I beg to move,
That this House
has considered the effect of the living wage on farmers.
Last week, on
I called for this debate so that I could set out some of the worries of farmers in Kent, particularly those who grow soft fruit, top fruit and stone fruit, but I will begin by making a couple of things clear. First, agriculture and horticulture are not low-wage industries, as is often suggested. Indeed, only a very small proportion of farm workers earn at the level of the national minimum wage.
I thank the hon. Gentleman for bringing this important issue before the House. I declare an interest as a member of the Ulster Farmers’ Union, which shares my concern that the living wage has the potential to put farmers off employing those under 25 who do not have experience, which will have a knock-on effect. Does the hon. Gentleman feel that we should take that issue on board as well?
Yes, and I will come on to discuss how we might resolve that later in my speech.
The second thing I want to emphasise is that, like me, farmers in my constituency and beyond support the principle of a living wage. Nevertheless, they are concerned that, because of a number of challenges unique to their industry, they will be forced out of business, not by the national living wage directly, but because they will be unable to compete with cheap imports from countries where farmers will not have to pay their workers as much as their British counterparts.
I thank my hon. Friend from Kent for calling for this debate and setting out the case very well. Fruit farmers in my constituency are also worried about the effect of the living wage, although they also very much support it and often pay experienced workers well above it. They are worried that it will increase their labour costs by perhaps 11%, when they make margins of only around 1% or 2%. I feel strongly on their behalf that the Government must look at mitigating the impact if we want to maintain a successful British fruit industry.
I am pleased that my hon. Friend and fellow Kent MP has raised that important issue, because I will be dealing with it later in my speech.
Another problem faced by farmers is foreign competition, which has made things worse. Their main customers are supermarket chains that are notoriously hard-nosed when it comes to price negotiations: they always look for the cheapest suppliers, whether or not they come from this country. It is inconceivable that supermarkets will, without protest, allow farmers to pass on the increased labour costs they will be forced to pay. The supermarkets will simply buy cheaper, imported produce.
Many of the workers employed by farmers are seasonal. Traditionally they were students who, because they were generally under 25, would not be covered by the national living wage, but the supply of home-grown student workers dried up and was replaced by foreign workers, many of whom came to this country under the seasonal agricultural workers scheme. Sadly, two years ago the Government scrapped SAWS, a decision that will exacerbate the problems faced by farmers if they are forced to pay the living wage.
Some farmers will look into introducing even greater mechanisation in order to reduce their labour costs. There is little doubt that such a move will inevitably lead to fewer staff, so it is highly likely that an unintended consequence of the national living wage will be a rise in unemployment among farm workers. Of course, some farming sectors do not lend themselves to mechanisation, and horticulturists such as soft, top and stone-fruit farmers are in that category, which is why they face the biggest challenges. As I said earlier, some of those challenges are unique to farmers. For instance, they have to deal with the vagaries of the supermarkets, which, in addition to demanding unsustainably low prices, have been known to reject a delivery of perfectly good crops as imperfect, simply because they still had some of that crop in stock from a previous delivery.
Farmers have to contend with unpredictable weather, which can decimate their crops. They also have to contend with the additional costs associated with the sale and delivery of highly perishable products and, as I have pointed out, competition from foreign imports from EU countries such as France that are becoming even cheaper because of the fall in value of the euro against sterling.
Farmers are not like widget manufacturers: they cannot just buy in components to produce goods; they have to plant crops, nurture them and eventually harvest them. Top-fruit farmers face a particular problem, because when they plant trees they are unlikely to have a saleable crop for three or four years. When considering whether to invest in new trees, a farmer needs to be confident that he or she will be able to sell the eventual crop of fruit profitably. Such farmers believe that the national living wage will make that very problematic. There are farmers in my constituency who planted fruit trees last year based on the understandable assumption that, over the next few years, their wage costs would be in line with the trend in the minimum wage seen over recent years. Imposing the new living wage on those farmers, without consultation or warning, will put their financial stability in jeopardy unless mitigation is forthcoming from the Government.
I accept that it was announced in the summer Budget that the cost to employers of paying the living wage would be offset by changes to corporation tax rates. The problem is that in the horticultural industry a reduction in corporation tax will not have the beneficial impact that the Government suppose, because 95% of producers are sole traders or partnerships, for whom corporation tax is not payable. Similarly, although the increase in the employment allowance will reduce employers’ national insurance contributions, that will have little effect on horticultural businesses because, typically, they employ relatively large numbers of workers, and the change to the employment allowance applies only to a business, not to the number of workers employed.
