So, just how radical is Labour’s ‘£8 by 2020’ minimum wage pledge?

At the weekend, on the eve of the Labour party conference in Manchester, Ed Miliband used an interview in the Observer to reveal that, if elected in May 2015, a Labour government will raise the National Minimum Wage (NMW) rate to £8.00 per hour “by 2020” – which most observers have interpreted to mean from 1 October 2019, when the last annual uprating under the next government will take place.

Reaction has been mixed. Conservative Central Office was quick to claim that the pledge amounts to a slower rate of increase than that between 1999 and 2007.  At a conference fringe meeting, the right-wing commentator Iain Dale suggested that “£8.00 by 2020 is hardly a radical policy”, and the Fabian Society’s Andrew Harrop tweeted that “we need to go further and faster than £8 per hour by 2020”. On the other hand, the move was welcomed by the TUC and the trade union UNISON.

On the question of the rate, I find myself agreeing strongly with Andrew Harrop and – quite possibly for the first and last time ever – Iain Dale. With the NMW at £6.50 per hour from next month, the pledge of £8.00 per hour by 2020 equates to a steady annual increase of 4.25 per cent. Which is not massively above this year’s increase of 3 per cent, or even (what I’m told is) the average annual increase since 2010 of 2.3 per cent.

As the following chart shows, if this year’s slightly more generous increase of 3 per cent were to be replicated in each of the next few years – that is, the sort of rate of increase that George Osborne has said he would be happy with – the NMW rate would be £7.54 from October 2019, just 46 pence per hour below what it would be under Labour’s new proposal. Indeed, at that rate of increase, the NMW rate would reach £8.00 per hour in October 2021, just two years later than Labour now proposes. And Labour’s proposal looks rather pathetic against the Green Party’s far more ambitious policy of an NMW rate of £10.00 per hour by 2020. (I don’t think anyone knows what the Liberal Democrats would like the NMW rate to be in 2020).

NMW2

So, while certainly nothing to be sniffed at, the ‘£8.00 per hour by 2020’ pledge is hardly radical. At least, not in terms of the NMW hourly rate.

However, Miliband’s announcement does represent a radical break away by Labour from the long-standing political consensus that the NMW rate is set not by politicians, but by the ‘independent’ Low Pay Commission. George Osborne crudely tossed this 15-year-old political pact aside in January, when he let it be known that he would be content with a rate of £7.00 per hour. But, presumably out of fear of upsetting the TUC and trade unions, Labour has stuck with it. Until now.

This more radical aspect of the move seems to have gone unnoticed by most commentators, with the notable exception of the CBI which, together with the TUC, has dominated the Low Pay Commission (and therefore the NMW rate) since 1999. “A move to a politicised US-style system is not in the interest of companies or workers”, said the CBI in its response. Well, that depends. But it’s probably fair to say that the move is not in the immediate best interests of the CBI, which would no longer have quite the say on the setting of the NMW rate that it does now.

Like Andrew Harrop, I’d like to see Labour go a lot further and faster than £8.00 per hour by 2020. More particularly, I’d like to see the NMW rate brought up to at least 60 per cent of median earnings by 2020 at the very latest, not some time afterwards (as the detail of Labour’s proposal suggests). And I’d like to see Statutory Maternity & Paternity Pay raised to parity with the NMW by 2020.

But at least now we are talking openly about what the NMW rate should be, rather than leaving it to be fixed by TUC and CBI officials behind closed doors. And, believe me, that is pretty radical. The TUC may have publicly welcomed Miliband’s announcement this week, but I suspect it did so through gritted teeth. Certainly, the CBI is by no means alone – as this blog post by the New Policy Institute illustrates.

So, over the coming months, Miliband and his team are likely to come under intense pressure – from both sides.

With many thanks to Ravi Subramanian of UNISON, whose tweet of his own graph prompted me to write this post.

Queen’s Speech: “May government will achieve grayth in hollow cable”

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.

Postscript

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.

Is it possible to have a Business Secretary that is too flexible?

Last week, Vince Cable grabbed a few headlines with a notably insightful speech about labour market flexibility. In what looked suspiciously like a significant attempt to differentiate Cable’s Liberal Democrats from their Coalition partners, the Business Secretary quickly got to his point by posing an interesting set of questions:

“Is it possible to have labour markets that are too flexible? Are we in that position now in the UK? If so, how do we maintain the advantages of flexibility – for workers and firms – while reducing the costs?”

