Low Pay Commission 2015

TUC response

1: Introduction The TUC is the UK’s national trade union confederation. Our 52 affiliated unions represent nearly 6 million people at work and our influence extends more widely through the coverage of trade union agreements and the advice that we give. The TUC is often said to constitute the voice of Britain at work.This paper sets out the TUC's evidence to the Low Pay Commission's 2015 inquiry. Our submission examines:

The current economic situation and the prospects for 2016/ 2017.The case for further increases in the minimum wage rates for

2016 and 2017, taking into account the economic prospects, the new remit given to the LPC, the TUC’s medium term targets.

The need to further improve awareness and enforcement of National Minimum Wage rights.

When responding, we have taken account of the following context:The economy is expected to grow steadily in the coming years.Despite a slight reverse in the latest figures, employment has

grown rapidly during the past year.Earnings growth has quickened in pace and is forecast to grow

more strongly during the coming years.The government’s remit for the LPC indicates that it wants the

National Minimum Wage (NMW) to rise more rapidly, so that by 2020 it should reach 60 per cent of median earnings for workers aged 25 and over, suggesting a figure of approximately £9 per hour.

The proposed increase in the NMW for older workers must not leave younger workers and apprentices behind. The LPC’s aim should be that their rates should rise substantially, and narrow the gap with older workers in the medium term.

It is inherently right to ensure that the NMW plays as strong a part as possible in supporting the wages of low paid workers. In reaching a higher sustainable level, the NMW will not only raise the earnings from work for lowest paid, but will also inject more demand into the economy.

The context is one in which tax credits are being cut, which will leave many NMW workers worse off. The TUC opposes these cuts, which will reduce the incomes of a large number of people. This puts much more onus on the NMW and employers

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to do as much as they can in the fight against low pay.More resources must be put into raising awareness of the law and

enforcing it. We recognise that some of the measures that the government has taken are helpful, indeed the TUC has long campaigned for higher civil penalties and more naming and shaming, but there is still more to be done. Far too many employers are still getting away with non-compliance.

The Government’s announcement of the introduction of a supplement for workers aged 25 and above is a clear steer that it is now time for the Commission to make further progress in combating low pay by entering a new phase of more generous increases.

2: The role of the Low Pay Commission The TUC strongly supports the role of the LPC We believe that good decision making about life at work is best facilitated by discussion between employers, and workers and their trade unions. The presence of the academic experts on the Commission reinforces the need to bring forward strong evidence, and helps to test the views put forward by all parties. Indeed, we continue to argue that a similar model could be usefully introduced in a range of other public policy settings.The role of the LPC is to advise government on matters concerning the National Minimum Wage. Whilst this clearly means that the government has the final say, it behoves ministers to be cautious about making important decisions about the NMW without consulting the LPC, or about amending its recommendations. The NMW must continue to have a rational basis and be a matter of broad consensus between the social partners.The LPC is now entering a new phase. It is clear that both the current government and its predecessor would like the NMW to be higher - for some workers at least. This view broadly chimes with the TUC’s analysis, as we believe that there is considerable economic “headroom” to increase the NMW. There is a danger that those who are opposed to the government’s target may try to associate any bad economic news with the prospective minimum wage increases. The Commission must continue to base its evaluation of the impact of minimum wage increases on the strongest possible evidence during the coming period, so that the minimum wage can continue to be robustly defended from any unwarranted attacks. The NMW will be in the strongest position when it is based on good advice and evidence, enjoys broad support from employers and Low Pay Commission 2015TUC ESAD August 2015 3

workers alike, and plays the greatest contribution that it can in combating low wages. The LPC has played a leading role both in establishing the NMW and in steering it through bad times and good times alike. The Commission needs to continue to rise to the challenges and opportunities presented by new times, and the TUC has every confidence that it can do so.

3: The Low Pay Commission remit for 2016 In the 2015 summer Budget the government announced the introduction of a new rate for those aged 25 and above, with a target that this rate for older adults should reach 60 per cent of median earnings.

The TUC welcomed this announcement, but also seeks to get to a position where a higher rate for workers of all ages can be sustained. However, there is significant concern about the position of younger workers, including those aged 21-24, who risk being left behind by the establishment of a higher rate, which will effectively be the main NMW rate for older workers in future.

The current LPC remit, which is set out in full below, is more detailed than in some previous years and explains the government’s ambitions for the NMW:

“Over the last 15 years the National Minimum Wage (NMW) has helped eliminate extreme low pay and preserve jobs in the face of recession. We appreciate the role that the Low Pay Commission (LPC) has played in these successes. Against the background of a continuing recovery, the Government would like the LPC to monitor, evaluate and review the levels of each of the different NMW rates (16-17, 18-20 age groups, adult and apprentice rates) and make recommendations on the increase it believes should apply from October 2016. Our aim is to have NMW rates that help as many low-paid workers as possible without damaging their employment prospects.

The Government is building on its strong economic performance that has seen 2 million more people in work in the last five years. A remaining, key economic challenge the Government wants to address is to move away from a low wage, high tax, high welfare society and encourage a model of higher pay and higher productivity – supporting people who work hard and want to get on in life to fulfil their aspirations.

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As such, the Government wishes to see a higher wage for more experienced workers and so is introducing a premium for workers aged 25 and over. This will be over and above the NMW which will remain in place. The Government will set the first premium in April at 50p bringing the total National Living Wage to £7.20 in April 2016. The Government asks the LPC to recommend the level of the National Living Wage to apply from April 2017.

The Government estimates that the level of the combined NMW and the premium in April 2016 will be 55% of median earnings and has set out an ambition that this should continue to increase to reach 60% of median earnings by 2020, subject to sustained economic growth. The Government’s objective is to have a National Living Wage of over £9 by 2020.

In making recommendations in relation to the premium the LPC is asked to consider the pace of the increase, taking into account the state of the economy, employment and unemployment levels, and relevant policy changes.

Depending on the outcome of the review into bringing forward the NMW cycle, alongside the NMW recommendations in February 2016 the LPC are asked to provide indicative NMW rates for 2017, in order to give more certainty to business. Alongside the premium recommendation in October 2016 the LPC are asked to provide an indicative premium rate for April 2018. Both of these being subject to confirmation in light of economic conditions.

The LPC is asked to provide a report to the Prime Minister and the Secretary of State for Business, Innovation and Skills on the NMW rates as early as possible in February 2016 and on the premium by October 2016.1”

4: The UK economy during the past year Strong increases in the NMW rest to a large extent on the economy doing well enough to support them. Although there is a well-developed critique of some aspects of the quality of the current economic recovery, it cannot be denied that the economy has improved during the past two years in headline terms.After the economic storm that stemmed from the 2008 crash, many measures now indicate that the UK economy has a fair wind in its

1 https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/443328/BIS-15-409-NMW-Low-Pay-Commission-Remit-2016.pdfLow Pay Commission 2015TUC ESAD August 2015 5

sails. Economic growth is fairly robust whilst employment, earnings and profitability have all been increasing. Inflation remains exceptionally low at the moment, which has given a boost to real earnings. However, this unexpected pay bonus should not be expected to continue for too long, as a prolonged period of zero inflation would be grounds for concern2. Current economic indicators (annual change)

Current rate 12 month change Annual GDP growth 2.6% -0.4%Employment rate 73.5% +0.7%ILO unemployment rate 5.5% -0.6%Average earnings annual increase 2.9% +2.1%CPI inflation 0.0% 0.0%RPI inflation 1.1% -1.3%Source: ONS (GDP Q2, inflation August 2015, earnings, employment and unemployment, May to July. Earnings excluding bonuses. Unemployment rate for all aged 16 and above. Changes in percentiles.

