National Minimum Wage (Amendment) (No. 2) Regulations 2010

My Lords, I, too, welcome the statutory instrument before us, which proposes to make a change so that payments by an employer for travel expenses to a temporary workplace which are eligible for tax relief will not count as pay for national minimum wage purposes. I certainly endorse the comments made by my noble friend Lord Jones, and I shall come later to the tour de force and analysis from my noble friend Lord Myners. It is right to remind ourselves that the national minimum wage was introduced by the Labour Government in 1999 in spite of all manner of scaremongering. I remember talk from some sections of the right-wing press of 2 million jobs being at risk, and of course the legislation was opposed by the Conservative Party at the time, so we welcome the conversion, although I would not call it a pauline conversion. When it was introduced, the minimum wage raised pay for more than 2 million people. Thereafter, the Labour Government ensured that there were regular above-inflation increases so that, in the first 10 years of its existence, the national minimum wage rose by 59 per cent. Those increases raised the living standards of the lowest paid and helped to close the gap between men and women’s pay. We should not forget those fundamental changes that took place. I certainly endorse the point that my noble friend Lord Myners made about the importance of compliance and enforcement. It took us a while before HMRC and the employment agency services group got around to ensuring that they prosecuted those people who failed to pay the minimum wage. I would welcome some reassurance on that. I very much hope that the coalition parties will continue our policy—to endorse again a point made by my noble friend Lord Myners—of increasing the national minimum wage at or above the level of inflation. I also hope that there is no intention on the coalition’s part to allow the national minimum wage to wither on the vine. I express those fears because we have already seen the coalition Government decide to use the consumer prices index instead of the retail prices index to calculate rises in pensions and benefits, which will gradually erode pensioners’ income. How does the use of such a scheme affect the workers? I pay tribute to the helpful analysis of the Merits of Statutory Instruments Committee, which gave us a useful assessment of the effect on workers and their take-home pay. Just as important is what it will mean for them in future entitlements. If the money that one takes home equates to the minimum wage and is made up partly of wages and partly of an amount for travel, the actual wage is rather less than the minimum wage. In cases that Her Majesty’s Revenue and Customs has seen, workers who are paid the national minimum wage and who use a travel and subsistence scheme can find that as much as 40 per cent of their wages are paid as travel and subsistence expenses. In making up our mind about whether we should support the proposed instrument, one of the things that certainly influenced us was that the Low Pay Commission, the Equality and Human Rights Commission and the Gangmasters Licensing Authority all endorsed it, as the Minister said. Over the past five years the HMRC compliance teams have interviewed an estimated 400 to 500 workers, the majority of whom were paid at or near the minimum wage. Virtually none of them understood in any meaningful way the contractual terms of their engagement. The possibility of exploitation is a real worry. The access to earnings-related contributory benefits, which is based on a worker attaining the qualifying earnings factor, can therefore be affected. The effect of participating in travel and subsistence schemes is to reduce the amount of a worker’s pay on which national insurance contributions are paid, depending on how many weeks they are unable to work for, and puts at risk their ability to achieve the qualifying earnings factor. That is most likely to affect eligibility for both basic and additional state pension. I understand from the impact assessment that the schemes we are discussing are likely to involve some 90,000 out of a possible 1 million people. I would like some confirmation of that. It endorses another point that my noble friend Lord Myners made. The change proposed in the legislation could have a negative impact on some workers who are currently in such travel and subsistence schemes because only part of the amount that a worker takes home is pay, and gross pay is assessed for tax purposes. Some workers, because they receive less pay, may be entitled to more working tax credit. Under the regulations, some people could find that they are entitled to less working tax credit because more of their take-home money will be pay. However, such individuals have until now had an advantage over other workers with similar levels of income who are not in such schemes. This legislation will end the unfairness that travel and subsistence schemes create. We endorse the point that the Minister made: workers who participate in them artificially benefit from enhanced eligibility for tax credits, compared to other workers who do not or cannot participate. What steps will the Government take to ensure that any workers whose eligibility for working tax credit will be affected are properly informed about the change? That is important. We know that tax credits have been a huge boost to those on low incomes and have been recognised as helping to reduce the gap between rich and poor. I am sure that I am not the only Peer who has had to deal with people whose circumstances have changed and where workers are then faced with a clawback, where they must pay back an overpayment of tax credit. I stress that we want to know what the Government will do to ensure that anyone affected by the measure is kept fully informed and does not end up, months down the line, in a situation of being asked to pay back money that they simply do not have. That said, we support the motivation behind this statutory instrument because we believe that it will prevent exploitation and ensure that the contributory benefit position of temporary workers paid at or near the national minimum wage is not prejudiced by the reduction of earnings liable to pass on national insurance contributions. We also support it because the intention is to ensure that employment businesses and umbrella companies do not gain an unfair competitive advantage through the use of travel and subsistence schemes for temporary workers. I, too, look forward to the answers to the issues raised by my noble friend Lord Myners.