NMW enforcement: the politics (and economics) of justice

Earlier this week, Labour launched a press and Twitter offensive against Conservative BIS minister George Freeman, after the latter appeared to dismiss the former’s concern about enforcement of the minimum wage as “the politics of envy”. During a short Delegated Legislation Committee debate on draft minimum wage Regulations on Monday, Freeman had been pressed by Labour MPs Stella Creasy and Stephen Doughty on the number of criminal prosecutions of employers for breach of the minimum wage – just one under Freeman’s government to date. And, towards the end of the debate, Ms Creasy hinted at a surprising lack of knowledge of the enforcement regime on her part when she demanded:

Will the Minister talk us through the consequences to companies of not following the [NMW] regulations? If the number of prosecutions is so low, and those who are named and shamed can bear the brunt of not being popular, is there really any consequence of not paying all those low-paid workers?

The Minister responded:

As I set out in my opening remarks, there are very heavy penalties [for non-compliance]. The hon. Lady may not ever have run a business, but I assure her that for people who do so, fines and reputational damage are a major force for compliance. Prosecutions may satisfy the politics of envy of the Opposition, but they are not the best mechanism to drive compliance.

A crass remark, for sure, but one problem with Labour’s head office and MPs making such a loud and gleeful noise about it is that it invites us to ask what approach Labour would take to enforcement of the minimum wage should they find themselves in government on 8 May.

For, crassness aside, the Minister makes a good point. The criminal prosecution of minimum wage rogues has never been a key element of the enforcement regime, with the Labour government that established the regime itself managing only seven prosecutions in the four years after criminal sanctions came into force in 2006. Indeed, that Labour government had deliberately created an enforcement regime based on HMRC securing compliance (and payment of arrears to workers) through investigation and the imposition of civil penalties, without resorting to resource-draining prosecutions in the criminal courts. So it is at least arguable that every prosecution represents a failure of the enforcement regime, as designed by Labour. In other words, the fewer prosecutions there are, the better.

Certainly, the number of prosecutions is not a very helpful yardstick. What matters most is whether minimum wage-flouting employers believe there is a real risk they will be investigated by HMRC. And that depends upon the financial resources made available to HMRC for intelligence gathering, inspections, and investigations.

In any case, the inescapable fact is that criminal prosecutions are at least 25 times more costly than a standard investigation by HMRC. According to official figures cited in the Trust for London report Settle for nothing less, a criminal prosecution costs at least £50,000, while the average HMRC investigation costs just £1,850. So, if prospective ministers such as Ms Creasy want there to be more criminal prosecutions from 7 May, they will either have to come up with (a lot) more money, or face presiding over a substantial cut in the number of HMRC investigations.

To date, there has been no indication from any shadow minister that Labour would increase the spend on minimum wage enforcement – which the Coalition has recently increased by an impressive 50 per cent, from £8 million in 2013-14, to £9 million in 2014-15, and a budgeted £12 million for 2015-16. Indeed, Vince Cable and Jo Swinson have steadily shot most of Labour’s minimum wage enforcement foxes: naming & shaming is (finally) gearing up; the maximum civil penalty has been increased from £5,000 to £20,000; and, as I’ve noted previously on this blog, that maximum penalty will increase again to a more than adequate £20,000 per underpaid worker just as soon as the Small Business, Enterprise & Employment Bill becomes law. Poor Labour MPs are left waving little more than a meaningless pledge to ‘increase’ the maximum penalty to £50,000 (per employer or per worker, no one’s thought it necessary to spell out).

So, do Labour plan to reshape the enforcement regime, with a new emphasis on (expensive) criminal prosecutions? I put that question to Ms Creasy and Mr Doughty on Twitter, but they didn’t respond. I guess it’s easier to make fun of hapless government ministers than it is to explain what you’d do differently if you were sitting in their ministerial chair.

Postscript: Ms Creasy appears to have read this post, but has not (yet) taken the opportunity to explain the extent to which criminal prosecutions would feature in a Labour government’s approach to enforcement of the minimum wage.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s