The LPC will no doubt give due weight to the fact that AWE pay growth has now reached a six-year high. Furthermore, with public sector wages constrained by a government cap, private sector increases are currently above average at 3.7 per cent.While there has been a slowdown in employment growth earlier in the year, the figures are now increasing again, with the September figures showing 40,000 extra jobs. The UK’s jobs recovery has been vigorous in recent years. Indeed, employment now stands at the record level of 31.1 million, 413,000 higher than twelve months ago (+1.1 per cent).3 Weekly hours worked in the UK economy for May-July 2015 were also up by 0.1 per cent on the previous year, increasing by a further 9.4 million to reach a grand total of 994.2 million.4 The gross profitability of UK corporations has recovered and now exceeds pre-recession levels, rising from 11.5 per cent to 11.8 per cent in the last year alone (see table below). In the service sector, where the greatest concentration of NMW jobs is found, corporate profitability has reached the record level of 16.9 per cent; the highest figure recorded since ONS series began.

2The Bank of England Monetary Policy Framework says that “iInflation below the target of 2% is judged to be just as bad as inflation above the target.”: http://www.bankofengland.co.uk/monetarypolicy/Pages/framework/framework.aspx3 ONS Labour Market Statistics, September 2015. 4 ONS Table HR01SA,ONS September 2015: Low Pay Commission 2015TUC ESAD August 2015 6

Rising profitability suggests that many corporations could afford a further increase in the NMW. Gross profitability of UK corporations

All UK corporations Service sector corporations

2007 11.1% 12.3%2010 10.6% 12.8%2014 11.5% 15.0%2015 11.8% 16.9%Source: ONS profitability statics, Q1 20155

Business investment

Business investment is also rising strongly and has contributed to growth throughout the recovery. Gross fixed capital formation has now fully recovered from the recession and has now reached the highest level since the ONS series began 18 years ago. Furthermore, gross fixed capital investment grew by 4.9 per cent in the year to Q1 20156, which should be to boost economic growth.

Productivity Labour productivity is also starting to recover at last, with output per hour increasing by 1.3 per cent in the year to the first quarter of 2015, and likely to continue to rise. We also note that services sector productivity has been growing slightly faster, at 1.6 per cent. In addition, the latest figures show that hourly productivity in the hospitality sector – a significant NMW sector - rose by 7. 3 per cent during the past year.7

Productivity is expected to increase during the coming year, as increases in business investment start to yield rewards and a fairly tight labour market spurs more effective utilisation. A common way of seeing the “productivity puzzle” is that it has been a consequence of the labour market adjusting to weaker economic growth through real wage cuts (and cuts in the quality and conditions of work) rather than job cuts. 5 http://www.ons.gov.uk/ons/publications/re-reference-tables.html?edition=tcm%3A77-3706526 Second Estimate of GDP, Quarter 2 (Apr to June) 2015, p57, table C2, KG7T http://www.ons.gov.uk/ons/dcp171778_414601.pdf7 ONS labour productivity, q1 2015. http://www.ons.gov.uk/ons/rel/productivity/labour-productivity/q1-2015/stbq115.htmlLow Pay Commission 2015TUC ESAD August 2015 7

The TUC has consistently argued that a more supportive fiscal policy is key to sustaining higher productivity growth. Severe government spending cuts have reduced demand, held back the recovery and mean that years after the financial crisis we are still failing to achieve our full potential. The “puzzle” over recent years can thus be solved as having been driven by weak demand resulting from spending cuts as structural deficiencies. NIESR have also recently acknowledged the importance of demand in explaining productivity outcomes8.

Looking ahead, the planned severe spending cuts in the current parliament could be a real threat to recent productivity gains, not least given the increasingly apparent weakening in global economic conditions. Thus the government and business leaders need to make productivity a much higher priority in the coming period in order to raise the path of economic growth. The TUC’s September 2015 Congress discussed what will be needed to maximise productivity and growth. Measures would include government support for industry, a greater use of state investment banks and the development of regional economic strategies. In addition, greater attention to employment rights and worker voice, along with a renewed focus on training and opportunities for young people was needed.

Small businessesThe total number of enterprises in the UK has increased by 7.6 per cent, up to 2,019,605.The vast majority of these (1,987,690) are smaller business employing 1-50 people, and in percentage terms the small business share has kept pace with the general increase in the number of businesses.9 There is now a record number of small

8 For example, NIESR Discussion Paper 450, R.Riley, C.Bondibene, G.Young, “the UK productivity puzzle: evidence from British business 2008-2013”, p5.

9 Annual Businesses Survey 2013 (revised), ONS Nov 2014. Low Pay Commission 2015TUC ESAD August 2015 8

businesses, which suggest that they have, as a sector, been able to cope with previous increases in the NMW.It is also the case that a combination of rising business investment, increased employment and a return to wages growth add up to better trading conditions, which will improve the viability of small businesses. Employees in low paying industries

The total number of employees in the low paying industries increased by 252,000 (3.8 per cent) during the past two years (Q2 data). As the table below shows, this was almost identical to the overall rate of jobs growth.

Most of this increase is (226,000) was accounted for by the growth in three sectors; food a beverage, social care and building services. In contrast, only the perennially beleaguered textiles and clothing sector suffered a statistically significant decline in employment.

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Employees in low paying industries 2013-2015(thousands)

Industry Spring 2013 Spring 2015 Change Per cent change

Agriculture, hunting and forestry

127 134 +7 *

Primary food processing

118 124 +6 *

Textile and clothing manufacture

91 81 -10 -11.0%

Retail trade (not motor vehicles)

2,590 2,598 +8 *

Hotels and accommodation

309 309 nil *

Food and beverage service activities

1,048 1,152 +104 +9.9%

Residential care and social work activities

1,665 1,729 +64 +3.8%

Services to buildings and landscape activities

333 391 +58 +17.4%

Recruitment and employment agencies

192 194 +2 *

Hairdressing & other beauty treatment*

163 176 +13 +8.0%

Total employee jobs in sectors with high incidence of low pay

6,636 6,888 +252 +3.8%

Non-low paying sectors

18,649 19,384 +735 +3.9%

All employee jobs 25,285 26,272 +987 +3.9%

Source: LFS spring quarters, employees in main job only (i.e. excludes second jobs. *Changes of less than 10,000 are excluded as they are not statistically significant.

Pay settlements and earnings growth

Median pay settlements have still been centring around 2.5 per cent, whilst ONS Average Weekly Earnings survey data (AWE) shows that growth in regular pay has been slightly higher at 2.8 per cent10.

10 AWE excluding bonuses and arrears.Low Pay Commission 2015TUC ESAD August 2015 10

However, June 2014 to June 2015 growth in average weekly earnings for private sector services, where the greatest concentration of NMW jobs can be found was slightly higher at 3.0 per cent. Furthermore, the two largest NMW sectors have seen bigger increases. Pay in accommodation and food services grew by 4.6 per cent on this measure, and retail by 6.6 per cent.

