NMW enforcement: David Cameron ramps up the rhetoric (but not much else)

Late last month, prime minister David Cameron used an article in the Times – Parliament is just so yesterday, dahling – to announce that he is putting enforcement of the so-called national living wage (or increased national minimum wage rate for workers over the age of 25, if you prefer) from next April at the heart of his ‘One Nation’ agenda. According to the Guardian – for ideological as well as financial reasons, I am physically unable to read the Times – the prime minister wrote that the national living wage will only work if it is “properly enforced”. And, to that end, “a new labour market enforcement director will be appointed to ensure that firms comply” with the new rate of £7.20 an hour for the over 25s.

Somewhat surprisingly, none of the crack political correspondents reporting the prime ministerial ‘announcement’ spotted that this represents something of a policy climbdown by Cameron. As recently as May this year, he and other ministers were talking of creating “a new labour market enforcement agency” to “crack down on the worst cases of labour market exploitation”, including non-payment of the national minimum wage. Now, that “new agency” has shrunk to just one extra, director-level official. Woo hoo.

On the plus side, Cameron reportedly said his Government will “significantly increase” the budget for enforcement of the national minimum wage, which has already seen welcome increases under the Coalition, from a miserly £8.3m in 2013/14, to £9.2m in 2014/15, and £13.2m in 2015/16. At a time when departmental budgets are being slashed, such increases are not to be sniffed at. Unfortunately, the prime minister gave no indication of the size of the further “significant increase” he has in mind.

Furthermore, the rate at which financial penalties for non-compliance are calculated will be increased from 100% of the underpayment, to 200% (though the current maximum penalty of £20,000 per underpaid worker will remain). And there will be a new team in HMRC to “take forward criminal prosecutions of those who deliberately don’t comply” – in recent years, such (relatively expensive) prosecutions have been even rarer than they were under the last Labour government.

To “unscrupulous employers who think they can get Labour on the cheap”, wrote the prime minister, “the message is clear: underpay your staff, and you will pay the price.”

So it’s surprising that, since the general election in May, ministers have ‘named & shamed’ just one tranche of 75 unscrupulous employers found by HMRC to have breached the minimum wage. For some 50-60 such employers become eligible for ‘naming & shaming’ each month and, as recently confirmed by BIS in answer to a parliamentary question by Jo Stevens MP, the failure to ‘name & shame’ more than 75 since the last tranche of 48 in March means there is now a growing ‘backlog’ of more than 500 unscrupulous employers that BIS has yet to ‘name & shame’. Will it ever do so? We should be told.

Indeed, in late July, BIS announced an effective amnesty from both financial penalties and ‘naming & shaming’ for those NMW-breaching employers that self-report to HMRC. So much for ‘paying the price’ for underpaying your staff. Understandably perhaps, BIS ministers appear somewhat reluctant to say how many unscrupulous employers they have let off ‘paying the price’ since July.

All in all, the message is not quite as clear as the prime minister would have us believe. Underpay your staff, and you might pay the price. Or you might not.

Looking at the details of the tranche of 75 employers ‘named & shamed’ in July, it’s easy to see why Cameron’s announcement did not include any increase in the maximum penalty per worker, as not one of the 75 had to pay anywhere near £20,000 in penalties. The average total underpayment (and so penalty) was just £2052.86, and the average underpayment per worker just £1247.37. In 37 of the 75 cases, the total underpayment (and so penalty) was less than £1,000, and in all but ten it was less than £5,000. In 46 cases, just one worker was underpaid, and only in five cases were ten or more workers underpaid by the employer. One case involved 57 workers, and another 46 workers, but the underpayment per worker in those cases was just £71.41 and £6.61 respectively.

As with previous tranches of ‘naming & shaming’ then, we’re talking about relative small fry – the local hairdressers, beauty salons, pubs, cafes and second-hand car dealers. Indeed, looking at all 285 unscrupulous employers ‘named & shamed’ to date, it does seem that HMRC sees hairdressers and beauty salons as easy targets for keeping its ‘strike rate’ up. Then again, among the 14 hairdressers and beauty salons in this tranche were five of the ten employers found to owe more than £5,000.

NMWnamed

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