Perhaps I could open things up for the Committee by asking an open question. Sir David, what are your thoughts on the establishment of a labour market enforcement directive, the need for greater co-ordination on enforcement, and the impact that might have on the employment market overall?
Professor Metcalf: By the way, the Minister and I are appearing this afternoon as well, so we are seeing a lot of each other today.
In a nutshell, I think the proposals are terrific but let me elaborate. My background includes, as part of the Low Pay Commission, 10 years setting the minimum wage, so I know something about the minimum wage, compliance and enforcement issues.
On the Migration Advisory Committee, particularly when we have looked at less skilled immigration, on which we published a major report in 2014, we do not stay in London; we go on visits. We have seen a lot of exploitation, in some cases bordering on slavery. That in a sense confirms the view that I had when I worked on the minimum wage that we do not have sufficient resources to do the compliance and enforcement as effectively as one would wish. For example, when we went to Wisbech in connection with the low skills report, we came across some excellent examples of joined-up government, with different agencies working together. That got us thinking that we have these very good bodies but are they working sufficiently harmoniously? In our report, we said in no uncertain terms that there were insufficient resources devoted to enforcement and that the fines and probability of prosecution were basically trivial—I do not think we used that word, but I will use it now.
In a sense, many of the employers where the gangmasters operate have no real incentives to abide by minimum standards or the minimum wage. We have a flexible labour market—I think this is a good thing because it helps our productivity and with jobs and so on, although that is a matter of debate—but we are not enforcing the minimum standards.
I think the three main proposals in the BIS-Home Office document will go a long way towards assuaging the concerns that we set out. I know that some of my other academic friends who have thought about this—possibly more than me—share that view. Just as an aside, the consultation document on labour market enforcement is excellent and I am sure that the Committee will recognise the co-operation between the Home Office and BIS. Sometimes there is tension between the Departments, but on this occasion they have produced an absolutely marvellous document.
First, you have a director of enforcement and he or she will, in a sense, set out strategy, report and be the pivotal person in an intelligence hub. They will mainly be dealing with the minimum wage with HMRC, the Gangmasters Licensing Authority and the employment agency standards inspectorate. They are the three bodies that he or she will have to engage with initially and set the strategy out for and think carefully about resource allocation.
The second proposal is a new offence of aggravated enforcement, which is in a sense between the rather minor infractions—I do not want to call them less serious—of the minimum wage rules and those that are very serious, almost slavery. Right now, we have not got anything that sits in the middle and the proposal is essentially to have one that sits in the middle. In the extreme, that might attract a two-year custodial sentence, so it is pretty serious.
The third proposal is that the Gangmasters Licensing Authority can spread out—not so much in its licensing role, but it does have considerable expertise in horticulture and agriculture and the proposal is that it could check in particular on aggravated enforcement in other sectors, such as construction, hospitality and so on. When I was an academic in this area, I wrote that there was a lack of enforcement. I have been involved with both the minimum wage and immigration in particular on the low-skilled end, and I think the proposals are really excellent.
Okay. Do you think the director will provide the focus necessary to bridge the gap you say exists between the current labour market offences? You also mentioned lack of resources throughout your answer. Do you think that the Bill will bridge that gap, too?
Professor Metcalf: That is a tricky one. Successive Governments have indeed put in a bit more resources—for example, for HMRC to enforce the minimum wage—although quite whether they are sufficient is an open question. It depends on how the director works, but on the idea of them thinking through the resources required for the three different bodies, and perhaps in future health and safety, for example, and possibly bringing local authorities in as well—strategy is an overused word, but in this case it really is a strategic role. Thinking through quite what the strategy should be will go a long way towards, in your words, filling the gap with the resources. Frankly, the inspections are very resource-intensive, and I suspect we just do not have the public finances for sufficient enforcement.
As an aside, that also takes you into a point that I made in my one paragraph to you: we need to think about punishments as well.
In your 2014 report, “Migrants in low-skilled work”, which we have quoted several times, you talk about countries that use the International Labour Organisation labour inspection convention 81 of 1947, which seemed to be particularly effective. Will this new director bring us much closer to that working model?
Professor Metcalf: If I may say so, that is a really good question, because in some senses, what we were feeling our way towards in the “low-skilled” report was the notion of having an overall labour market inspectorate, which that ILO convention is about. What happened was the Prime Minister took up the issue of enforcement in the speech immediately after the election and set up an immigration taskforce, but on the immigration taskforce, you have different Departments who have different interests—the Treasury, with HMRC, and now the Home Office, with the Gangmasters Licensing Authority, and so on. I think it is quite understandable that the immigration taskforce—the ministerial taskforce—and probably, the Cabinet Office and so on, did not want to disrupt the machinery of Government completely and start with a blank sheet of paper and set up a new labour market inspectorate. They wanted people to get on with the job but have much more joined-up thinking and overall strategy.
