Clause 11

Employment Bill [Lords] – in a Public Bill Committee at on 14 October 2008.

Alert me about debates like this

Offences: mode of trial and penalties

Question proposed [this day], That the clause stand part of the Bill.

4.30 pm

Question again proposed.

Photo of Brian Binley Brian Binley Conservative, Northampton South

On a point of order, Mr. Caton. We were told that it would be absolutely safe to leave our notes and papers here in the room during the intermission. That has turned out not to be the case. I wanted to put that on the record because we cannot be told one thing and then find that our papers have disappeared.

Photo of Martin Caton Martin Caton Labour, Gower

I understand that that has happened. We shall try to prevent it from ever happening again. Things are in hand to recover any papers that have gone missing. I call Mr. Jonathan Djanogly.

Photo of Jonathan Djanogly Jonathan Djanogly Shadow Minister (Business, Innovation and Skills), Shadow Solicitor General, Shadow Minister (Justice), Shadow Solicitor General

I am pleased that I took my papers with me to have a little look at them over lunch; otherwise, matters may have been rather difficult.

Why are we being asked to give Her Majesty’s Revenue and Customs more powers when those that it has have been used so sparsely, or is the Minister implying that the Government miscalculated so badly when they drafted the National Minimum Wage Act 1998? Furthermore, while I may be persuaded of the merits of proceedings in the Crown court where an unlimited fine is appropriate for large-scale and malicious acts of non-compliance, I am not so easily convinced that it has any real application in the usual course of enforcement. Can the hon. Gentleman enlighten us and explain what proportion of current cases would be prosecuted under the new proposed criminal powers and say how many would remain civil? Furthermore, to date in how many cases—successful or not—has HMRC applied for the maximum fine of £5,000? I fear that the Government are trying to hand a howitzer to HMRC, when it has shown itself loth to use even a pop gun.

I sympathise with the Government’s attempt to empower HMRC and give it the ability to prosecute larger scale offenders, as so concisely set out by Lord Jones, the Minister in the other place, who said:

“We do not believe that the sentencing powers available to magistrates would be suitable in the most serious and exceptional cases where employers refuse or contrive not to pay the national  minimum wage and do not co-operate with a compliance officer’s investigations.”—[Official Report, House of Lords, 13 March 2008; Vol. 699, c. GC258.]

However, the Government need to show that such a problem actually exists. I am concerned about supporting the clause on the basis of only perceived exceptional circumstances for which there is scant, if any, evidence.

If the Minister can answer the questions that I am about to ask him, I might find myself more able to support the clause. First, how many exceptional cases have occurred, and how many are being investigated? Secondly, how would we prevent HMRC from becoming overly zealous in its pursuit of actions in the Crown court at the expense of the taxpayer? Thirdly, if such gross and serial underpayment is being perpetrated, why has HMRC not heard of it and begun an investigation with a view to nipping it in the bud before it reaches a stage that requires such large-scale, legal involvement? If the Minister can provide me with answers to those questions, he will go a long way towards easing my concerns.

Photo of Mary Creagh Mary Creagh PPS (Rt Hon Andy Burnham, Secretary of State), Department for Culture, Media & Sport

It is a pleasure to serve under your chairmanship, Mr. Caton. I congratulate the Minister on his elevation to the Privy Council.

I shall speak briefly about the new powers contained under clause 11. It is important that we empower our officials to have the full range of penalties available to them. We talked earlier about the exceptional nature of the circumstances, but in Yorkshire and Humberside—the region covered by my constituency of Wakefield—372 investigations took place last year and there were 158 non-compliant employers. That is a serious issue for my constituents in Wakefield and for the 140,000 people claiming the minimum wage throughout the area.

I will give an example of the sort of people that we are talking about. My friend Joseph Marshall told me about his son who, before the introduction of the minimum wage, was earning £2.25 an hour as a landscape gardener. He earned £18 a day, and was so tired when he came home because he had worked an extra couple of hours that he would fall asleep while eating his dinner. It was one of the happiest days in that family’s life when, in 2001, he got a job as a security guard earning £4.10 an hour. Obviously his wages have gone up since.

We are talking about vulnerable workers. The hon. Member for Huntingdon has commented on whether those workers are vulnerable or not, but people who work so hard that they fall asleep during their evening meal and rejoice at earning the princely sum of £4 an hour are the poorest people and most vulnerable workers in the country.