Although horticultural businesses employ large numbers of workers, they are, in the main, low-turnover small and medium-sized outfits.
Sitting suspended for a Division in the House.
As I was saying before we were so rudely interrupted, while horticultural businesses employ large numbers of workers, they are in the main low-turnover, small to medium-sized outfits, which leaves them exposed to the impact of the living wage. As my hon. Friend Helen Whately pointed out, profitability levels in the industry are low and having to pay the living wage will push many producers over the edge and out of business. Unless the Government step in and help farmers, we are likely to see the loss of British-grown produce and an increase in imported food, which would have serious long-term consequences for not only the British economy but our country’s food security.
Farmers also face a couple of other problems. Accommodation provided by an employer can currently be taken into account when calculating the national minimum wage. It is not clear, however, whether that arrangement will continue under the living wage. If it does not, many employers who provide accommodation will face rising wage bills without the benefit of a reduction in the amount that they pay to subsidise that accommodation. It might help if the Minister confirmed whether and how the living wage will differ from the national minimum wage in that respect.
Another problem is that the introduction of the living wage comes at a time when farmers, like other businesses, are facing increased costs from other employment legislation, including pension auto-enrolment and an increase from 1% to 2% in the employer contributions that will come into effect in 2017. Farmers believe that the rise in wages under the living wage will lead to a growth in contributions to auto-enrolment pensions. Assessing a complex, changing workforce and calculating contributions for short periods for seasonal workers who stay with a business for just over the current 12-week postponement period will add to farmers’ costs.
To help British farmers in general, and my local farmers in particular, I want the Government to consider several possible mitigating measures. First, supermarkets could be encouraged to work with farmers to help ensure that they receive a fair price for their produce. Ministers could do that by convening a meeting between the management of our major supermarkets and farmers’ representatives to put together a long-term plan for the industry. Secondly, the exemption from the living wage for workers under-25 could be widened to include seasonal workers. Thirdly, employment allowance could be changed so it is based on individual workers and not a business. Fourthly, we could introduce staged increases for the level of accommodation offset that counts towards an employer’s payment of the national minimum wage and, presumably, the living wage. Fifthly, the cumulative and disproportionate administration burden associated with auto-enrolment duties could be reduced by extending the current three-month postponement period to six months to help capture seasonal workers in the postponement period.
Sixthly, the starting point for national insurance could be aligned with the starting point for income tax. In 2011-12, the class 1 NI threshold was set at almost 95% of the income tax starting threshold. Today, it is just 76%. Finally, the review cycles for the national minimum wage and the living wage could be aligned to reduce complexity. As I asked earlier, will the Minister perhaps confirm whether and how the living wage will differ from the national minimum wage? In addition, will he provide clarity on how the two wage rates will co-exist and whether the various rates can be simplified?
Agriculture and horticulture are important to Britain. They are particularly important to Kent, which, in addition to being the garden of England, just happens to be God’s own county.
My hon. Friend speaks for many of us who represent some of the fantastic areas of the kingdom of Kent. I am delighted to hear his comments, which forcefully express the importance of agriculture to our region. In my constituency is Hugh Lowe Farms, which grows the strawberries for Wimbledon, and the community there has done a great deal to develop not only the farm but the economy around it. Marion, who runs the farm, raised the possibility of considering the Australian piece rate, which is a concept that would see the average employee wage be 25% above the minimum. If my hon. Friend is not going to come on to that point, will the Minister consider it anyway?
I welcome that intervention because I was not going to mention the concept, so it is just as well that my hon. Friend did.
In conclusion, I want to see a thriving farming industry in Kent that provides food security for future generations. To achieve that, however, we need the Government to back British produce.
I thank my hon. Friend Gordon Henderson for putting this important issue on the agenda. Food and farming is a vitally important industry; it is our biggest industry—bigger than aerospace and automotive put together. I am conscious that horticulture makes an important contribution, with an output of about £9 billion per year and employing some 12,000 people, many of whom are casual workers and many of whom are in Kent, the garden of England.
