the board we would have different pensions and benefits rates for every region. That is not a sensible road to go down. My colleagues and I accepted the idea of a national approach to the issue and, on the evidence, it is the more sensible approach.

However, I part company with the Government on the issue of 21-year-olds. I do not feel quite as passionately about it as the hon. Member for Falkirk, East (Mr. Connarty), but I think that the Government are wrong on the matter. They began with the sensible

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view that a separate development rate was necessary because of the particular problems of high unemployment among young workers. The position has changed and the age group with serious problems in the labour market is now that of men over 50. We should talk about different minimum wages with regard to that age group rather than to young people.

I am not sure that continuing with the lower rate for 21-year-olds and younger workers still makes sense. However, in other respects the regulations are sensible and sound, and I support them.

11.48 am

Alan Johnson: This is the third year in which I have had the honour to speak to a statutory instrument to increase the minimum wage, but it is the first time that the hon. Member for Runnymede and Weybridge, who is shrewd, efficient and effective, has been my opposite number.

During those three years, it has been fascinating to observe how the position of the Conservative party has changed. The position of the Liberal Democrats has also changed, as the hon. Member for Twickenham (Dr. Cable) was honest enough to tell us. We started with opposition to the minimum wage, and the hon. Member for Runnymede and Weybridge waxed philosophical when he said, as a veteran of the National Minimum Wage Bill Committee, that it was not about the principle but about the rate. He said that our arguments were sound and intellectually consistent, but that they were wrong. I was not a member of that Committee, but I remember that we made it clear that the rate would be set by the Low Pay Commission, and that the legislation dealt only with the principle. It was that principle that the Conservative party opposed.

I was pleased to witness the democratic process of the Conservative party—it was called the Portillo process. As the new shadow Chancellor, he announced at Treasury questions that his party supported the minimum wage. That was a shock. It was the day before we debated the statutory instrument, and it was interesting to see Conservative Members' reaction. I say that because Opposition Members are trying to have it both ways. Last year, the hon. Member for Rutland and Melton (Mr. Duncan) said:

    ''Our position is clear: we accept the minimum wage as enacted, and the way in which it works depends on the level at which it is set.''—[Official Report, Seventh Standing Committee on Delegated Legislation, 16 July 2001; c. 5.]

If today's debate was about nothing else but the level at which the minimum wage is being set—the hon. Gentleman said that he would not press for a Division—we could have that debate, but I have the feeling that Opposition Members have been dragged into the arena reluctantly.

It is a shame that the right hon. Member for Bromley and Chislehurst has departed the Room, because he effectively voiced the principal argument against the minimum wage. It is a coherent and understandable argument, which is that we must be careful because in an economic downturn, the minimum wage can cost jobs. The right hon. Gentleman was talking not about the uprating, but

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about being a fan of market forces, which is a perfectly understandable position. It is wrong, and we would argue against it, but it is a valid position.

The right hon. Gentleman and others mentioned the problems of regional and sectoral disparities. We are asked to believe that the Opposition support the minimum wage as enacted—that is, a national minimum wage with no such variations—but I have the feeling that were they ever in charge, that would mean little. First, there would be sectoral variations; secondly, there would be regional variations; and thirdly, they would, in all probability, not accept any increase but would apply stringent measures. I have the feeling that the national minimum wage would not be safe in their hands.

Mr. Hammond: The Minister is extrapolating a little too much in suggesting that my party would impose sectoral and regional variations. I sought to pose questions about obvious problems in relation to regional and sectoral disparities. I asked the Minister to ensure that those issues were properly taken into account by the LPC.

Alan Johnson: The hon. Gentleman and other Opposition Members who made interventions went a little further, but I accept his position. As my hon. Friend the Member for Ipswich said, we have heard no solutions. If we agree that there should be no sectoral or regional variations and the minimum wage should be national, we must accept the Low Pay Commission's analysis on those issues. The commission's third and most recent report stated:

    ''In retail, the NMW has generally been manageable''.

That is headline stuff from such a voluminous analysis, which was published in two documents. It continued:

    ''Small stores are more likely to have been affected than larger stores. In hospitality, firms have generally been able to cope, although the impact of the NMW has been greater in some areas than others.''

That is not a gloss. It explains some of the problems, but it is a fair analysis. The Low Pay Commission then stated:

    ''In business services (cleaning and security), many employers already pay above minimum rates. Cleaning firms have generally managed to pass on most increases to clients, but wage differentials have become compressed . . . In social care, the NMW has removed the sector's pay advantage over the lowest-paying sectors and employment has remained stable since its introduction.''

It then went on to talk about textiles and hairdressing, which reminds me that it was the right hon. Member for Bromley and Chislehurst, now departed, who supported the abolition of the wages councils that gave people the right to pay hairdressers less than £2.10 an hour. Employment levels in hairdressing did not increase in the five years or so after the wages councils were abolished.

The Low Pay Commission is central to the success of the national minimum wage. The hon. Member for Runnymede and Weybridge asked four questions. The Low Pay Commission is free to report on regional problems, but it is dealing with a national minimum wage. We argued about that. I heard the hon. Gentleman say that the Conservatives supported the

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Liberal Democrats in seeking regional variation. For all the reasons set out by the hon. Member for Twickenham—the huge disparities within regions and cities, the problem of people moving across the border into a higher minimum wage area, and the confusion and difficulty in enforcement compared with the ease of ensuring compliance with one national minimum wage—we decided to pursue a national minimum wage. I am pleased that the Liberal Democrats changed their policy to support that.

All that does not prevent the Low Pay Commission from reporting and explaining to us any problems that it may see, including in Northern Ireland.

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