As is often the way with politicians, Cable had some ready answers to his own questions. Noting that, due to welfare reform and other Coalition policies, “the incentives to work, particularly in low skilled jobs, have never been sharper”, he suggested that “we need to ensure is that this doesn’t produce an entrenchment of low pay, low productivity jobs”.

Now, this may be the right time for me to advance my theory that Cable actually wrote this speech in 2010, but was never allowed to deliver it. So the speech languished at the bottom of his filing cabinet until last week, when he dusted it down and sneaked off to the Resolution Foundation without telling Dave, Nick or George. Had he delivered it in 2010, the speech might have enhanced his reputation as an avant-garde thinker on economic issues. Now, it just sounds rather too much like the rusty hinges of a dilapidated stable door swinging shut, several years after the horse has bolted.

Whatever, Cable had a number of specific ideas on how to prevent the entrenchment of low pay, low productivity jobs. You know, the entrenchment that hasn’t yet happened.

The most headline-grabbing of these was the suggestion that workers on a zero-hours contract should have a “right to request a fixed-hours contract, building on the model we already have for flexible working”. This is so left-field that I can’t decide whether it’s a stroke of brilliance or just plain daft. Perhaps some kindly #ukemplaw person could put me right on this.

Rather more mundanely, Cable suggested that, alongside “encouraging companies to invest in training their workforces”, the government should be ensuring “a strong structure to protect the minimum wage and strengthen [its] enforcement”.

Now it just so happens that Cable is the government minister in charge of protecting the minimum wage and strengthening its enforcement. So this is one area where he could really crack on with preventing the entrenchment of low pay, low productivity jobs.

And, to his credit, Cable has recently (if somewhat belatedly) increased the financial penalties for non-compliance. Furthermore, not only has the HMRC minimum wage enforcement division escaped the worst of the Coalition’s austerity cuts, but at 180 the number of NMW enforcement staff is actually some 20 per cent higher than when Labour left office in 2010 (though the number of compliance officers is much the same).

On the other hand, since Cable and his Coalition colleagues took office in 2010, not one employer has been prosecuted for criminal non-compliance with the minimum wage. And, since Cable introduced a process for ‘naming & shaming’ employers found by HMRC to have flouted the minimum wage in early 2011, just six employers have been so ‘named & shamed’ by Cable’s Department for Business, Innovation & Skills (BIS).

As recently as October last year, that ‘naming & shaming’ scheme was revamped, with Cable’s then junior minister, Jo Swinson, boldly asserting that the new, streamlined process would “give a clear warning to rogue employers who ignore the rules, that they will face reputational consequences as well as a fine if they don’t pay the minimum wage”.

However, since that ministerial fanfare, just five (small) employers have been ‘named & shamed’ by BIS. Yet HMRC tell me (in response to a FoI request) that about 270 employers were issued with a Notice of Underpayment – the trigger for ‘naming & shaming’ under the revamped process – between 1 October and 28 February. Even allowing for the appeal process that Cable has indicated takes “roughly 150 days”, with the end of May approaching it is deeply puzzling why fewer than two per cent of those 270 “minimum wage rogues” have so far been ‘named & shamed’ by Cable’s department.

Has the process of ‘naming & shaming’ employers proved more difficult than Cable and Swinson envisaged? Or is their department simply being too flexible when it comes to tackling the entrenchment of low pay jobs?

Update (8 June): BIS has today named & shamed a further 25 (small) employers. But this still means that only 30 of the 270 minimum wage rogues caught by HMRC between 1 October and 28 February have been named & shamed under the new scheme. What about the other 240? How many have successfully appealed against being named & shamed? We really should be told. As the Independent notes, the 25 small employers named & shamed this week between them accounted for just £43,000, or less than one per cent, of the more than £4.6 million in underpayments identified by HMRC in 2013/14. And not one of the 25 firms will have paid anywhere near the current maximum penalty of £20,000, let alone the proposed new maximum of £20,000 per underpaid worker that Vince Cable seems to think is needed.

Update (16 June): Brilliant detective work by Michael Reed of the Free Representation Unit has uncovered the surprising fact that at least three of the 25 businesses named & shamed by BIS on 8 June were dissolved several years ago, in one case as long ago as 2009. Is BIS padding out its lists of those named & shamed with some ancient cases from the HMRC archives?

