Government's Response to the First Report of the Low Pay Commission
Statement by Margaret Beckett, President of the Board of Trade, on the Low Pay Commission Report:
Thursday 18 JUNE 1998
Madam Speaker, today the Government publishes the report of the Low Pay Commission, & spells out how, in our response to that report, we will begin to end the scandal of poverty pay.
In the labour market we inherited just over a year ago, many workers received such excessively low rates of pay that they were driven to work long hours simply to make ends meet .We all know the examples - a homeworker paid as little as 35 pence an hour, a cleaner £1.30 an hour, or a security guard £2.35 an hour - & bring your own dog!
In addition, such low levels of pay mean that taxpayers provide massive sums of income subsidy, & businesses, large & small, striving to compete, as Britain must, on quality & value for money, see their position undermined, not by fair competition, but by cutthroat cowboys.
And with the lack of any fair and basic minimum standards at work the gap between real hourly earnings of the lowest and highest paid almost doubled in the last 20 years.
This was the outcome of the strategy of the previous Government, that Britain aimed to be merely the cheapest rather than the best, no longer the workshop of the world, but the sweatshop of western Europe.
This government believes in decent minimum standards, as a spur to competing sustainably on quality, to tackle social exclusion & to make work pay.
We have already made substantial progress.
The Working Families Tax Credit will guarantee an income of at least £180 per week for families working full-time. No family with weekly earnings of less than £220 will pay tax, reform of National Insurance Contributions will reduce barriers to work;
The New Deal will help the young and the long term unemployed to move from welfare to work;
And the ‘Fairness at Work’ White Paper; and the work of the Social Exclusion Unit are all part of the wider strategy to reshape Britain.
The National Minimum Wage is a key element in this range of policies.
It will help create a better rewarded and more committed workforce, itself a force for driving up standards and helping competitiveness. Experience elsewhere shows too the likelihood that staff turnover will be reduced and investment in training encouraged, which itself improves productivity.
We were determined from the outset that the NMW must be introduced sensibly and in accordance with prevailing economic conditions. That is why we set up the Low Pay Commission, with George Bain in the chair, after only 90 days.
Work of the LPC
The Commissioners were publicly recruited following Nolan principles, & drawn from among employers, employees and independents, each serving in an individual capacity.
Their work is impressive. I would like to pay tribute to George Bain and the other Commissioners who have done a quite remarkable job.
As well as studying 500 written submissions, they took oral evidence from a wide range of organisations, and held over two hundred meetings throughout the United Kingdom.
They heard from large and small employers, trade unions, individual employees including homeworkers, and a range of other interested organisations.
I wholeheartedly commend their immense hard work, energy and willingness to give so freely of their time for this important task.
Government Response
As we made clear in our evidence to the LPC, the Government is particularly concerned to ensure that our National Minimum Wage should be set at a level which avoided the risk of adverse effects on employment, inflation and the PSBR.
We have been particularly mindful of the need to protect the position of young people. It is in our view essential that we avoid reducing the relative attractiveness to young people of staying on in education and training, and to avoid discouraging employers from providing training for those in work. These concerns have guided our judgement on the decisions in response to the Commission’s recommendations.
The Government welcomes the report and supports all of the Commission’s key recommendations, subject to consultation on some of the practical details. In particular we accept a main rate of £3.60 per hour before deductions with effect from April 1999. When combined with the Working Family Tax Credit and other benefits, for a one earner couple with two children, this means an effective wage of more than £7 per hour. We accept that all those aged 16-17, or on formal apprenticeships should be exempt, & we also accept the proposal to institute a development rate .
The Commission propose that that minimum rate should apply at £3.20 to all 18-20 year olds, & to all workers starting a new job with a new employer & receiving accredited training.
We are however at a critical point in the economic cycle. The Government is determined to proceed with all due caution with the introduction of that rate, especially for the crucial group of those aged 18-21.
We have therefore decided, for this group, to phase it in two stages, with an initial transitional rate of £3.00 from April 1999, which will increase to £3.20 in June 2000. However we are asking the Commission to review the position of 21 year olds again in 1999, following the implementation of the £3.00 transitional rate, & to then provide a further report on whether, in the light of experience to that date, they reconfirm their advice that 21 year olds could safely be covered by the main adult rate. I am pleased also to announce that we shall also be asking the Commission to continue its work monitoring and evaluating the introduction and impact of the minimum wage.
Introducing the minimum wage at the levels I have announced today will help some 2 million workers escape from poverty pay without adverse effects on jobs or inflation. These will include:
1.4 million women
over 1.3 million part-time workers
some 200 thousand young people;
around 110,000 homeworkers;
approximately 175,000 lone parents who work; and
some 130,000 ethnic minority workers.
The remaining LPC recommendations deal with such technical matters as the composition and reference period for calculating the minimum wage, the handling of benefits in kind and its application to homeworkers and pieceworkers.
We have fully and carefully considered these recommendations and accept them in principle, subject to consultation on the practicalities and detail of their implementation when formulating the regulations implementing the National Minimum Wage.
Both Houses will have an opportunity to discuss all the matters on which the Commission have made recommendations when we lay draft regulations in Parliament following that consultation.
Madam Speaker in order to assist Right Honourable and Honourable members I shall place in the Vote Office a paper setting out the LPC’s recommendations as well as details of where further consultation is required.
Closing remarks
Madam Speaker today marks a further milestone in implementing this Government’s manifesto commitments. The introduction of the National Minimum Wage would never have taken place under a Conservative administration. From the outset the Government’s approach to the minimum wage has been that it must be approached in an atmosphere and a framework of partnership. The Low Pay Commission have shown that that approach was the right one. It is clear from their work that there is now an overwhelming welcome for the principle of the minimum wage. Among the few people out of step appear to be the party opposite. I challenge them today on behalf of the two million people benefiting from these proposals to say whether they will if returned to office seek to reverse the steps we take today.
The Minimum Wage, along with our other policies such as the Working Families Tax Credit will help remove the worst cases of exploitation in the workplace, cases which have no place in a modern Britain.
I commend the Report to the House.