So, going by their breathless blog announcements earlier today, the most exciting legislative measure that the Liberal Democrats have been able to come up with for this week’s Queen’s Speech is … [drum roll] … an increase in the maximum penalty that can be imposed by HMRC for non-compliance with the national minimum wage.
Not only is this not news – the increase was formally announced by Vince Cable’s department in January, and was then re-announced in February – but in practical terms it’s next to meaningless, for the simple reason that very few if any of the minimum wage rogues caught by HMRC will receive financial penalties anywhere near the new maximum.
Until March this year, employers found by HMRC to have breached the minimum wage had to pay the unpaid wages, plus a financial penalty calculated as 50 per cent of the total underpayment for all workers found to have been underpaid, subject to a maximum of £5,000. However, following January’s announcement and the tabling of new Regulations, on 7 March the financial penalty percentage increased from 50 per cent to 100 per cent of the total unpaid wages owed to workers, and the maximum penalty increased to £20,000.
Now we’re told that, in line with the January and February announcements, a Bill in the Queen’s Speech will increase that maximum penalty to £20,000 per underpaid worker. Which will have all those minimum wage rogues running for cover! Er …won’t it?
Well, possibly, but I very much doubt it. In 2012/13 – the most recent year for which the relevant HMRC data is available – the average amount of underpaid wages was just … £300 per worker. Which means that, even under the new Regulations that came into force in March, the average financial penalty is in the region of £300 per worker – or just 1.5 per cent of the £20,000 per worker maximum that the Liberal Democrats, at least, seem to see as their jewel in the Queen’s Speech crown.
Indeed, we also know that, in 2012/13, just 51 (seven per cent) of the 708 minimum wage rogues caught by HMRC received the then maximum penalty of £5,000. From which it seems reasonable to assume only a very small number of employers will receive the current maximum penalty of £20,000 that came into force in March, let alone the £20,000 per worker for which Vince Cable is now set to legislate.
In any case, if even the current maximum penalty of £20,000 is considered inadequate, why does Vince Cable not simply increase it to £50,000, or £100,000? That wouldn’t require a new Bill – the financial penalty percentage and maximum penalty can be increased at the flick of a minister’s pen, as they were in March.
The answer, of course, is that this measure has little if anything to do with ‘enhancing enforcement of the national minimum wage’. It’s a political move, intended to capture a few headlines and shoot one of Labour’s low pay foxes: Ed Miliband and other shadow ministers have repeatedly indicated they would increase the minimum wage financial penalties if elected in 2015.
While politicians play these meaningless games, back in the real world the bottom line is that better enforcement of the minimum wage requires a bigger chance of rogues getting caught by HMRC. And that means more HMRC boots on the ground. Which no political party is (yet) offering.
Since I write and posted the above on Sunday, HMRC has issued a press release with key figures on enforcement of the minimum wage in 2013/14. This shows that, in 2013/14, the average amount of underpaid wages was just … £205 per worker. Which means that, even under the new Regulations that came into force in March, the average financial penalty is just £205 per worker – or just one per cent of the proposed £20,000 per worker maximum. Interestingly, unlike last year, the press release does not include a figure for the number of employers who received the maximum penalty (of £5,000). Why could that be, I wonder?
Update (19 June):
BIS has today, in response to a parliamentary question by Caroline Lucas MP, confirmed that in 2013/14, just 52 (eight per cent) of the 652 minimum wage rogues caught and issued with a financial penalty by HMRC received the then maximum penalty of £5,000.