My Lords, I am rarely surprised by events in your Lordships’ House but I must admit that I was taken aback to be confronted by a regret Motion on the statutory instrument before us, laid by the main opposition party. The policy thinking behind the regulations is to move to a higher-wage, lower-tax and lower-welfare society, one aspect of which requires building on the present national minimum wage. This thinking has been widely explained and debated here and in the other place.
As to the detail, the essence of the regulations before us is to introduce the new national living wage on 1 April this year, initially at a rate of £7.20 an hour for all those aged 25 and over. As has been well publicised, the objective is to reach a rate equivalent to 60% of median earnings by 2020, which is expected to be over £9 per hour. Further steps towards the 60% objective between now and 2020 will benefit from the advice of the Low Pay Commission. Its role going forward will be even more important: consulting and
recommending increases to the national living wage as well as recommending national minimum wage rates for under-25s.
Of course increasing minimum wages makes possible non-compliance a more serious issue. Therefore the regulations also include measures to deal with this aspect, notably by significantly increasing the penalties, which I will come back to. We will also be launching a publicity campaign to run until 24 April to ensure that everyone, employer and employee alike, is aware of their rights and their responsibilities. We estimate that this will cost up to £4.8 million.
These changes require a certain amount of administrative tidying-up. In particular, the Government are undertaking a review to assess the case for aligning the national minimum wage cycle with that for the national living wage and with the tax year. As part of this review we are consulting key employer and worker representatives as well as working closely with the Low Pay Commission, whose good work I remember so well from my time as a private employer. For completeness I should add that a number of measures have been adopted to help employers to adapt to the changed situation, notably via cuts in national insurance contributions and in corporation tax, and by increasing small business rate relief for a further year. That is the background and the contents of the regulations in a nutshell.
I now turn to possible problems which may be of concern to the Benches opposite. Their Motion refers to the 19th report of the Secondary Legislation Scrutiny Committee. That report drew attention to risk of non-compliance to which the Government themselves had drawn attention in our impact assessment. The committee stressed that the Government should continue to acquire and publish information on non-compliance. The Government accept this principle, and the information will continue to be provided through the Low Pay Commission, which publishes a hefty report alongside its annual recommendations to government.
The wider background is that companies might react to the increase in minimum wages in a number of ways, including by a reduction in profits, by a reduction in the number of hours worked, by a restructuring of their workforce, by an increase in prices or by increasing the productivity of their workers. Of course, theoretically, non-compliance would be another response, but we are taking steps to deal with that. We calculate that by 2020, if the policies I have outlined are followed, then the number of workers on the national minimum wage and living wage will almost double from 1.5 million now to around 3 million. So of course effective enforcement is key.
Here we have done much and propose to do more. Since March 2014, both the penalty calculation and the cap have been increased. The rules on naming and shaming have been relaxed, so more employers are named publicly. We have significantly increased HMRC’s enforcement budget—from £8.3 million in 2009-10 to £13.2 million this year—with commitments from the Prime Minister in September to further increases. All this has resulted in greater enforcement activity and tougher sanctions for those who break the law. Already this year, HMRC has recovered over £8 million in arrears for 46,000 workers—this compares to £3.3 million in arrears and 26,000 workers in the previous year.
Your Lordships will recall that this Government have recently increased the maximum penalty an employer can face when they break the law. We quadrupled the £5,000 cap to £20,000 in March 2014—the noble Lord, Lord Stevenson, will remember some of the discussion—and applied the cap on a per worker basis rather than per employer in May 2015. We are starting to see those larger penalties come through. In the next month, we will name a single employer who faced a penalty in excess of £500,000. Under the old regime, that penalty would have been capped at £5,000. As a result of these regulations, a penalty for any similar underpayments in the future would be greater still.
Increasing the calculation of the penalty from 100% of the arrears owed by an employer to 200%, as proposed in these regulations, will further deter employers who would otherwise be tempted to underpay their workers. We are using the power of advertising to ram this home. The Government want everyone to benefit from the economic recovery. That is why we believe that the national living wage is the appropriate step up for hard-working people right across the United Kingdom. I commend these regulations to the House.
3.15 pm
Amendment to the Motion