In addition, faced with a tightening labour market, and in the light of the announcement of the April 2016 NMW increase for older workers, some big retail chains have agreed significant increases; including 4 per cent for Sainsbury staff and 4.5 per cent at Asda (both August 2015).

The Living Wage campaignThe TUC is concerned that the introduction of a higher rate for adults aged 25 and above might damage the existing well-respected Living Wage campaign. In addition, the new NMW rate might damage efforts to persuade employers to sign up to the higher voluntary standard. This is a sharp concern at a time when discussions are underway with many new employers. At the time of writing RMT, for example, reports that they are close to persuading another rail franchise to go part of the way by increasing pay for their London-based staff to meet this standard. They have also been developing an agreement with a major rail cleaning company on delivering the Living Wage. Whilst there are still numerous signs of confusion about what is meant by the term, large employers are still coming forward to sign up to the voluntary standard and being accredited by the Living Wage Foundation. These include the furniture giant IKEA (July 2015), smaller employers such as food company Apetito UK, which has 1,100 employees, and the window cleaning company Cam Specialist support (both August), and the Lidl supermarket chain (September).However, we continue to monitor the situation closely as despite the government’s supplement the NMW will not be set to be high enough to become a genuine living wage by 2020. The voluntary Living Wage standard sets a significantly higher rate for all workers in London, which already stands at £9.15 per hour and is set to increase again before the NMW supplement begins to take effect. In addition, the Living Wage applies to workers at the age of 18, whilst the full NMW will only apply at age 25. Low Pay Commission 2015TUC ESAD August 2015 11

There is also some concern that reducing tax credits may lead to a sharp increase in the Living Wage rate, which may make it harder to persuade employers to sign up for this widely-supported voluntary standard. Historically the Commission has felt unable to take account of what is needed to live on when considering the NMW rates. The philosophy of government has certainly softened on this point to some degree, so we urge the LPC to consider this important issue in its deliberations and set recommendations that would bring the NMW much closer to a real living wage.

5: Prospects for the UK economy in 2016 and 2017 Despite some bumps in the path of the recovery the general economic position is reasonably good. Inflation and unemployment are relatively low, 2.6 per cent GDP growth is a respectable figure and mercifully pay growth is recovering, except in the public sector where earnings are still capped by government.

Turning next to forecasts for the next two years, ILO unemployment is forecast to continue to fall, reaching about 5.1 per cent. Forecasters also expect inflation to start to return to more normal territory, rising towards the Bank of England’s target, but not exceeding it. GDP growth is expected to remain steady and earnings growth to increase.

Economic forecasts for 2016 and beyondEconomic indicator 2016

(OBR)2016(HMT)

2017(OBR)

2017(HMT)

Annual GDP growth 2.3% 2.6% 2.4% 2.4%Employment growth 1.0%* 1.5%* 0.3% -ILO unemployment rate

5.1% 5.3% 5.2% 5.0%

Average earnings 3.6% 2.7% 3.9% -CPI inflation (annual change)

1.1% 0.5% 1.6% 1.9%

RPI inflation (annual change)

- 1.3% - 3.1%

Sources: Office of Budget Responsibility (Fiscal Outlook July 2015) and the Treasury’s roundup of independent median forecasts made in the past three months. (August 2015). *Note that a 1 per cent increase in employment would equate to about 300,000 more jobs

Both the Office of Budget Responsibility and HM Treasury’s round up of independent economic forecasts both predict that the economy as a whole should experience reasonable growth in the next two years, with attendant employment and earnings growth set against a

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background of low inflation.

The CBI has recently upgraded its forecasts for GDP growth, noting that the economy has been driven forewords by the “twin engines” of rising household spending and robust business investment11.

Meanwhile, the Bank of England says that “wage growth is expected to continue to strengthen in the near term, reflecting the past narrowing in labour market slack and the pickup in productivity growth”.12

11 CBI Economic Forecast August 2015: http://news.cbi.org.uk/news/economic-forecast-june-2015/12 Bank of England Inflation Report, August 2015, p25. http://www.bankofengland.co.uk/publications/Pages/inflationreport/2015/aug.aspxLow Pay Commission 2015TUC ESAD August 2015 13

6: Further measures to improve productivityIt remains a matter of concern that the minimum wage is effectively anchored by whichever sector has the lowest ability to increase wages. The TUC not only calls on businesses to pay as much as they can afford, but we also want them to be able to afford more.The government has already intervened to bring together employers in certain high value manufacturing and extractive sectors in order to discuss how businesses can become more successful and profitable. Similar interventions in some of the lower paying industries would be likely to help these sectors to raise its game in terms of productivity and profitability. This would be inherently desirable, and would increase employers’ ability to pay, which is important, not least in the context of the government’s enhanced ambitions for the NMW. It would be open to the LPC to explore this issue with government and stakeholders and we urge the Commission to use the opportunity of the new 2020 target to begin an active discussion with government on how productivity across the low paid sectors such as social care can be improved. RecommendationThe LPC should explore with government and stakeholders the possibility of further measures to improve productivity in low paying industries.

7: Younger workers aged 16-24 This section looks at the position of young people, who have been excluded from the 50 pence supplement announced in the Budget, and for whom there is no target for NMW rates in 2020.There is strong concern that effectively adding another youth rate to the NMW by leaving 21-24 year olds out of the Budget supplement will have negative consequences.These issues include:

Added complexity, so that workers are less likely to know their rights and employers their duties relating to the NMW.

Changes in employers’ behaviour, including hiring and retention decisions. For example, the planned change in the relative price of labour might mean that some employers will prefer to hire 21 year olds, but not to retain them past age 24.

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Possible tension between groups of workers of different ages, especially where those doing the same job are paid different rates on the grounds of age.

A growing perception amongst those just starting their careers that the world of work is not very fair. This view might be expected to impact on motivation, and could thus depress productivity.

It therefore behoves the LPC to increase the rates for young workers to the highest point that can be sustained, on the grounds of fairness and economic efficiency. As the results below show, the position of younger workers in all groups has improved since the low point reached in 201213 and the number of young people not in education, employment or training (NEETs) is falling. 16-17 year old workers (thousands) 14

2012 2013 2014 2015 Change 2012-2015

In employment 358 328 319 354 *ILO unemployment- in full-time education

142 132 114 92 -50

Inactive - in full time education

875 916 953 918 +43

ILO unemployment – not in full-time education

63 48 32 31 -32

Inactive – not in full-time education

72 70 64 55 -17

The table below examines 18-20 year old workers. For this group unemployment has declined by 82,000 since 2012 (40 per cent). These figures are set against the backdrop of a net increase in 13 In this analysis, the TUC only considers those in full-time education, as does the ONS in its series on the interplay between education and employment. We note that the NEET series a much broader measure, namely all those enrolled on a non-leisure course and still attending. It’s worth remembering, for example, that a further 343,000 people are currently pursuing part-time education, of which 259,000 are also in employment, 61,000 inactive and 23,000 ILO unemployed. (Source - LFS spring 2015).14 Source: ONS Quarterly Labour Market Statistics. Notes – “in employment” includes approximately 10,000 self-employed young workers. April- June quarter. Seasonally adjusted. Results below 10,000 excluded as not statistically significantLow Pay Commission 2015TUC ESAD August 2015 15

inactivity amongst young workers, driven by increased participation in full-time education.The number of 18-20 year old employees has increased by 46,000 (4.5 per cent) since 2012 and by 49,000 over the past year).