When employers decide not to pay the minimum wage, it is a crime like any other. It is a white collar crime, but it takes money from extremely poor and vulnerable people. Businesses that avoid paying VAT are prosecuted to the full extent of the law because they take money from Her Majesty’s Government. I do not see why there should not be similar penalties for companies that fail to give their workers the wages that are due. The clause and the provisions in clause 8 mean that for employers, choosing not to pay the minimum wage is not a zero penalty option. I know that my constituents in Wakefield will welcome the measure.

Photo of Lorely Burt Lorely Burt Shadow Minister (Business, Innovation and Skills), Chair of the Liberal Democrat Parliamentary Party

I have every sympathy with and am totally in agreement with the points that the hon. Lady makes. She talks about a number of companies that were found not to have been paying the minimum wage. Does she know how many were prosecuted and fined out of the, I think, 174?

Photo of Mary Creagh Mary Creagh PPS (Rt Hon Andy Burnham, Secretary of State), Department for Culture, Media & Sport

It was 158 companies across the region, and one of the difficulties is that I have not been able to drill down and see how many that affected in Wakefield. We must also look at the number of people affected. Each of those companies will employ between 10 and 100 workers. That is the size of company involved, as larger companies will have the policies and procedures in place. That probably represents about 1,500 people across Yorkshire and Humberside, and it could have been more. Perhaps I could ask the Minister for a breakdown on the basis of our constituencies, and it would also be useful to know the numbers of people who have been affected. If he could get his officials to place copies of that information in the Library, that would greatly assist us in scrutinising the Bill and in making the case for these further powers to our constituents.

Photo of Lorely Burt Lorely Burt Shadow Minister (Business, Innovation and Skills), Chair of the Liberal Democrat Parliamentary Party

I agree with the hon. Member for Huntingdon on the importance of enforcement once the failure of an employer to achieve the national minimum wage is discovered. I have crossed swords with the Minister on a number of occasions about this, but the chance of an employer being inspected for non-enforcement of the national minimum wage is, statistically, about once every 200 years. The Minister rightly says that we should go after companies if we have evidence that they might be flouting the law. However, what concerns me, as the hon. Member for Huntingdon has said, is why those companies are not properly prosecuted. It is certainty of detection that will make employers comply with the legislation, rather than the size of the fines. If companies are not seen to be punished, all the good intentions in the clause, which I completely agree with, will not come to anything because employers will feel that they can flout them with impunity.

Photo of Brian Binley Brian Binley Conservative, Northampton South

Mr. Caton, it is a pleasure to sit under your control yet again.

I am becoming ever more concerned about the numbers that we are throwing about. We can do damage in that respect; we need to be sure that we are talking factually. Let me declare an interest. I am the non-executive chairman of a company employing 140 people, which I started in 1989. In my experience, everybody that I know is most diligent about paying above the minimum wage, because over recent years, in most areas of the country, it has been hard to get labour at the minimum wage. We need to take that fact into account.

Photo of Mary Creagh Mary Creagh PPS (Rt Hon Andy Burnham, Secretary of State), Department for Culture, Media & Sport

I know the hon. Gentleman’s business—we have mutual friends—but that is set up in the south-east of England, where there is almost a full-employment economy. That is certainly not so in other areas of country and in other countries—in Scotland and Wales—in rural areas and in certain cities in the north, north-east and north-west. Does he agree?

Photo of Brian Binley Brian Binley Conservative, Northampton South

It might be helpful if I told the hon. Lady that we have a site in Wakefield employing some 20 people. I am delighted to tell her that we find it just as difficult to get good labour in Wakefield as we do in other parts of the country. Wakefield is a good place to employ people. I have knowledge of other areas. [Interruption.] I would be delighted if she visited.

I am concerned about the numbers that are being thrown about. We ought to be a bit careful until we get the actual figures, because to talk about companies with 10 to 100 employees suggests that we are talking about sizeable companies. Although there is some difficulty, none of us wishes in any sense to not pay the minimum wage as a minimum. However, in my experience, those companies employing 100 people that are not paying the minimum wage would be important ones. We need to talk about the facts—I am sure that the Minister would agree with that point. We ought to be careful until we have those facts.