We are where we are, and it may well have been that we would almost have had no labour market enforcement for the two years while we were trying to set the inspectorate up. It would be very difficult. Some of the people are not civil servants and some are, and they are located all over the place. Sticking with what we have got and trying to approach it in probably an incremental way is actually very sensible.
Mr Bone, it is a pleasure to serve under your chairmanship. I have a couple of questions. I am a big fan of the anti-slavery commissioner. I think that in six months, he has had a big impact, precisely because he is independent and has a remit that goes across different Departments and organisations. You said that it was key that the post of director is able to work harmoniously with other Departments, but you mentioned the Health and Safety Executive and local authorities, and a lack of clarity about what the relationship would be. Do you think that ought to be fleshed out on the face of the Bill for this post to have the maximum impact?
Professor Metcalf: No, I do not think so at this stage. Doing it incrementally is really a rather good idea. The main enforcement people currently are the three in the Bill—the employment agencies, the Gangmasters Licensing Authority, and HMRC, with the minimum wage. In a sense, the new director, whoever he or she is, will have a major task to get those agencies to work in a bit more of a joined-up way. There may well be a case in the future for trying to bring in, under the same strategic role, health and safety, local authorities and on occasions, possibly the Department for Work and Pensions as well, which deal with national insurance, for example. For me, it is a major task to do what is being done, and I do not think that at this stage, it is necessary to do that, but it is possible that we might even think, three or four years down the line, when we have seen how it works, “This is three quarters of the way to a fully-fledged labour market inspectorate. Perhaps we could transform it into a labour market inspectorate and bring the other bodies in as well.” But I think this is very good—it is not a halfway house; it is a three-quarter-way house.
You also mentioned the need for sufficient resources. Do you believe that, as things stand, the director does have sufficient resources to prevent worker exploitation?
Professor Metcalf: I think that successive Governments have put more resources in—certainly into HMRC, but less so with the Gangmasters Licensing Authority. One understands the difficulties with the public finances, but we probably do not have sufficient resources. In the low-skilled report, we calculated that you would get an inspection from HMRC once every 250 years and you would get a prosecution once in a million years. That suggests that we do not have enough resources. In turn, that takes you to the potential trade-off between the resources and the punishments. If you do not have sufficient resources, you may need to ensure that the punishments—certainly on occasion—are properly implemented. That is why I am in favour of the new offence of aggravated exploitation, which, in the extreme, carries a two-year jail sentence.
Your hope was that the director would be able to set established minimum standards with employers. However, in parts of the Bill, the criminal aspect has shifted from the employer to the employee. What impact do you think that is likely to have?
Professor Metcalf: You mean on illegal working? I try, as chair of the Migration Advisory Committee, to stick to my knitting and do what we have done. Frankly, I have not thought about that very much. It is a matter for you, as the Committee, and for other people to decide what they think about illegal working.
Your point about employers is really important. I hope that the CBI, which is an excellent organisation— I know from my time on the Low Pay Commission how important the CBI was in ensuring that the minimum wage worked properly—buys into this. Occasionally, the CBI is rather hostile to regulation. In a sense, that rather surprises me, because the regulation that has been proposed here will help its members. It takes away the cowboys, as it were, and the people who do the undercutting. Therefore, your point about the effect on employers is very important. I hope that the CBI buys into this.
Professor Metcalf: We went into that in some detail in the low-skilled report last year. It is interesting. When we went out to Wisbech and Peterborough and so on, the concerns were about the exploitation of the migrants. However, the people we spoke to were well seized of the consequences for British workers: possibly some displacement, although lots of times they would not actually want to do the jobs; and, for certain, downward pressure on the wages at the bottom end of the labour market. By properly regulating this aspect of the labour market—including immigrants and the British workforce—this will go a long way towards raising the welfare of British residents. I would have thought that this is something that we should all welcome. Our report was about immigrants, but it went into what the issue was doing to British residents. We did find evidence that it was undercutting wages. The measures will be very important to stop that.
You described, in your evidence, the current regime as trivial in the sense of the likelihood of an intervention or a prosecution. You gave the figures of an intervention once every 250 years and a prosecution once every million years. We welcome, therefore, the director of labour market enforcement, because that provides an opportunity to bring a degree of oversight and strategic thinking. Obviously, reporting to the Home Office and to the Department for Business, Innovation and Skills is a welcome step in the right direction.
I know you have been tasked on resources a number of times. You clearly accepted that, the public finances being what they are, there may not be much by way of resources and suggested that increasing the sanction might do the same work. Is it not the reality that, with that level of intervention and prosecution, unless significant resources are put into the relevant agencies, the prospects of this raising beyond trivial to very much further up the scale are pretty limited? You can only do so much with the sentence, unless you are going to go way off the scale.