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18-20 year old workers15 2012 2013 2014 2015 Change

2012-2015

Employees 1013 1,033 1,010 1059 +46Self-employed 39 33 37 29 -10ILO unemployed- in full-time education

119 105 112 106 -13

Inactive - in full time education

791 776 789 745 +46

ILO unemployed – not in full-time education

260 241 210 183 -77

Inactive – not in full-time education

183 171 174 195 +12

Meanwhile, unemployment has fallen by 90,000 (-23.8 per cent), largely driven by a 77,000 (29.6 per cent) fall amongst those not in full-time education.There has also been a 58,000 increase in inactivity, although 80 per cent of this is accounted for by fewer people in full-time education being economically active.Adults aged 21-24 (thousands)

2012 2013 2014 2015 Change 2012-2015

Employees 1,984 2,030 2,114 2,178 +194Self-employed 122 126 143 151 +29ILO unemployed- in full-time education

48 45 33 37 -11

Inactive - in full time education

474 469 495 478 *

ILO unemployed – not in full-time education

362 358 309 237 -125

Inactive – not in full-time education

392 378 349 353 -39

Finally, the position of 21-24 year olds is examined above. This group of workers has historically been covered by the adult rate of the NMW. However, the rate for those aged 25 and above has now effectively 15 Source for tables on workers aged 18-20 and 21-24, LFS data Q2 data. Results below 10,000 excluded as not statistically significantLow Pay Commission 2015TUC ESAD August 2015 17

become the main adult rate, so a new analysis is needed for the younger adults in this age group. The number of 21-24 year old adult employees has increased by 194,000 (9.8 per cent) since 2012.At the same time, unemployment has fallen by 136,000 (-31.2 per cent), largely driven by a 125,000 fall in those unemployed and not in full-time education. Inactivity has declined by 35,000, entirely driven by a fall in the number not in full-time education

Not in education or employment (NEETs)The number of 16 and 17 year old NEETs has fallen by half since 2012, down from 97,000 to 47,000 by the first quarter of 2015. The number of 18-24 year olds NEETs has also declined steadily, from 858,000 in 2012 to 692,000 in 2015 (-19.4 per cent). In the past year alone the figure has fallen by 48,000 (-6.3 per cent.)Furthermore, the number of NEETs classified as ILO unemployed has fallen by 75,000 in the past year alone, as rising employment levels eat into the problem.16

Analysis The position of younger workers in all age groups has improved to varying extents, and the number of NEETs has declined sharply.The TUC’s medium term aim is that as many workers as possible should be eligible for the full adult rate of the NMW, regardless of age. We have therefore consistently called for the threshold for the adult rate to be phased down as quickly as economic conditions allow. Some progress was made in 2010 when the initial adult rate threshold of 22 was reduced to age 21.We now regard the rate for adults aged 25 and above as the new main rate of the minimum wage, and therefore as our effective medium term target for younger workers.It is already the case that employees aged 21-24 are doing relatively well in the jobs market. The number of employees in this age group has increased by 9.8 per cent in the last three years and continues to grow steadily. The government has not offered a clear justification for 16 All NEET figures from ONS NEET statistics quarterly bulletin, Jan- March 2015: https://www.gov.uk/government/statistics/neet-statistics-quarterly-brief-january-to-march-2015Low Pay Commission 2015TUC ESAD August 2015 18

why this age group should not simply be included in the target set in the budget for adults in future years.There have been some signs that pay has been increasingly rapidly for some young people. We expect to see this trend confirmed in the 2015 Annual Survey of Hours and Earnings results.17

The LPC should also look to significantly improve the position of younger workers. In particular, 18-20 year olds have also seen steady growth in employment and are in need of a substantial pay gain.

Equal treatment for young peopleThe TUC has always argued that people should be paid the rate for the job, regardless of age. Any circumstance in which people are paid differently for the same work simply on the basis of age is morally unacceptable.The law takes a slightly narrower view. The youth rates of the NMW have been allowed under the Equalities Act 2010 because the government could, to some degree, make a case based on preserving opportunities for employment for younger workers. It is not clear whether the government has prepared a case for the exclusion of younger workers from the new rate and from its target of 60 per cent of median earnings, but not to do so might leave the process open to challenge. Questions that may arise could include whether the new “supplement” for older workers will be the main NMW rate de facto, and therefore whether having a lower rate for 21-24 year olds can be justified at all on employment grounds.In any case, the LPC’s goal should be to seek to end any unwarranted differential treatment.

8: ApprenticesThe TUC has strongly supported the revival of the apprenticeship system, which has generally been a success. The number of apprentices has increased from less than 100,000 a decade ago to more than 800,000 participating in the programme in 2013/14.

The rapid growth of the apprentice programme has led to quality issues in a substantial minority of cases. The TUC always argues for 17 We note that ONS ASHE 2014, which was taken at around the time of the start of the pay recovery, showed median earnings rising by 3.0 per cent of 18-21 year olds compared to just 0.1 per cent for all workers.Low Pay Commission 2015TUC ESAD August 2015 19

high quality apprenticeships that are paid fairly.

However, as we highlighted last year, a substantial minority of apprentices report that they receive no training or assessment

The government is well aware that the programme now needs tightening in order to maintain the quality of the brand, as demonstrated by their response to the Richards review18.

Recent policy announcements include:

A target of 3 million new apprenticeships over the course of this parliament, equating to a rate of 600,000 per year.

An apprenticeships levy on large employers to create a fund to support apprenticeships.

The development of new apprenticeship standards for 160 different occupations.

Legal protection for the term “apprenticeships” so that it cannot be misused.19

The target applies to younger apprentices aged up to 24 and it implies an increase of approximately 50 per cent on the current number of 450,000. The levy, the development of the fund and application of a duty on public sector bodies to employ apprentices are all bound to lead to an increase in apprentice numbers.

There was a small decrease in the overall number of apprentices between 2012/13 and 2013/14, the last period for which whole-year statistics are available. Numbers were depressed in that year by the introduction and subsequent withdrawal of a scheme that required some apprentices to make a contribution to the cost of their training.

Furthermore, between 2012/13 and 2013/14, apprenticeship participation in fact increased for those aged under 19 and 19-24 year 18 DfE, “The future of apprentices in England – next steps from the Richardson review, 2013

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/190632/bis-13-577-the-future-of-apprenticeships-in-england-next-steps-from-the-richard-review.pdf19 A useful summary can be found in House of Commons Library briefing paper 03052, “apprenticeships policy – England”, by J. Mirza Davis (July 2015). http://researchbriefings.files.parliament.uk/documents/SN03052/SN03052.pdfLow Pay Commission 2015TUC ESAD August 2015 20

olds. Thus the decrease was due to a fall among those aged 25 and over, as perhaps the new focus on younger apprentices might have predicted.

Government support for apprentices

It seems clear that government is determined to make the target work, and predictions suggest a growing number of apprenticeships for the year 2014/15 and beyond, with places for 16-18 year olds expanding most rapidly.

The government already pays 100 per cent of training costs for apprentices aged 16-18, 50 per cent of 19-23s and up to 50 per cent for older apprentices.

Note also that the government has already been trialling funding for level 2 apprentices by up to £4,900 per year and level 3 by a limit of £9,600 per year in Trailblazer pilots.20

The depth of support for apprentices from government has implications for the LPC’s current review of the NMW apprentice rate. Strong support for high quality apprenticeships and more funding will make the sector more robust and thus more likely to be able to afford a strong increase in the NMW, which will in turn help employers to attract the best applicants.