I declare an interest, because I spent 10 years as a strawberry farmer. As my hon. Friend described some of the challenges for soft fruit producers, I got flashbacks to difficult problems that I, too, encountered. He made the valid point that we are discussing perishable products. There are immense challenges in getting the crop harvested without the pickers bruising the fruit, getting it into a cold store so that the field heat can be removed and we can preserve the shelf life, getting the right orders at the right time, and getting the fruit on a lorry without someone tipping over the pallets on the way, so that it arrives in good condition. Those are daily challenges for soft fruit producers.
My hon. Friend also mentioned that producers can have problems with supermarkets. Again, he is absolutely right, and I have seen that happen. If there is a rainy day and sales in the supermarkets go down, supermarket buyers will look for excuses to reject consignments of soft fruit. That is a hazard of the industry. Another risk is weather, which I will come on to later. The risk has been reduced, but it is still there, in particular in the top fruit and stone fruit sector.
The biggest challenge of all is staffing. In the farm that I ran, we had 50 acres of soft fruit and employed about 300 people. Half of them were local people and the other half came from a number of different countries, mainly European Union ones, but also some Commonwealth countries such as South Africa, Australia and New Zealand—students who were on a work visa. So I know the challenges that farmers encounter with staffing.
I am, however, more optimistic than my hon. Friend on a number of fronts. He claimed that supermarkets will not pay a premium for fruit, but the evidence does not bear that out. English soft fruit has always commanded a premium. Consumers are tired of Spanish strawberries by March and April and are looking for quality, English glasshouse-produced strawberries. Those glasshouse and then tunnel-produced strawberries command a premium not only over Spanish fruit, because we have superior varieties, but even over Dutch strawberries. The Dutch use similar varieties to us, predominantly Elsanta or more recent ones, but even so English and Scottish fruit command a premium over foreign imports. I am more optimistic than he is about supermarkets paying a premium.
Another development of recent years has been the changes to production systems—a big transformation, which was starting 20 years ago when I was still in the industry. In fact, I was one of the first producers of glasshouse strawberries, and we used to be the first to supply the supermarkets, normally in time for Easter. We have had a huge change in production, so the season is no longer four weeks in the middle of summer, with Wimbledon fortnight smack in the middle; we now have production from March right through to Christmas.
We have also seen the development of table-top systems, which have lower labour costs. Few commercial soft fruit farms now produce strawberries in traditional beds, growing in the soil; most of them grow in a coir substrate, basically on a table top, which makes the fruit much easier and much cheaper to pick. The other advantage of moving to such systems is the advent of the so-called Spanish or French tunnel—temporary tunnel structures, which hon. Members can see in their Kent constituencies for most of the year and which protect the fruit from the weather. That has had a major impact in reducing weather risk. In fact, the greatest weather risk is now probably the effect on demand, with problems such as sales collapsing in the middle of summer because of a wet week.
There have also been big changes in the top fruit industry. Again, over the past 20 years the advent of new, more intensive systems, such as apples grown in spindle or bed systems, has lowered the cost of picking. They are now generally grown on M9—dwarfing—stock, which keeps the size of the tree down, makes the apples easier to pick and keeps the picking costs down. We have also seen big innovation in the top fruit industry with new varieties. In the case of stone fruit, who would have thought that this country would have seen a huge expansion in the production of apricots? However, we are seeing apricots and cherries grown in this country like never before.
The changes in production systems have made it easier for soft fruit businesses to manage their staff. In my day, we had to build from nothing to 300 staff within about 10 days. By the time all the staff issues had been sorted out—such as supervisors who could not do the job, endless recruitment or problems with training—and things had been perfected, it was time to start shutting everything down, because the season was over. Every soft fruit business used to have that challenge. The big change is that it is now possible for a soft fruit farm to offer employment from March right through to December.
Two years ago I visited one of our largest soft fruit producers, Hall Hunter, near Guildford, as part of the open farm Sunday project. The people there explained to me that about 60% of their staff are retained from the previous year. That was unheard of 20 years ago—every soft fruit business had to start from scratch each year—so now soft fruit enterprises are getting the bulk of their staff returning from one year to the next, and they do not have those huge costs of retraining.
I am aware of the concerns in the industry about the impacts of the national living wage, such as the potential increase in costs. We have to put that into perspective, with the coalition Government having abolished the Agricultural Wages Board. Twenty years ago I was campaigning for that, along with some of the larger enterprises. Strangely enough, at the time it was the National Farmers Union that stood in the way of the then Conservative Government, who were ready to sweep away that anachronistic organisation, and it did not happen. However, we have now scrapped the board. It is worth noting that in 2012, the final year of the Agriculture Wages Order, the level for a grade 1 standard employee was £6.96, so the change we are seeing is not so dramatic.
