National Minimum Wage (Increase in Development Rate for Young Workers) Regulations 2000

– in the House of Lords at 8:38 pm on 22nd May 2000.

Alert me about debates like this

Photo of Lord Sainsbury of Turville Lord Sainsbury of Turville Parliamentary Under-Secretary (Science and Innovation), Department of Trade and Industry, Parliamentary Under-Secretary (Department of Trade and Industry) (Science and Innovation)

My Lords, I have great pleasure today in presenting to your Lordships these important regulations, which build further on one of the Government's most successful policies: the introduction of a national minimum wage.

As the House will know, we asked the Low Pay Commission to monitor the effect of the national minimum wage during its first few months in operation and to report its findings to us. This it did, and we published its second report, and our responses to it, on 15th February this year.

The commission's report revealed the extent of the success of the minimum wage policy, showing that well over 1.5 million workers are now entitled to higher pay as a result of the national minimum wage and that the majority of them are receiving their entitlement. Women and part-time workers have been particular beneficiaries. All this has been achieved without any indication of significant adverse effect on employment or the economy.

It is the light of the Low Pay Commission's positive findings that we are able to accept the suggestion, made by the commission in their first report, that the minimum wage rate for those aged 18-21 should increase from £3 per hour to £3.20 per hour from 1 June 2000. The regulations before us put this rise into effect. The main rate for the minimum wage will also be increased this year from £3.60 per hour to £3.70 per hour, with the change to take place on 1 October 2000, and further regulations will be brought before the House in due course to achieve this.

We are aware of strong feelings in some quarters that there should be one rate for all adult workers--that is, every worker aged 18 or above. However, one of the reasons why the minimum wage has been so smoothly and successfully introduced lies in our cautious approach.

We knew from the results of surveys in other countries which have minimum wage legislation that, where minimum wages do impact in a negative way on employment, this effect is felt most keenly by younger age groups. This fact alone gave us reason enough to proceed with caution. We are also concerned that the minimum wage should support rather than hinder training and education.

I think you will agree that the introduction of a totally new policy was not a time for throwing caution to the wind and introducing rates which look generous on paper but whose effects might be disastrous. This point applies with additional force when we consider that we are dealing here with young people who are entering the labour market for the first time and whose whole future may turn on how quickly they can find suitable employment at the outset of their working lives. People looking for their first job should not be priced out of the market. That is the context in which the development rate for young people needs to be understood.

We now know from the Low Pay Commission's report that, in respect of young people, the minimum wage has meant a pay rise for tens of thousands of them while not affecting their employment opportunities. This entirely vindicates the cautious approach we have adopted.

Of course, our actions on the minimum wage are based on the advice we receive from the Low Pay Commission, which, let us not forget, is a balanced body with membership drawn from the CBI, small and large businesses as well as trade unions and academic specialists. The Commission, in its turn, bases the advice it gives on its wide-ranging consultations and fact-finding exercises. It is because of this partnership approach, involving as many of those concerned as possible, that we can be sure that the rates we set represent the greatest improvement for workers compatible with affordability for individual employers and the United Kingdom economy as a whole.

With your Lordships' indulgence, I will briefly touch on the closely related question of where the line is to be drawn between the youth rate and the adult rate. Our actions are based on the Low Pay Commission's recommendations, but we are not obliged to accept each and every suggestion it makes. So it is that, notwithstanding the commission's advice, at present 21 year-olds are included in the lower range. The issue is being kept under constant review. As we have announced, we are asking the Low Pay Commission to continue to monitor the minimum wage and produce a further report including advice on whether there is a case for any further increase in the rates and, if so, to what level, and to do that by July 2001 so that any increase can take place in October 2001. As part of the same exercise, we have asked the Commission to look not only at the youth rate as a whole but, in particular, to continue monitoring the present 21 year-old cut-off so that a decision on that issue can be made at the same time.