Labour’s contract killing

Earlier this week, I was offered a contact. Which, sadly, doesn’t happen as often as my bank manager or my family would like. And, in any case, there wasn’t any money involved. At least, not for me.

On the plus side, the contract was offered to me by none other than the leader of the Labour Party, Ed Miliband. Yes! Me and Ed, bound together by a contract signed in brotherly blood. Well, me, Ed and a few thousand other people. Maybe tens of thousands. Quite a lot of brotherly and sisterly blood, then. Ed might need a transfusion.

As contracts go, it’s quite short – just ten brief clauses, each one a policy pledge by Ed. And, being a workplace rights nerd, I was pleasantly surprised to find that no fewer than three of the pledges relate to workplace rights. However, the wording of those three clauses left me with both a sinking feeling in my stomach, and a strong desire to bash my head against the nearest wall. Let’s take each of the workplace rights pledges in turn.

Ban exploitative zero-hours contracts

Well, I’ve already written elsewhere about Labour’s fumbling towards a credible position on the exploitative use of zero-hours contracts, so I’m not going to add much here. Suffice to say, Ed and his team are going to have to wake up to the fact that, whilst it’s very easy to make speeches criticising the exploitative use of zero-hours contracts, in practice (and in law) it is not so easy to distinguish between the exploitative and the fair use of such contracts. The very same paper zero-hours contract could be used entirely differently by two separate employers – one in a way that benefits both the employer and the employee, and one in a way that benefits only the employer and simply exploits (and quite possibly brings severe hardship to) the employee. That’s a conundrum that won’t be solved by sloganeering.

Make work pay by strengthening the Minimum Wage

Well, yes, but what does ‘strengthening’ the NMW actually mean? In the hope that someone in Labour might provide an answer, earlier this week I put the question out on Twitter. And Antonia Bance – a former Labour parliamentary candidate – promptly responded by suggesting that it means “raising & enforcing [the NMW]”.  Well, yes, but raise it by how much, and better enforce it how? To which Antonia’s response was: “I don’t think we ‘ll know the answers to questions of detail unless Labour get into government”, and “broad promises that show direction of travel & values are thought more effective than detailed pledges”.

So it would seem. But to my mind, the votes of the more than one million workers paid at or just above the NMW rate are much more likely to be captured by a specific promise of a new, higher rate than they are by a ‘broad promise showing direction of travel’. George Osborne is on record as saying he believes Britain can ‘afford’ a rate of £7.00 per hour, without any significant negative labour market consequences, and if George Osborne thinks that then it’s surely not too much to expect a Labour government elected in May 2015 to go at least that far. Furthermore, from £7.00 per hour it’s really not that far to the Living Wage rate (outside London) of £7.65 per hour. So why not make an explicit commitment to an immediate hike in the NMW rate to £7.00 or even £7.50, and to achieving parity with the Living Wage by 2020?

Yes, that would imply making the Low Pay Commission redundant. But perhaps the Commission’s budget would be better spent enforcing the NMW, rather than just talking about it and (mostly) recommending below inflation increases. Government ministers routinely make decisions with far greater economic implications than what the NMW rate should be, and the long-term future of the NMW rate could be secured by writing into legislation an annual uprating at least as great as inflation. It’s really not rocket science.

Tackle the abuse of migrant labour to undercut wages, by banning recruitment agencies that only hire foreign workers

This is the one that really made me want to bang my head against a brick wall. For, leaving aside (for Jonathan Portes and others) the question of whether migrant labour does actually  ‘undercut wages’, the proposed ban is so patently nuts that this clause of Ed’s contract looks like nothing more than a shameful case of dog-whistle politics. Because, if hiring only foreign workers were to become illegal, what proportion of indigenous workers would a recruitment agency have to hire to be legal? One per cent? Ten per cent? Fifty per cent? Fifty-one per cent?

And, were any such arbitrary figure to be (foolishly) enshrined in law, who would police it? Under the Coalition, the BIS Employment Agency Standards Inspectorate has been reduced to a rump of just two inspector-level staff. Would Ed’s contract deliver any more human and other resources for enforcement of new (and the existing) rules?