My hon. Friend was absolutely right when he said that we should not perceive the agriculture industry as only a low-wage one. In fact, it employs about 500,000 people. Our rough analysis suggests that the number of those affected by the national living wage will be fewer than 20,000—so the vast majority of those 500,000 are already earning more than the national living wage.
The other thing that we have to bear in mind is that the national living wage will apply only to those over the age of 25. As my hon. Friend pointed out, many soft fruit farms still rely on student labour—not only from the UK, but typically from other European countries—and they will be exempt from the national living wage. The national minimum wage rates will apply instead.
My hon. Friend Tom Tugendhat mentioned concerns about the treatment of piece rates, but there will be no change. We already have an approach that allows for a fair piece rate to be set, which is a mean average of the output per hour that a farm’s staff can achieve, divided by a coefficient of 1.2, to ensure that those only a bit slower than the average will still hit the minimum wage. The provision of a fair piece rate, which is still used in many sectors of horticulture, including the flower and soft fruit industries, means that with staff who work intermittently—they might work for two or three hours and then want to take a long break before starting again—instead of having to record every minute that they are sat in a hedge having a cup of tea, there is the ability to set a fair piece rate. That will not change.
My hon. Friend the Member for Sittingbourne and Sheppey invited me to make a whole load of policy commitments that he well knows are issues for other Departments, such as aligning tax thresholds with national insurance thresholds or extending the employment allowance so that it applies per employee rather than per business. He understands that I cannot give such commitments on behalf of the Chancellor of the Exchequer or the Secretary of State for Business, Innovation and Skills, but officials from BIS are present, so I am sure that some of my hon. Friend’s points will be taken into account.
I want to pick up on a number of issues that my hon. Friend raised. First, he commented that horticultural businesses typically will not benefit from the change in corporation tax. I am not sure whether that is largely correct. Even when I was in the industry 20 years ago, about 10 major enterprises controlled about 70% of UK soft fruit production. That has not changed; if anything, even larger businesses have come together. My hon. Friend the Member for Tonbridge and Malling mentioned Marion Regan from Hugh Lowe Farms. I know Hugh Lowe well and I know Marion well. It is a strong, enterprising business, and there are others such as Angus Davison’s business in the west midlands. We have got some very large businesses that are limited companies and will benefit from the change in corporation tax.
Smaller businesses—perhaps not those in horticulture but those in broader agriculture sectors—will in the most part benefit from an increase in the employer’s allowance from £2,000 to £3,000. A small dairy farm owner who has perhaps only one or two staff helping them out on the farm will benefit from that increase in the employer allowance. That will help to offset any additional costs.
My hon. Friend the Member for Sittingbourne and Sheppey mentioned the seasonal agricultural workers scheme, which was discontinued a few years ago. I am keeping a close eye on this, but, in the conversations I have had with soft fruit enterprises, most tell me that they have not had difficulty in sourcing labour so far. Most still find that they manage to get all the staff they need from countries such as Bulgaria, Romania and other European Union countries. We must bear in mind that the scheme was brought in to enable students from Poland and the Czech Republic to come to the UK when we had only about 12 member states in the European Union. Now that those countries are in the EU and we have an EU of 28 member states, the rationale for it has somewhat diminished.
My hon. Friend asked about the accommodation offset. In October 2015—just last month—the offset was increased to £5.35 a day, which is a rate recommended by the Low Pay Commission. The rules for the accommodation offset will also apply to workers aged 25 or older who will receive the national living wage from 2016. The rules are therefore broadly the same, and the rate will be set by the Low Pay Commission. Her Majesty’s Revenue and Customs will assess complaints regarding the accommodation offset for national living wage cases, just as it does now. There is no change: the offset will be based on a recommendation coming from the Low Pay Commission.
I am far more optimistic than my hon. Friend that the industry can cope. This is a vibrant industry that has seen huge growth in production and huge innovation in the past 20 years. That innovation has changed how it employs staff and means that, in my view, it will to cope with the coming change far better than he fears. The industry in Kent has a bright future. I was the most westerly outpost of Kentish Garden, the forerunner to Berry Gardens, and I spent many years in my 20s in Kent trying to deal with some of the challenges the industry faced. I believe that it has a strong future.
Question put and agreed to.