Photo of Pat McFadden Pat McFadden Minister of State (Department for Business, Enterprise and Regulatory Reform) (Employment Relations and Postal Affairs), Member, Labour Party National Executive Committee

I echo the comments of other Committee members in welcoming you to the Chair, Mr. Caton. We look forward to serving under your chairmanship this afternoon.

We are in danger of conflating two different things in this debate: the penalty regime as it has operated up till now and the penalty regime as it is changed by the Bill. That is an important difference.

I gave some figures in my opening remarks on the clause, which I shall mention again to help Committee members. In 2007-08, Her Majesty’s Revenue and Customs, which is responsible for enforcing the minimum wage, investigated 4,524 cases; it found non-compliance in 1,649 cases, of which 96 per cent. were settled without an enforcement notice being issued. That happened under the current, unreformed system of enforcement. HMRC issued enforcement notices to 59 employers and 25 penalty notices for failure to comply with an enforcement notice. I will mention prosecutions in a moment. It is important to set those figures out, because they illustrate that, in the system as it has operated until now, enforcement notices and penalties exist in the process, but they come at the end of the enforcement activity. That is what the Bill changes.

Our thinking behind how enforcement operates has evolved during the course of the minimum wage. This was a major change to the labour market. We took a decision in the early years of the minimum wage to operate with a fairly light touch on enforcement. That was a major change, but the point that I have made several times during our deliberations is that it has been in place for 10 years. Non-payment now is somewhat different from non-payment in the first year or two, when people could argue that the system was new, that they were ignorant of the necessity to abide by it and so on.

We have changed the enforcement regime over time, and the Bill represents a major change. The figures that I gave about the number of companies investigated, penalty notices issued and so on will be changed fundamentally. Clause 9 states that a penalty will now be automatic for non-payment of the minimum wage. Instead of being given at the end of the process, the penalty will be given at the beginning.

Photo of Barry Gardiner Barry Gardiner Labour, Brent North 4:45, 14 October 2008

May I express my pleasure at seeing you in the Chair, Mr. Caton? I have served under your chairmanship many times and have always enjoyed it.

Does the Minister agree that the current system has provided almost a perverse incentive to the less scrupulous employer to take what is in effect an extended loan from their work force by underpaying them? The only thing that such employers suffered was having to pay the minimum wage after being notified that they were in breach. By contrast, the regime that we are looking forward to will apply a penalty much earlier, acting as a positive discouragement to that bad practice.

Photo of Pat McFadden Pat McFadden Minister of State (Department for Business, Enterprise and Regulatory Reform) (Employment Relations and Postal Affairs), Member, Labour Party National Executive Committee

My hon. Friend is absolutely right. Employers who do not pay the minimum wage know that if they are discovered—if HMRC comes along and says, “You’re not paying the minimum wage,”—all they will have do, in all likelihood, is pay the arrears. The figures that I gave show that relatively few penalties are issued, because the penalty comes at the end of the process. The point made by the hon. Member for Huntingdon, which was that we should look at the system as it has operated until now and make a judgment that we may not need the new powers, does not really hold, because the Bill will change the system.

Photo of Jonathan Djanogly Jonathan Djanogly Shadow Minister (Business, Innovation and Skills), Shadow Solicitor General, Shadow Minister (Justice), Shadow Solicitor General

I take the Minister’s point that the system is changing, and we have accepted the rationale for the change, but he needs to make the case why the mode of trial must now involve the Crown court. I do not think that he has yet made that case.

Photo of Pat McFadden Pat McFadden Minister of State (Department for Business, Enterprise and Regulatory Reform) (Employment Relations and Postal Affairs), Member, Labour Party National Executive Committee

Well, I have not finished speaking yet. I shall come to that.

The hon. Gentleman also asked about prosecutions, numbers and so on. In 2006, discussions were held between HMRC and the Department of Trade and Industry, the predecessor of the Department for Business, Enterprise and Regulatory Reform, on the idea that, instead of the system of penalty notices, we should prosecute people. There have been five prosecutions. The fines involved ranged from £500 to £3,500. I note that one organisation involved was called Rascals, a day nursery prosecuted some time ago for non-payment of the minimum wage. I make no comment on that.