To sum up, the important facts are these. This is a rise in the minimum hourly rate which represents a percentage increase of 6.67 per cent, 20p an hour, and will make a real difference to some 150,000 young people. It will achieve this with a minimal cost to business, less than one hundredth of one per cent of the total wage bill. I therefore commend these regulations to the House.

Moved, That the draft regulations laid before the House on 4th May be approved.--(Lord Sainsbury of Turville)

Photo of Baroness Miller of Hendon Baroness Miller of Hendon Conservative 8:45 pm, 22nd May 2000

My Lords, this regulation is intended to increase the national minimum wage for young workers between 18 and 21 years of age from £3 to £3.20 an hour, an increase of 6¼ per cent since the national minimum wage was introduced only just a year ago. That is an increase for every employee of £8 a week based on a 40-hour week. Their older colleagues will get an increase from £3.60 to £3.70--that is, 2.7 per cent from next October. That is an increase of £4 a week based also on a 40-hour week.

I have to assume that this is part of the policy of the Government to reduce the differential between older and younger workers to zero, even though their stated reason for the differential was to reduce the adverse effect of the national minimum wage on the employment prospects of younger workers, especially those who may have left school with minimal academic qualifications.

The Minister for Competitiveness in the other place spoke of,

"Introducing rates that look generous on paper, but the effects of which might be disastrous in reality, particularly for young people entering the labour market for the first time".

He went on to say--and I think the Minister gave a precis of what I have as a quote--

"We know from surveys on minimum wage legislation in other countries, that when rates have a negative impact on employment, their effect is felt most keenly by younger age groups".

I am glad to hear a minister at least conceding that, in some circumstances, the national minimum wage could have an adverse effect on employment. In this case, the Government are relying on the advice of the Low Wage Commission, which is very good.

It is true to say that, so far, the effect of the national minimum wage has apparently had only isolated adverse effects on employment, but this could be due to the strength of the golden economy that we bequeathed to the Government just three years ago.

I am glad to see the Minister telling the Standing Committee in the other place--and indeed it was repeated by the Minister here--that the Low Pay Commission is to continue to monitor the national minimum wage. Its present conclusions are based on only nine months of such study. What is regrettable is that the Commission's report does not cover the effect of the national minimum wage or its effect on perhaps individual trades--one or two like catering are suffering--or regions.

While the Bill was passing through your Lordships' House, I asked the Government to accept entirely discretionary powers to make variations in the national minimum wage should any of those factors, vis-a-vis individual trades or regions, actually appear at the time to be relevant. Of course, the Government refused to do that.

Despite the fact that these aspects are not now by law allowed to be considered in fixing the national minimum wage, I hope that the Low Pay Commission would be allowed in due course to monitor these and to report on them every time they report to the DTI on the effect of the national minimum wage, as they did for younger workers.

I hope the Government will take into account the possible effect on the employment of young people in the small businesses that employ the majority of them before they seek any further increases. However, from what the Minister has already said, I think it is highly unlikely that they will do so without taking proper advice and considering all these aspects which the Minister is clearly aware of himself.

Photo of Lord Sainsbury of Turville Lord Sainsbury of Turville Parliamentary Under-Secretary (Science and Innovation), Department of Trade and Industry, Parliamentary Under-Secretary (Department of Trade and Industry) (Science and Innovation)

The Low Pay Commission originally recommended that £3.20 per hour should be introduced in April 1999. On the basis of caution, we did delay so that it came in at this time and that was always part of the plan. I stress that this is a national minimum wage. It is the minimum we think people should be paid. If one has a national minimum wage, I do not think it should be varied either by trade or by sector. No points have been raised by the Low Pay Commission, who could certainly have done so, to say that there are particular sectors where this is really giving problems. I do not think that would be in the spirit of saying that this is a national minimum wage. It is extremely important to set this minimum and I very much commend this change to the House.

On Question, Motion agreed to.