The current NMW rate does not reflect the real value of apprentices.For the purposes of this consultation, the TUC’s focus of concern is that the current apprentice rate is too modest. A significant minority of employers are drawing on government funding for training apprentices (and having the programme largely managed for them) but still use apprentices partly as a form of cheap labour to undercut the general rates of the national minimum wage. A quid pro quo for public subsidy must be fair pay.

Furthermore, we are concerned that some employers are expecting a higher level of skills as a condition of starting an apprenticeship than most of us would generally expect from adults on the minimum wage, whilst others demand a high level of responsibility.

20 Skills Funding Agency, “Trailblazer Apprenticeship Funding 2014 to 2015 - Requirements for Employers”, Mar 2015 https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/412179/Trailblazer_Apprenticeship_Funding_2014_to_2015_Requirements_for_Employers.pdfLow Pay Commission 2015TUC ESAD August 2015 21

Three examples of this are provided below. These are all vacancies offered by the Indeed.co.uk vacancies website 28 August 2015 at the rate of £2.73 per hour21.

Apprentice graphic designer (ventilation industry)

“The ability to use adobe products or Photo shop. Good working knowledge in the use of PDF based software. Social Media experience. Attention to detail and accuracy are essential. Knowledge of commercial print requirements. Able to use Excel with all formulas. Ability to create an electronic product brochure. The successful applicant will be numerate literate and able to work under pressure.”22

In the caring professions, which are disproportionately delivered by women, vital skills are routinely undervalued. This feeds into the apprentice rates on offer, despite the responsibilities inherent in such jobs. In childcare, even the lowest level roles are effectively delivering pre-school development

Apprentice nursery assistant

- “Helping to set up activities for the children- Supporting children to engage in activities and participate with

others- Supporting children at meal times and assisting with eating and

drinking- Getting involved in creative and messy play with the children- Helping children to read, sing, count, and join in with

imaginative play- Ensuring the children are safe and supervised at all times- Helping to plan activities and games- Carrying out observations with qualified staff- Tidying away after an activity is finished- Making sure children feel safe, loved, happy and content”.23

21 Source chosen by a random process. Numerous examples can be found on other websites. 22http://www.indeed.co.uk/viewjob? jk=9228a6e7a5e0afda&q=Advanced+Apprenticeships&tk=19tplterq9thkdg323http://www.indeed.co.uk/viewjob? jk=fc7d9d965d860e27&q=Childcare+Apprenticeship&l=Leicester&tk=19tpnc1ge9thk8on&from=web&advn=5244802942831577&sjdu=rdP40qoJYKXsJ8Z7GiztS9KIXmL_MOcnKMnSjBCLX1l4mCVxXDm6l_zFd4BtztjUw6R0Xthirp3qa3MzuwJ2mznQ6TTufw71hSWs12i7hwg9b54G9Al6XDOcdWhw_REufXuTtYymN2m-Low Pay Commission 2015TUC ESAD August 2015 22

By far the biggest class of advertisement for jobs at the apprentice minimum wage are further education colleges recruiting apprentices and then placing them with employers at the apprentice minimum wage. Changes to the funding regime and the apprentice levy should allow them to change their business model to accommodate a higher minimum wage.

Social Media and Digital Marketing (academy college placement)

- “Running social media marketing campaigns- Organising and co-ordinating events- Creating email marketing campaigns- Managing competitions and campaigns to increase customer

engagement- Designing effect web based user experiences”- Reviewing digital marketing analytics- Using imaging, video, website and spreadsheet software.24

Last year we also set out proposals to restrict the use of the apprentice rate. We argued that it should only apply to those undertaking intermediate level apprentices who are aged 16-18 and to 19-20 year olds in the first year of their apprenticeship. In addition, the LPC should give serious consideration to raising the apprentice rate of the minimum wage to the same level as the youth rate, whilst other apprentices should be paid the relevant general age-based rate of the NMW. The creation of a new minimum wage rate for those aged 25 and above raises a new issue. If the focus of apprenticeships policy is now to be on promoting high-quality opportunities for age 16-24 year olds, then it would certainly not appropriate to apply the discounted apprentice rate to older workers in the first year of their course. The prospect of apprentices being paid £3.30 per hour working alongside others on £7.20 opens up an unacceptable potential for exploitation.

j9ZMSGxPIBgDDnW9VMhE4sL79HPdko4&pub=pub-indeed24 http://www.indeed.co.uk/cmp/North-West-Apprenticeships-Academy/jobs/Advanced-Apprenticeship-Social-Media-Digital-Marketing-bade3c96a2b09f78?q=Advanced+ApprenticeshipsLow Pay Commission 2015TUC ESAD August 2015 23

In addition, most apprenticeships only last for one year.25 This format means that workers are productive throughout the duration of their course. Thus there is no reason why they should be paid less than their non-apprentice comparators.

9: Agricultural WagesThe government abolished the Agricultural Wages Board for England and Wales in 2013. Separate boards have been retained in Scotland and Northern Ireland. The Scottish Agricultural Board updated rates October 2014. The NMW adult rate applies in the first 26 weeks of employment, after which the minimum hourly rate rises to £7.14. The Scottish rules also specify a pay premium of 50 per cent for overtime hours.26 Similarly, the minimum statutory rates in Northern Ireland were increased again in April 2015. The Northern Ireland Agricultural Wages Board also sets a range of rates above the NMW for jobs with different skills, ranging from £6.91 for a “standard worker” who has completed 40 cumulative weeks service with the employer to a minimum of £9.34 per hour for a farm manager.27

The Wales Assembly Government opposed abolition, as did the farming community in Wales. The successful resolution of a dispute with the Westminster Government over jurisdiction paved the way for legislation in June 2014 to re-establish a new form of the board in Wales.28 A “Consultation on the Proposals for the Interim Agricultural Wages Order”29 closed in August 2015 and a response is expected in the next Wales Assembly Government session.

25 We believe that the length of apprenticeships falls into two distinct types, amounting in statistical jargon to a bipolar distribution. Most are for one year, but those involving engineering, electrical and a few other skills tend to be longer, with some aerospace apprenticeships still running for up to 5 years, whilst, say, retail apprenticeships are currently taking just 11.3 months to complete. Some idea of the mix of types can be derived from the average length of all apprenticeships, which is 15.9 months. Source: BIS research paper No.205, “Apprenticeship evaluation – learners”, Dec 2014. “https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/387662/bis-14-1208-Apprenticeships-Evaluation-Learners-December-2014.pdf26 Agricultural Wage Order (no 62) Scotland: http://www.gov.scot/Resource/0045/00459062.pdf27 http://www.dardni.gov.uk/awb-rates-of-pay-and-orders28 The Agricultural Sector (Wales) Act 2014. http://www.senedd.assembly.wales/documents/s19521/Agricutural%20Sector%20Wales%20Bill%20As%20Passed.pdfLow Pay Commission 2015TUC ESAD August 2015 24

Agricultural workers in England have to rely on the minimum wage, and thus have less protection than their counterparts in other parts of the UK. The government’s analysis of the abolition of the wages board forecasts that wages would slip downwards in relative terms, albeit relatively slowly.The TUC calls for the reinstatement of protection of farm workers in England. We would also urge the LPC to monitor earnings and probe the quality of compliance in this sector.Gross hourly pay in agriculture (England and Wales)

Median pay – annual change

Bottom decile

England -0.6% £6.44Scotland +1.7% £6.79Wales +1.6% £6.53Source: ONS ASHE survey 2014, table 5.5a. Note: the bottom decile is the figure that the lowest paid 10 per cent of employees earn less than. Farm wages in Northern Ireland are also falling.