Photo of Mary Creagh Mary Creagh PPS (Rt Hon Andy Burnham, Secretary of State), Department for Culture, Media & Sport

I am sorry to interrupt the Minister, but something occurred to me while he was speaking. Is not the difficulty of enforcing minimum wage legislation the fact that things tend to be done quietly, secretly and in quite a close way? That does not empower us as consumers to make choices about which companies we go to, good or bad.

For example, if I were choosing which nursery to send my child to, I would certainly not choose Rascals day nursery, not least because children are priceless and I would not want somebody who was being paid less than £5 an hour looking after the most precious thing in my life, my young baby. The same applies in relation to hairdressers, the security industry and the hospitality industry.

When I am choosing which restaurant to go to for a curry, in the same way as I choose fair trade goods, where possible, in the supermarket, I want to know that that curry is being made by people who have decent labour standards, are getting holidays and are not being taken for a ride. There are a lot of benefits to such matters being dealt with in a criminal court, particularly the fact that they will then become public knowledge. The grapevine will be a powerful deterrent, so that people will choose not to go to a particular firm and so that they will not be exploited.

Photo of Pat McFadden Pat McFadden Minister of State (Department for Business, Enterprise and Regulatory Reform) (Employment Relations and Postal Affairs), Member, Labour Party National Executive Committee

My hon. Friend makes a strong point. The thing about prosecution in the court is that it is a public event that is on the record.

Photo of Jonathan Djanogly Jonathan Djanogly Shadow Minister (Business, Innovation and Skills), Shadow Solicitor General, Shadow Minister (Justice), Shadow Solicitor General

It is worth spending a bit of time on that because it is important. The point that the hon. Member for Wakefield makes is a fair one, but those five particular cases would have been public knowledge anyway because they were prosecuted, I presume, in the magistrates court, so it is not a question whether such cases become public or not. Given the facts that we have at the moment, the question is whether it is justifiable that we also have the ability to prosecute in the Crown court. As yet, I see no evidence that we need that power, but I am open to persuasion.

Photo of Pat McFadden Pat McFadden Minister of State (Department for Business, Enterprise and Regulatory Reform) (Employment Relations and Postal Affairs), Member, Labour Party National Executive Committee

I referred to the fact that there have been five prosecutions, but 17 cases have been identified by HMRC as ones where it would have liked to attempt to take a case to prosecution, but was unable to do so because of individuals’ reluctance to testify. That relates to our argument in respect of this clause, the next clause and the previous one in relation to HMRC’s powers to take evidence.

I caution against judging how the future system will work absent the changes that we are making in the Bill. Those changes will give HMRC more powers to take evidence and, as I have said before in our debates, make it less reliant on the testimony of often reluctant and sometimes fearful witnesses.

We can overcomplicate the issue. We are not creating new criminal offences here; there are already criminal offences under the minimum wage legislation. The maximum fine for those, in a magistrates court, is £5,000. The clause will enable HMRC prosecutors, in only the most extreme cases of determined violation of the law, to make a judgment that the offence is so serious that a fine of £5,000 will not be sufficient deterrent to the company or punishment that meets the crime. In those circumstances, we want to give those prosecutors the option of trial in the Crown court, where the fine is potentially unlimited, although I do not pretend that that will be the norm or that it will occur in a large number of cases.

The hon. Member for Solihull is right that she and I have exchanged figures and points on the question of inspection by rote a number of times. We do not believe that inspection by rote is the most efficient way to do this; we try to concentrate on cases where people report non-payment and sectors of high risk. There are some 1.8 million employers in the UK. As I said, in the last year, we found non-compliance in 1,650, but targeted inspection and enforcement represent better use of what  are inevitably limited resources than simply going round companies by rote with no regard to the evidence of under-payment.

Photo of Hugo Swire Hugo Swire Chair, Speaker's Advisory Committee on Works of Art

Will the Minister inform the Committee of the size of some of those companies that have been fined? Cannot the law be more flexible and proportional on the matter? It seems to me that a serial offender such as a large multinational company should be fined proportionally more if it is serially abusing the minimum wage, whereas it would be disproportionate to fine a smaller company a similar amount for erring once or twice.

Why cannot flexibility be introduced to the scheme? A fine is a fine, and a punishment a punishment, but we do not want to over-prescribe against small offenders and make them reduce their work force to meet such fines.