Again, earlier this week I put these questions out on Twitter, in the hope that someone in Labour might be willing to provide some answers. When they didn’t, I put my questions direct to John McTernan, the fearsome Labour thinker and strategist with the self-appointed task of keeping Tony Blair’s halo shiny and bright. And, whilst first noting that he is “not my brother or sister’s keeper”, John was frank enough to say: “I think there are worse things than foreign workers. Like non-enforcement of [the] NMW”. Hear hear to that.

So, I will keep on posing these (and other) questions, in the hope that someone in Ed Miliband’s team might stop and think these silly contract promises through before they find their way into the manifesto for May 2015. Because, to my mind, that would be a serious mistake that might just blow up in some shadow minister’s face at some point during what is clearly going to be a tough and dirty election campaign. Or maybe Antonia is right when she says the party manifestos “will be meaningless this time because of possible coalition”.

Now that really is a depressing thought.

NMW naming & shaming: a start, but not much of one

So, Vince Cable has (sort of) stuck to his word. Back in January, he told MPs that he expected to see “a significant number” of employers, found by HMRC to have flouted the National Minimum Wage, to be ‘named & shamed’ under the new BIS scheme “by the end of February”.  The new scheme came into being on 1 October last year, replacing a previous scheme, introduced in January 2011, under which only one employer was ever named & shamed.

And so, on the very last day of February, BIS has just issued a press release in which it names five offending employers:

  • Peter Oakes of Peter Oakes Ltd, Macclesfield, neglected to pay £3619.70 to 2 workers
  • Lisa Maria Cathcart of Salon Sienna, Manchester, neglected to pay £1760.48 to a worker
  • Mohammed Yamin of Minto Guest House, Edinburgh, neglected to pay £808.56 to a worker
  • Anne Henderson of Chambers Hairdressers, Middlesbrough neglected to pay £452.22 to a worker
  • Ruzi Ruzyyev a car wash operator in Carmarthen neglected to pay £225.38 to a worker

However, as the TUC was quick to point out, all five are “small businesses who’ve underpaid [just one or two] members of staff. There are companies out there who are cheating hundreds of staff out of a legal minimum wage. These are the biggest offenders and their pay crimes must be made public too.”

Moreover, I’m not sure I’ll find any dictionary that defines ‘five’ as ‘a significant number’.  HMRC imposed penalties for flouting the NMW on just over 700 employers in 2012-13, and over 900 employers  in both 2011-12 and 2010-11.  So it seems reasonable to conclude that HMRC has imposed such penalties on some 250-400 employers since the new ‘naming & shaming’ scheme came into force on 1 October last year (and yes, I have asked for the actual number, by means of a FoI request, but HMRC has declined to answer).  Even allowing for the appeal process, which Cable said in January takes “roughly 150 days” – though quite why it should take that long in all cases isn’t at all clear – we might have expected a first tranche of at least 60 employers to have been named & shamed by now.

So, why have only five (small) employers been named & shamed to date?  And will a significant number of employers be named & shamed in the coming weeks and months?

Time will tell. But, credit where credit’s due, at least BIS has made a start.  Let’s hope those press releases keep coming.

NMW ‘naming & shaming’: Vince Cable gives hostage to fortune

You may by now have forgotten – always assuming you noticed in the first place – that, last Wednesday, Labour devoted one of their precious Opposition Day debates to the National Minimum Wage (NMW).  And you’d be in good company, for the entire Labour front bench seem to have done their best to forget it too.  And with good reason.

The most obvious reason is George Osborne’s brilliantly-timed NMW coup on Thursday evening, which seemed to catch shadow ministers not just napping but comatose.  And the real genius of Osborne’s strike was in crudely tossing aside the 15-year-old political pact that setting the NMW rate will be left to the Low Pay Commission (and, bar a few growls from the CBI, getting away with it).  For Osborne knew Ed Miliband couldn’t use his set-piece speech on the economy the following day to launch a counter-attack – “I’ll see your £7.00 per hour, George, and raise you £7.50 per hour”, perhaps – without the trade unions throwing their toys out the pram.