The snapshot provided by the 2014 ASHE results (above) suggests a strong degree of divergence and grounds for concern. A fuller study into agricultural wages is urgently needed,

Recommendation: The LPC should commission or recommend a study of the effect of the abolition of the AWB on agricultural wages

29 http://gov.wales/docs/drah/consultation/150511-proposals-for-the-interim-agricultural-wage-consultation-document-en.pdfLow Pay Commission 2015TUC ESAD August 2015 25

10: Tips, gratuities, cover and service charges Tips, gratuities, cover and service charges cannot be used by employers to make up the NMW, but there has been growing concern about the practice of employers getting around this prohibition by charging disproportionate amounts for the administration of tips through payroll. This has been the subject of an effective campaign pertaining to the Pizza Express restaurant chain by the Unite trade union.30 The government is consulting on the issue, with a 10 November 2015 deadline. This provides an opportunity to close off this loophole.Recommendation: The LPC should take the view that such charges should be outlawed.

11: The timing of future increases Timing of future increasesThe NMW first took effect in April 1999. The following year’s increase was delayed until October 2000 at the behest of the Chancellor of the Exchequer, who wanted to see a fuller evaluation of the initial impact of the NMW than a single year would allow.As the government has made the new supplement to the adult rate a Budget issue, it will apply from April 2016 onwards. It will not be effective for some rates to increase in April and other in October in the long term, as this would strongly risk confusing employers and employees alike. Our view is that the dates of the increases should be aligned fairly soon, on a timetable that suits the social partners. It is however important that this process should not delay future rises. There is some merit in returning the anniversary date to April, which is the time when most pay deals take effect. The earliest that this could possibly be done would be in April 2017. However, this will not be an easy process. Many employers in the low paying sectors have moved pay anniversary dates to October in order to match the NMW increase. They will need sufficient time to make preparations for any change, and unions will need time to prepare for the new bargaining cycle and for the additional work that is likely to be involved during the transition, so the earliest possible notice is essential.There are two possible ways that the LPC could facilitate this change without subjecting all those not on the new supplementary rate to an 18-month pay freeze:

30 http://www.unitetheunion.org/campaigning/fair-tips-for-waiting-staff/Low Pay Commission 2015TUC ESAD August 2015 26

Recommend a two-stage increase for the groups of NMW workers who will not receive the supplement. Assuming the earliest possible date, this would mean the first stage applying in October 2016 and the second stage in April 2017.

Publish a separate report later in the autumn before the realignment, recommending all the rates to apply from April the following year.

If the anniversary date were to change to April, then NMW rates would still need to be announced six months before, in order to give employers enough time to prepare for the new rates.

12: The TUC’s rate recommendations The TUC’s targets take account of two new developments, the announcement of the NMW target for older workers and the deep cuts made to tax credit entitlements.The government’s target for the “National Living Wage”The government’s target of a NMW 60 per cent of the median hourly earnings for over 25s by 2020 might be considered by some to be bold.31 According to the EU statistics agency Eurostat, only France and Portugal have currently achieved this level.32

However, we should also consider that by only paying the full adult rate at age 25 the government has adopted the highest age threshold in the developed world, matched only by Greece. In contrast, France pays the full rate from age 18 onwards. The OBR has estimated that the 60 per cent target might lead to a reduction in overall employment levels of around 60,000.33 The TUC’s view is that conventional economic modelling has had a tendency to treat the productivity and demand effects of minimum wages too negatively, with the result that models have had a tendency to predict job losses that do not subsequently materialise. Nevertheless, the LPC should continue to monitor closely the employment effects of all the NMW rates.Increasing the minimum wage for older workers to around £9.00 by 2020 would mean a rise of £1.80 on the 2016 figure, which equates to an average of 45 pence per year.

31 See OBR July 2015, p199 onwards for an evaluation of the economic effects.: http://cdn.budgetresponsibility.independent.gov.uk/July-2015-EFO-234224.pdf32 Eurostat, “National minimum wages in the EU - Monthly minimum wages in euro varied by 1 to 10 across the EU in January 2015,” February 2015, p2. Note that figures are expressed as monthly earnings in Eorostat’s analysis. 33 OBR op cit, p9Low Pay Commission 2015TUC ESAD August 2015 27

Tax credit cutsThe LPC has often been urged to take other changes in public policy into account. The government minimum wage target has to be read in conjunction with its programme of cutting tax credits, which the TUC opposes as it will make many minimum wage workers worse off, especially those with larger families. Research indicates that many workers will lose a lot more than they will gain. For example, a UNISON report set out the implications for a number of different family types. “A family with two children with both adults (over 25) working 35 hours a week on the NMW is set to lose £1,615 a year. This household would have been £850 better off had there been no changes to tax credits.”34

 Furthermore, those under 25 will be hit even harder as they will not benefit from the increase in the minimum wage to £7.20 an hour: “A family with one child with one earner under the age of 25 on the NMW working 35 hours a week is set to lose £1,460, while the same family with one earner over 25 will be £1,277 worse off.”

The Resolution Foundation35, Social Market Foundation36 and Institute of Fiscal Studies37 have all delineated the extent to which the budget changes will generate losers as well as winners. Whilst the changes play out differently for various family and employment combinations, many people will either have no increase in their standard of living or be worse off. The moral imperative for the NMW to do as much as it can is sharpened by the winding back of public help for low paid workers.

Setting new targets for the minimum wage rates: TUC recommendations

34 “Don’t take the tax credit – how a pay rise became an income cut”, UNISON, 2015 https://www.unison.org.uk/content/uploads/2015/09/23395.pdf35 C.D’Arcy, A.Corlett, L. Gardiner, “Higher ground: who gains from the National Living Wage”, Resolution Foundation, September 2015.36 B.Rchards, “Will the new Living Wage make up for the cuts to Tax Credits? Yes and No”, Social Market foundation, July 2015.37 W.Elming, C.Emmerson, P.Johnson, D.Phillips, “New analysis of the potential compensation provided by the new ‘National Living Wage’ for changes to the tax and benefit system”, IFS, September 2015.