Professor Metcalf: Yes. The director being the centrepiece of the intelligence hub will certainly help to ensure that the resources that are initially available to the three agencies will be used in a sensible and, I assume, most effective way. I am with you, Mr Starmer. I wish that more resources were devoted. I am not quite sure how much, but one of the roles of the new director will be to put pressure on the different arms of Government to provide more resources for this. I do not know at this stage how much more is needed to be able to increase the number of visits and inspections, albeit on the basis of risk.
Ultimately, the pressure will have to be on the Government, because the agencies are likely to say, “We allocate our resources. We are happy to go along with the strategy but, ultimately, those are the resources we have. Therefore, we simply can’t up the number of inspections, and so on, in the way that might be strategically most advantageous.”
Professor Metcalf: We need to consider where DWP, the local authorities and the Health and Safety Executive fit into the picture. They are the other main agencies and, for quite understandable reasons, they have not been included at this stage. We need to consider that.
As I have mentioned, given that we all know that we do not have the resources for enforcement, in the background we should be thinking about the penalties. If you think about the minimum wage, for example, although the penalties on the statute book are possibly large, employers are being fined only about £1,000 on average when HMRC takes them to court. These penalties do not seem to be sufficient to encourage firms that are behaving badly to obey the law.
Given what you have just said about the importance of having the director, and taking on board the resource issue, where would you be expecting him or her to be focusing their energies in the first instance? Which sectors of the economy are most exposed to workers being exploited?
Professor Metcalf: There is good behaviour and bad behaviour in most sectors, but we know that hospitality is an area that is very much at risk. A lot of that is ethnic on ethnic. It is Chinese on Chinese, as it were, and Bangladeshi on Bangladeshi—I know that from the minimum wage. The big fiddles are on the hours of work—they grossly understate the hours of work to HMRC to make it look as if they are paying the minimum wage when they are not. Construction is quite a fruitful area. The reconstituted GLA will probably focus on those two sectors. In a sense, that is why I think having the director as the pivotal person for the intelligence—all those agencies know a lot about the sectors they have to get into—will help a lot. But my initial inclination would be to say construction and hospitality.
Is a worker who does not have the right to work in this country—for example, a parent who is made destitute by this legislation—and who is being ruthlessly exploited, or physically or sexually abused, more or less likely to seek protection as a result of these provisions?
Professor Metcalf: I do not know all the details of the legislation, other than what I am talking about in terms of enforcement. I would hope that the director makes the enforcement issue more central to the labour market. If we enforce the minimum standards, a person in those circumstances would be more aware of the possibilities—often, particularly if they are migrants, they are not aware of them—and also more likely to go public. I would have thought that that would be quite a major component of the new director’s work. That basically follows up the question from earlier, because if you can stop the exploitation of the migrants, it is also helpful to British residents.
Sir David, I imagine that you would agree that labour market exploitation takes place where gangmasters and those exploiting people can create a climate of fear and intimidation. You will be aware that in the States, for example, there is a clear protocol between the Department of Labour and the Department of Homeland Security on firewalls between immigration control and labour market enforcement, to ensure the effectiveness of labour market enforcement and to create a climate in which people can properly express concerns. Is it important that we have such a firewall in the UK?
Professor Metcalf: I have never thought about that. I would need to ponder that a little. In some senses, when we went out in Wisbech, for example, we thought that having a Home Office official and somebody from the Department for Work and Pensions doing national insurance, as well as some people from the local authority and a community policeman from Latvia who spoke Latvian—the issue was about Latvians—made for a very strong enforcement team. So I am not sure, on the ground, when you do major inspections like this, that the firewall would be completely helpful, but I have not thought through the issue. I understand what you are saying in terms of the machinery of Government, but I can see that, on the ground, it would actually be quite helpful to have the different bodies.
Are you not concerned that those who are being exploited might be less willing to talk about their exploitation if they felt that that threatened their immigration status?
Professor Metcalf: No. I think that that would be the case. I mean, by and large, when we were dealing with this, we were dealing with A8 countries. But in terms of threatening immigration status, we do not want people to be exploited, but if their immigration status is that they should not be here, well, they should not be here.
Sorry if I misunderstood that—areas where there might be more exploitation. I am just wondering about the causes. Is that about a skills gap, or is it just pure exploitation?
Professor Metcalf: A lot of it is because those sectors have very low levels of unionisation, for example. Unions have costs and benefits, but one of the things they do is to try to enforce proper minimum standards. A lot of the work in construction is done on projects; in hospitality, there are so many workplaces that is possible for the employer to be almost never on the radar. There is a combination of reasons why those sectors are prone to commit exploitation and, to use your word, to do things that are basically illegal, certainly in terms of the minimum wage. If you were to go into Chinatown and check the immigration status of the people there and the way in which wages and hours are calculated on theirpayslips—to the extent that any of them have payslips—you would find huge possibilities for enforcement.