But even before Osborne launched his coup via Nick Robinson and the BBC, shadow work and pensions secretary Rachel Reeves, who kicked off Wednesday’s debate, had blasted both barrels of her shotgun through Labour’s own feet by launching a puerile and ill-informed ad hominem attack on business secretary Vince Cable, over his non-attendance at crucial votes on the then National Minimum Wage Bill in 1998.  An admirably restrained Cable initially declined to rise to the bait, but when he did it was both dignified and devastating:

Vince Cable: The Honourable Member for Leeds West [Rachel Reeves] made a great deal of the fact that, as she put it, the Conservatives opposed the national minimum wage and many Liberal Democrats opposed it. She speaks with all the self-confidence of somebody who was not here at the time.

Chris Bryant (Labour): You were and you didn’t vote.

Vince Cable: I did not particularly wish to raise this, but I am being asked personally to explain why I did not vote [in 1998]. It had a lot to do with the fact that my late wife was terminally ill at the time and I was in the Royal Marsden hospital. That is why my voting record at the time was poor on that and other issues.

As Isabel Hardman noted in a scathing Spectator blog post the following morning, “it’s not the first time someone has made the mistake of assuming that non-attendance at a vote has a sinister rather than sad explanation, but it rather blunted Labour’s attack on the Liberal Democrats” and was “all the more surprising given [Labour’s] recent rage over a Sun article describing Lucy Powell as ‘lazy’ when she had in fact been on maternity leave”.  Both Reeves and Chris Bryant later apologised to Cable.

For Labour and the hapless Reeves – who must surely be looking for a new researcher – it was all downhill from then on, and I’d be very surprised if anyone in Labour ever mentions this car crash of a debate ever again.  Cable was even able to parry Labour’s pledge to increase the civil penalties for non-compliance with the NMW (or ‘fines’, as shadow ministers wrongly insist on calling them) by confirming plans, first announced by the Prime Minister in November, to substantially increase the penalties from next month.

However, before sitting down Cable himself made a comment that I suspect may also come to be seen as something of a mistake.  Without having been pressed to defend the fact that only one employer has been ‘named and shamed’ for non-compliance with the NMW by his department since he introduced the practice in January 2011, the business secretary volunteered that “new guidelines for the naming and shaming process were issued to HMRC in October” – as indeed they were.  And he went on to say:

“There is also the question of due process.  Companies that are about to be named and shamed can appeal, and it is estimated that that process takes roughly 150 days.  I imagine that a significant number of cases would begin to emerge by the end of February; we can test that when the issue arises.”

The new guidance issued to HMRC in October under “revamped plans to make it easier to clamp down on rogue businesses” is certainly wider in scope than the original, clearly duff scheme.  According to the BIS press release at the time, “the revised scheme will name employers that have been issued with a Notice of Underpayment (NoU) by HMRC. This notice sets out the owed wages to be paid by the employer together with the [civil] penalty for not complying with minimum wage law”.  And, every year, HMRC issues some 700 NoUs.  So, were every employer issued with a NoU to be ‘named and shamed’ under the new scheme, then allowing for Cable’s 150-day due process we might indeed expect a first tranche of some 60 employers to be ‘named and shamed’ in late February or early March.

However, shortly after this revamp of the naming and shaming scheme came into force in October, the BIS employment relations minister, Jo Swinson, let slip on Twitter (in an exchange with the magnificent @HRBullets) that employers will not be ‘named and shamed’ via some kind of central, publicly-accessible register, as one might reasonably expect, but “through [BIS] press releases to maximise coverage” in “local [and] regional newspapers”.  So, either BIS will be issuing an awful lot of ‘naming & shaming’ press releases each month, or it will be releasing one or two press releases each containing the names of dozens of employers.  And, frankly, neither scenario sounds terribly likely to me.  Certainly, Jo Swinson didn’t take the opportunity provided by the Twitter exchange to confirm that all employers issued with a NoU by HMRC will be ‘named and shamed’ by BIS.

Whatever, as Vince Cable says, come the end of February, we will be able to test the issue.  And I will be very happy to be proven a cynic.

Postscript: Since posting the above, I have come across this written statement by Jo Swinson’s maternity cover, Jenny Willott, in the House of Commons yesterday in response to a PQ by Paul Maynard MP:

The revised NMW Naming and Shaming scheme which came into effect on 1 October 2013 made it easier to name employers that break national minimum wage law. By naming and shaming employers it is hoped that bad publicity will be an additional deterrent to employers who would otherwise be tempted not to pay the NMW. We anticipate naming employers very soon.