Low Pay Commission 2015TUC ESAD August 2015 28

Given good economic growth and employment levels with wages recovering and expected to rise further, the 60 per cent median target can be reached without generating any negative labour market impacts. Indeed, the TUC’s aspirations are to go further. The 2014 TUC Congress set the goal that the NMW should reach £10 per hour as quickly as possible. In our view the LPC needs to forge ahead with a series of increases that significantly exceed the growth in average earnings. Moving too cautiously in the early part of the period risks leaving too much to do in later years. It is also crucially important on the grounds of fairness and avoiding unjustifiable age discrimination that younger workers and apprentices are not left behind. Furthermore, the UK economy would miss out on their spending power if their incomes were to grow too slowly. There may also be wider economic impacts of a growing age divide. There is significant concern that opening up a wider gap between the minimum rates for younger and older workers might be likely to lead to some negative effects around hiring decisions and the nature of the working relationships between of people from different age groups, especially in cases where they are undertaking similar or identical jobs.The labour market position of 21-24 year olds is greatly strengthened. As discussed in section 6, the TUC argues that this group could simply receive the NMW supplement in full. Clearly the respective rates for those aged 16-17 and 18-20 need to increase as rapidly as can be sustained in order to close the gap with older workers as much as possible.The rate for adult workers will increase by 7.5 per cent in April 2016. The TUC argues that the rate for those aged 25 and above should increase by a further 50 pence per hour or more in 2017. To maintain fairness, all the rates for younger workers should increase by at least a similar percentage. Indeed, we argue that the LPC should try to narrow the gap. Furthermore, as previously discussed, the TUC’s view is that the apprenticeship rate is still significantly too low. This represents a danger to the integrity of the minimum wage. The government already offers substantial subsidies to employers to take on apprentices and the amount is set to increase. The LPC should therefore review whether the apprentice rate could be rapidly increased to the same level as the youth rate without negative Low Pay Commission 2015TUC ESAD August 2015 29

consequences. The case for this course of action is strengthening with, for example, the Engineering Employers Federation in favour of moving up to the youth rate straight away. 38

Second, there remains no justification for allowing a lower minimum rate for apprentices who have completed an intermediate level apprenticeship, since by that stage they are already worth at least as much to employers as a non-apprentice worker paid at the relevant age-based minimum wage rate. Thirdly, there should be no doubt that the new supplementary rate for older workers should apply to older apprenticesThe apprentice rate should only apply to those undertaking intermediate level apprentices who are aged 16-18 and to 19-20 year olds in the first year of their apprenticeship. In addition, the LPC should recommend setting the apprentice rate of the minimum wage at the same level as the youth rate. Other apprentices aged up to 21 should be paid the relevant general age-based rate of the NMW. .Those aged 25 and above should be paid the NMW supplement in full and the supplement applied to 21-24 year olds.

Recommendations The LPC should recommend rates that will rapidly strengthen the NMW. The target of 60 per cent of median earnings is achievable. Indeed, the TUC’s goal is to take the NMW to £10 as quickly as possible. The rate for workers aged 25 and above should increase by 50 pence or more in April 2017.

21-24 year olds should be paid the full NMW rate including the supplement.

In April 2017 the rate for younger workers should increase by at least the same percentage as the rate for workers aged 25 and above. The LPC should seek to narrow the gap between adults and the rates for younger workers as quickly as can be sustained.

It should be made clear that the full rate for those aged 25 and above also applies to older apprentices who are not in the first year of their apprenticeship.

38 EEF, 25 September 2014 http://www.eef.org.uk/campaigning/news-blogs-and-publications/blogs/2014/sep/boost-pay-to-apprenticesLow Pay Commission 2015TUC ESAD August 2015 30

The LPC should consider whether the apprentice rate could be raised to the level of the young workers rate.

The apprentice rate should only apply to those undertaking apprentice at intermediate level, and should be restricted to those who are aged 16-18 and to 19-20 year olds in the first year of their apprenticeship.

The anniversary dates of all the minimum wage rates and the supplement should be aligned. If this is to happen from 2017 onwards, then the current review should consider rates for October 2016 that would reflect this change. There would need to be a staged increase for younger workers and apprentices, with rate rises in October 2016 and April 2017 so that younger workers are not be left further behind. As the transition will be difficult for some stakeholders, there should be as much notice as possible.

13 Awareness and enforcement issuesAwareness of NMW rights and how they can be enforced has declined amongst employees, despite our own efforts to disseminate this information and some welcome remedial action by government.The annual government £1 million budget for advertising and disseminating details of the NMW was cut to zero after the 2010 election. More recently, some funding for dissemination has been restored, but at a much lower level. BIS and HMRC have also given more attention to generating media stories around the minimum wage, and government has “named and shamed” a couple of hundred underpaying employers. It has greatly increased the maximum civil penalty on employers to £20,000 per underpaid worker. In September 2015 the government announced that “the calculation of penalties on those who do not comply will rise from 100% of arrears to 200%. This will be halved if employers pay within 14 days. The overall maximum penalty of £20,000 per worker remains unchanged.”39

These measures have sent a useful message to employers about the importance of understanding the NMW and complying with its requirements.

39 https://www.gov.uk/government/news/measures-to-ensure-people-receive-fair-pay-announcedLow Pay Commission 2015TUC ESAD August 2015 31

However, these efforts are not sufficient to get the full details of the NMW to employers and workers. More funding is still urgently needed for dissemination, as is improved tracking of public awareness of the details of the minimum wage. On a number of occasions the TUC has called for a review of the official guidance on the advice website Gov.UK. The government’s recent announcement promised better guidance for employers. The LPC, the TUC and other stakeholders should all be fully consulted on its future content. Government funding for enforcement has increased twice in the past two years, and it was recently announced that it would increase again in the coming year.40 This is a welcome development, but it does not mean that funding for enforcement is yet sufficient or that there are enough compliance officers to ensure that workers always get the NMW. There is no accurate way of measuring underpayment of the NMW, but the TUC has made a range of estimates with varying assumptions41. The lowest suggests that 250,000 workers are not paid the minimum wage which they are entitled to. Funding for enforcement work should continue to increase in future years, so that all minimum wage workers can receive what they are due. In early 2015 the previous government introduced new operating standards for minimum wage enforcement. To address concerns about redress taking too long, it was specified that enforcement investigations should not take longer than one year to complete. This was a well-meaning initiative, but the TUC has received some reports that more complex (but viable) investigations may be curtailed in order to meet this target. In order to evaluate “naming and shaming”, a summary of cases should be published, specifying:

The numbers of employers “named and shamed”. The number of cases where arrears were too small for

publication (below the de minimus level of £100). The number of cases exempted on the three grounds set out in

the BIS policy (risk of personal harm, involved in the witness

40 Ibid41 Using the ONS pay data, the TUC subtracts those who may be legally paid less than the NMW because of exemptions or the accommodation offset. An estimation is then added for those not covered by the official figures, including workers in the grey economy. Low Pay Commission 2015TUC ESAD August 2015 32

protection scheme, national security), which we believe should amount to just a handful each year.

The TUC’s view that there should be a new prosecution standard focusing on repeat NMW offenders, those who deliberately keep fraudulent records and/or those who obstruct HMRC investigations. “Naming and shaming” does not reveal the details of the offence. The standard format of announcements is that “x employer failed to pay £y to z number of workers”. This does not reveal the motives involved in the offence or how workers felt about being treated badly. This is a much less powerful form of public justice and thus in many ways is less of a deterrent than a criminal conviction. The court process carries some negative implications for employers that civil penalties do not achieve. The government has also promised to consult on a new offence of “aggravated breach of labour market legislation”.42 This is potentially a welcome development, although the details are still to be announced. To make prosecutions work the government also needs to raise the maximum penalties available to the courts, including the possibility of imposing custodial sentences, so that the law can deal effectively with the worst cases. Furthermore, legal gateways should be created to allow HMRC to exchange case information with local authorities and Maritime and Coastguard Agency, who enforce the NMW for seafarers, in order to uphold the law.HMRC should also be able to enforce minimum statutory holiday rights. TUC research suggests that at least 1.7 million workers are currently losing out on the minimum entitlement.43 At the moment, HMRC can only enforce the NMW rate. If the minimum wage worker has not been able to have the minimum statutory amount of holidays then they are left to take their own case to an employment tribunal. This is has been reported by unions as an issue amongst vulnerable workers that they are trying to recruit. It is a significant loophole that allows employers to cut up to 10.8 per cent44 from minimum wage workers’ earnings with little fear of reprisals.

