December 03 2023

Minimum wage needs to be enforced

Minimum wage needs to be enforced

Back in March, I wrote here about the apparent policy vacuum at the heart of a speech to the Resolution Foundation think tank by the Conservative skills minister, Matthew Hancock MP, setting out his party’s agenda for tackling low pay. Whilst Mr Hancock generated some excitement amongst the policy wonks present by talking of ‘strengthening the National Minimum Wage’, when questioned he seemed to have little if any idea how this sound bite might be translated into actual policy.

This week, however, there was a flurry of press and media reports that the Conservative Party is in fact seriously considering a substantial hike in the National Minimum Wage as a manifesto commitment for 2015. Perhaps I was too harsh on the allegedly highly influential Mr Hancock.

Whatever, on Wednesday, as the Resolution Foundation published a depressing report showing that 4.8 million British workers now earn less than the Living Wage, it was the turn of Rachel Reeves MP, shadow chief secretary to the Treasury, to set out Labour’s agenda. The education minister David Laws MP did so for the Liberal Democrats in June.

Having decided to forego the Resolution Foundation’s coffee and glorious rooftop views, I was following the event live on Twitter. And the first tweet to grab my attention was one reporting Ms Reeves’ claim that, as the Coalition has focused on the fortunes of those at the top, ‘not one firm has successfully been prosecuted for non-payment of the National Minimum Wage over the past two years’.

Leaving aside the issue of ugly syntax, this claim is both untrue and somewhat disingenuous. It was first made, in the House of Commons, in early March this year by the shadow immigration minister Chris Bryant MP, and was then taken up two days later by the shadow home secretary, Yvette Cooper MP, in an otherwise rather good keynote speech on immigration. Mr Bryant was in full outrage mode:

‘In the last two years, there has not been a single prosecution for breach of the minimum wage, even though 13% of those working in care homes in this country are on less than the National Minimum Wage. Is it not time the Government sorted that out?’

Clearly, Mr Bryant’s researcher hadn’t done their homework (or, at least, had handed it in too soon). Because there has been one prosecution in the past two years, and it concluded just days before Mr Bryant made his claim (and a full week before Ms Cooper delivered her speech). On 26 February 2013, at Wood Green Crown Court, Kenneth Ikerunanwa was fined £1,000 after pleading guilty to failing to pay the National Minimum Wage (NMW) to the security guards he employed. He was also sentenced to 18 months’ imprisonment, suspended for two years, for under-declaring VAT due, and was ordered to pay £20,000 compensation and £1,000 costs.

In any case, it was disingenuous of Ms Cooper and Mr Bryant to make so much noise on this point, because such prosecutions were almost as rare under the previous Labour government. The very first prosecution for non-compliance with the NMW took place only in 2007, a full eight years after the NMW Act 1998 came into force in April 1999. To date, there have only been nine such prosecutions – less than one a year, on average.

Which is not necessarily a good reason to be critical in any case. In 1999, the then Labour government deliberately created a ‘light touch’ regulatory regime for the NMW, based on HMRC securing compliance (including payment of arrears to workers) without resorting to resource-draining prosecutions in the courts. Indeed, it is at least arguable that every prosecution represents a failure of that enforcement regime, as designed by Labour – so the fewer prosecutions there are, the better. Certainly, the number of prosecutions is not a very helpful yardstick.

What matters most is whether rogue employers believe there is a real risk that they will be investigated by HMRC, and that depends upon the financial resources made available to HMRC for gathering intelligence, and for investigations and workplace inspections. And, on that, both Ms Cooper and, this week, Ms Reeves were disappointingly silent.

Which is not to say that the penalties for non-compliance with the NMW should not be increased. To my mind, the £1,000 fine handed out to Kenneth Ikerunanwa is woefully inadequate. But it is too easy for Labour shadow ministers to talk about tacking low pay by increasing the penalties handed out in what will always be just a handful of NMW cases, with little if any deterrent effect on the great majority of rogue employers.

The bottom line is that more effective enforcement of the NMW requires more boots on the ground.  And that, unlike the soft option of increasing penalties, requires more money.  Over to you, Ed Balls.