Photo of Pat McFadden Pat McFadden Minister of State (Department for Business, Enterprise and Regulatory Reform) (Employment Relations and Postal Affairs), Member, Labour Party National Executive Committee

The size of the companies involved in prosecutions so far has varied from small firms to a local authority, which employed thousands of people. On the hon. Gentleman’s point about fines damaging small companies, all businesses can ensure that they do not incur any extra costs as a result of the Bill’s introduction by abiding by the law and paying the minimum wage. That is the point we are trying to make.

Photo of Brian Binley Brian Binley Conservative, Northampton South

Nobody objects to proper measures being taken against people who wilfully break the law—that is not the issue of debate—but I would find it helpful if the Minister gave me a couple of examples from the Revenue in which sizeable companies that employ large numbers of people wilfully broke the law in that way, and also provided a case for going to Crown court. That would help us to recognise whether there is a situation that we need to deal with.

Until I have that information, I shall find this matter difficult. The Minister might say that I should have discovered the information previously, which is a reasonably fair point, but he might help me here.

Photo of Pat McFadden Pat McFadden Minister of State (Department for Business, Enterprise and Regulatory Reform) (Employment Relations and Postal Affairs), Member, Labour Party National Executive Committee

I am glad that the hon. Gentleman has spoken again, because he has reminded me to thank him for paying tribute to the Government’s strong economic record, which has made it difficult for his firm to recruit staff because employment has grown so much. His comments about effective enforcement being in the interests of good business are right. The CBI has said:

“Effective enforcement of the NMW is crucial to ensure its continuing legitimacy and support amongst both employers and workers. CBI members therefore support the government’s decision to re-examine the enforcement regime for NMW to ensure a level playing field for employers as well as to ensure that all workers benefit from their rights under the 1998 National Minimum Wage Act”.

I am sure that we all agree with that sentiment.

The hon. Gentleman asked about the size of the employers involved. As I have said, small employers and a local authority are among those that have been prosecuted so far. The size of employer varies, and the clause allows prosecutors to judge whether the severity of the offence is such that they should opt for trial at the Crown court, which can levy a fine of more than £5,000.

Photo of Barry Gardiner Barry Gardiner Labour, Brent North

Does the Minister agree that if one were to combine the comments of the hon. Members for Northampton, South and for East Devon, who said that it is reasonable to consider making larger companies pay greater fines, one would have a response to the hon. Member for Huntingdon? A case such as the one to which the Minister alluded—that of a large local authority—is precisely the sort in which the fine that might be paid would rightly exceed the penalties that could be imposed by magistrates, thus providing the reason for going to Crown court that the hon. Member for Northampton, South requests.

Photo of Pat McFadden Pat McFadden Minister of State (Department for Business, Enterprise and Regulatory Reform) (Employment Relations and Postal Affairs), Member, Labour Party National Executive Committee

It depends through which end of the telescope one looks. The first question that we should ask is about not the size of the employer, although that is a legitimate factor, but the severity of the offence. If a large employer with many hundreds, or thousands, of employees makes a mistake, there is a new penalty regime and we should not lose sight of the fact that the vast majority will be dealt with under that reformed penalty regime, which is civil, not criminal. That will be so for large and small employers.

The clause gives prosecutors the power to opt for trial in a higher court, and it should be seen in relation to clause 12, which provides increased powers on documentation and so on relating to trial by indictment in the higher court. To some extent, the two go together.

Photo of Jonathan Djanogly Jonathan Djanogly Shadow Minister (Business, Innovation and Skills), Shadow Solicitor General, Shadow Minister (Justice), Shadow Solicitor General 5:00, 14 October 2008

The Minister has gone half way to answering my queries, and I understand his point that the system is changing and that that is partly the reason for the lack of criminal prosecutions to date, although I do not believe that any hon. Member would say that the existing policy has been successful, which is presumably why we are changing it. I have still not seen proof that Crown court prosecutions will be required. The Minister is saying that they may be required, and on the basis of what “may” be required, we would certainly have 42 days’ detention without trial, and a draconian criminal system. We will give the matter further thought, and perhaps return to it on Report.

Question put and agreed to.

Clause 11 ordered to stand part of the Bill.