42 https://www.gov.uk/government/news/measures-to-ensure-people-receive-fair-pay-announced43 A summary of the report (30 July 2015): https://www.tuc.org.uk/workplace-issues/employment-rights/working-time-holidays/17-million-people-missing-out-their-paid44 5.6 weeks statutory entitlement as a percentage of the 52 week year.Low Pay Commission 2015TUC ESAD August 2015 33

Whilst the holidays “scam” has long been a feature of too many temporary jobs (and some permanent ones), this year we have also started to hear from unions about employers with contracts for 48 weeks work. These workers are effectively laid off for 4 weeks unpaid leave. Our view is that this is currently illegal, but the only remedy is to take a case to employment tribunal. These workers are said to find this too difficult and expensive. The minimum wage is enforced either by complaint to HMRC or by workers and their representatives taking claims to employment tribunal. There is an ongoing concern that employment tribunal fees are deterring national minimum wage cases, not least because the average amount owed per worker (£150)45 is actually substantially less than the fee to lodge the case (minimum £390).46

There is also concern that not all the arrears identified by HMRC are recoverable. Some employers go bankrupt to avoid arrears, whilst others effectively disappear. In these cases, underpaid workers simply lose out, with no recourse to justice. The government should guarantee the minimum wage in such cases, subject to safeguards to protect against any unfounded claims. There is already precedent for this kind of measure in the form of the State Guarantee Fund for Redundancy and Insolvency.47

There must also be sustained and ongoing attempts to enforce the minimum wage, covering employers who try to deny workers the NMW by wrongly calling them self-employed, interns or volunteers; groups that are excluded from the full protection of the act (such as domestic workers living on the employers premises and many seafarers); and high-risk sectors of employment, including younger workers, migrants and those in certain high risk industries.

In addition, there is very serious concern about the social care sector. This sector is already under strong financial constraints and a high degree of NMW non-compliance has been identified. This pressure can only be intensified by the drive to a higher NMW. Targeted enforcement in this sector should continue. However, a longer term solution involving more equitable funding is also badly needed.

Furthermore, apprentices currently make up 3 per cent of the employee workforce but feature in 25 per cent of NMW enforcement

45 BIS op cit.46 https://www.gov.uk/employment-tribunals/make-a-claim47 https://www.gov.uk/your-rights-if-your-employer-is-insolvent/claiming-money-owed-to-you. Claims against the fund can be made using insolvency service form RP1.Low Pay Commission 2015TUC ESAD August 2015 34

cases. As discussed in section 7, there is already a disproportionate incidence of underpayment for this group of workers and there is a significant risk that the addition of a new rate band for adults may add to existing non-compliance. Taken as a whole, the situation demands that the employers of apprentices be subject to targeted enforcement.

The story of minimum wage enforcement has also been one of the LPC, the TUC, trade unions and respectable employers and their organisations seeking to improve the way that the law is enforced, and of government adopting many of the ideas that this process has generated

However, the task of fully enforcing the NMW is one that will never be completed, as rogue employers actively seek ways to get round the legislation. Thus we celebrate the gains that we have made, but we do not rest while many workers are still losing out.

Awareness and enforcement recommendations:

The budget for NMW dissemination and enforcement should continue to increase in future year, so that all minimum wage workers can get their due.

The Government’s guidance on the NMW should be reviewed with input from the LPC and stakeholders.

The proposed new offence of aggravated breach of labour market legislation must deliver at least six NMW case per year, and the penalties must be sufficiently high so as to act as an effective deterrent.

The LPC should recommend that the financial thresholds for naming and shaming underpaid employers are significantly reduced, to £1,000 per offence and £250 per worker, and subsequently kept under review.

Government should guarantee the payment of minimum wage arrears in cases where they cannot be recovered.

A new legal gateway should be created so that HMRC can discuss minimum wage cases with local authorities or the MCA.

There must be sustained and ongoing attempts to enforce the minimum wage, covering both employers who try to deny workers the NMW by wrongly calling them self-employed, interns or volunteers, groups that are excluded from the full protection of the act, such as domestic workers and seafarers, and high risk sectors of

Low Pay Commission 2015TUC ESAD August 2015 35

employment. Targeted enforcement in the social care sector should

continue, but a longer term solution involving more equitable funding is also needed.

Apprenticeships should also be subject to targeted enforcement.

Low Pay Commission 2015TUC ESAD August 2015 36

14: Summary of recommendations The LPC should recommend rates that will rapidly

strengthen the NMW. The target of 60 per cent of median earnings is achievable. Indeed, the TUC’s goal is to take the NMW to £10 as quickly as possible.

The rate for workers aged 25 and above should increase by 50 pence or more in April 2017.

21-24 year olds should be paid the full NMW rate including the supplement.

In April 2017 the rate for younger workers should increase by a higher percentage than the rate for workers aged 25 and above. The LPC should seek to narrow the gap between adults and the rates for younger workers as quickly as can be sustained.

It should be made clear that the full rate for those aged 25 and above also applies to older apprentices who are not in the first year of their apprenticeship.

The LPC should consider whether the apprentice rate could be raised to the level of the young workers rate.

The apprentice rate should only apply to those undertaking intermediate level apprentices who are aged 16-18 and to 19-20 year olds in the first year of their apprenticeship.

The anniversary dates of all the minimum wage rates and the supplement should be aligned. If this is to happen from 2017 onwards, then the current review should consider rates for October 2016 that would reflect this change. There would need to be a staged increase for younger workers and apprentices, with rate rises in October 2016 and April 2017 so that younger workers are not be left further behind. As the transition will be difficult for some stakeholders, there should be as much notice as possible.

The LPC should commission or recommend a study of the effect of the abolition of the AWB on agricultural wages.

Recommendation: The LPC should take the view that such charges should be outlawed.

The LPC should explore with government and stakeholders the possibility of further measures to improve productivity in the low paying industries.

Low Pay Commission 2015TUC ESAD August 2015 37

The budget for NMW dissemination and enforcement should continue to increase in future years, so that all minimum wage workers can get their due.

The Government’s guidance on the NMW should be reviewed with input from the LPC and stakeholders.

The proposed new offence of aggravated breach of labour market legislation must deliver at least six NMW case per year, and the penalties must be sufficiently high so as to act as an effective deterrent.

The LPC should recommend that the financial thresholds for naming and shaming underpaid employers are significantly reduced, to £1,000 per offence and £250 per worker, and subsequently kept under review.

Government should guarantee the payment of minimum wage arrears in cases where they cannot be recovered.

A new legal gateway should be created so that HMRC can discuss minimum wage cases with local authorities or the MCA.

There must be sustained and ongoing attempts to enforce the minimum wage, covering both employers who try to deny workers the NMW by wrongly calling them self-employed, interns or volunteers, groups that are excluded from the full protection of the act, such as domestic workers and seafarers, and high risk sectors of employment.

Targeted enforcement in the social care sector should continue, but a longer term solution involving more equitable funding is also needed.

Apprenticeships should also be subject to targeted enforcement.

Low Pay Commission 2015TUC ESAD August 2015 38