Ian McCartney - Former Minister of State for Competitiveness (May 1997 - Jun 1999)

Speech to the British Youth Council

As a former low-paid worker myself, I campaigned hard for a minimum wage while I was an opposition spokesperson.

We came into government to "make a difference". And a difference we have made, even though in Parliament the Opposition has fought our legislation tooth and nail.

The minimum wage is part of the Government's overall employment relations strategy.

The three key aims of our strategy are:

- greater flexibility and adaptability at work;

- greater sense of partnership between employers, their workforce and the representatives of the workers; and

- fairness at work for all.

We believe that all employees deserve good terms and conditions of employment and that, of course, includes reasonable rates of pay.

Unfortunately, however, there are some employers who will not provide fairness or good terms and conditions for their staff. That is why we are putting in place a range of minimum legal standards at work.

One of the major parts of our policy of introducing minimum standards was the introduction, for the first time ever in the United Kingdom, of a statutory national minimum wage.

After all, what could be more unfair than poverty pay?

UK workers are at long last enjoying the benefits which the minimum wage gives - benefits which were long ago recognised in other countries like the United States.

The national minimum wage is also part of a family of measures designed to enable people to move into work. These include the Government's Welfare to Work policy which embraces the New Deal arrangements.

This offers the nation's young and long-term unemployed people a New Deal, funded by £3.9 billion from the windfall tax for the Government's Welfare to Work proposals.

You may have seen the Prime Minister on television last night. He was talking about what a great success the new Deal has been. Long-term unemployment amongst young people has fallen 60% since we were elected in May 1997.

100,000 young people have now found a job through the New Deal. And over 400,000 new jobs have been created since Labour came to power.

The New Deal offers those young people between the ages of 18-24, who have been unemployed for more than six months, intensive tailored counselling of up to 4 months on finding a job - and specialist help if necessary.

This is followed by one of four options:

- a job with an employer;

- work in the voluntary sector for 6 months;

- work in the environmental task force for 6 months;

- or full-time education and training.

Each option will be of high quality and will make a significant difference to the young person's ability to find work and then to remain in employment.

The vast majority of young people have welcomed the help on offer. We want to see the New Deal get better and better, and the Prime Minister announced last night that his Task Force will be looking at this.

In addition to what is offered to young people, from June 1998, employers have been offered subsidies to take on people aged 25 and over who have been unemployed for two years or more.

And the rules have been amended to allow people in this group to study full-time on Job Seekers Allowance for up to one year.

Justifications for the minimum wage

Why do we need the minimum wage?

There is a strong social justice case for the minimum wage. It forms a vital element in the determination of this Government to be a force for progress. Before the minimum wage, around 2 million workers earned less than they do now.

Every worker, we believe, has a right to expect a reasonable standard of living for themselves and their family, and to feel entitled to a fair share of the wealth that their work helps to create.

There must be fair and decent conditions for all workers.

But there is the second and equally important justification for the Government's minimum wage policy - an economic one.

Businesses as well as their employees have much to gain from the implementation of a minimum wage.

The majority of employers have always been fair and reasonable and would like to pay their workforce a fair wage, but many were held back from doing so for fear of being undercut on their prices by their low paying competitors.

They could not risk paying more than their competitors for fear of losing business, but found it difficult to recruit and retain suitable staff with the very low pay rates they were forced to offer.

In other words, it is important to do what we can to ensure a "level playing field".

In the knowledge that their competitors are having to pay the same minimum wage, firms can compete with confidence on the basis of efficiency and quality of the goods and services they provide, and not on low prices based on rock-bottom wage levels.

Many employers are telling us about non-payment of the minimum wage by their competitors. They are, quite rightly, incensed that other companies are competing unfairly.

Low Pay has a number of undesirable effects including :

- low worker morale;

- high rates of staff turnover;

- uncommitted, possibly resentful, staff;

- poor staff motivation.

It is impossible for firms run on these lines to be a success.

The minimum wage aims to reduce staff turnover. Rapid turnover of staff in low pay sectors is a key reason why employers are reluctant to invest in training. There is little incentive to train employees if the skills acquired are likely to be lost to the firm.

Training

Employees are a company's most important asset. Companies more than ever require people with skills and initiative at every level of their organisation.

We believe that with the minimum wage in position, firms who did not previously do so will be encouraged to pay much greater attention to staff development.

Too many employees have been not merely underpaid, but also underskilled and undervalued.

So what's happened so far?

So what's happened so far? A lot has happened since May 1997 when we were elected. The independent Low Pay Commission was set up with members drawn from employers, unions and elsewhere.

The Commission conducted a wide ranging consultation and fact-finding exercise and reported its findings - which were accepted by the Government in June 1998.

The National Minimum Wage Act went through Parliament. The Department of Trade and Industry produced the Regulations which gave effect to the minimum wage - again consulting widely as it did so.

Guidance booklets and leaflets were produced, helplines established and an enforcement agency set up.

Implementation on 1 April was accompanied by a £5m publicity campaign, including television advertisements, which ensured that workers were aware of their rights and employers understood their responsibilities.

New research has shown that 95 per cent of employers are aware of the minimum wage - so ignorance is no excuse for scrooge employers not to pay up.

Enforcement of the Minimum Wage

I believe the enforcement arrangements we have set in place are working very effectively.

Up to now, over 600 cases of possible underpayment are being investigated by the wage enforcement teams from the Inland Revenue.

And I would say this to any employer who thinks he or she is going to get away with paying below the minimum wage - even if you think you have got away with non-payment of your TV licence for the past 20 years - don't think your luck will extend to avoiding the minimum wage.

Sooner or later, and more probably sooner rather than later, you will be found out!

The Act protects workers against suffering a detriment or dismissal because they qualify or will qualify for the minimum wage.

Recently I was able to welcome the news that the Liverpool Employment Tribunal had handed down the first decision involving the national minimum wage.

The case involved a hairdressing employee. Her employer, instead of concentrating on cutting hair, had cut the employee's hours to offset the increased costs resulting from the hourly rate for the minimum wage.

The worker claimed her terms and conditions of service had thereby been varied unilaterally and brought a complaint of constructive dismissal before the employment tribunal. She won!

We have asked the independent Low Pay Commission to monitor and evaluate the impact the minimum wage has had and to report its findings in December this year.

The Commission will be looking in particular at the effects on pay, employment and competitiveness and on particular groups of workers including young people, women, ethnic minorities training and the position of 21 year olds.

If the Commission's report identifies issues which impact on the legislation we will consider them.

In the Terms of Reference given to the Low Pay Commission when it was set up, the Government asked it to make recommendations on lower rates or exemptions for those aged 16-25.

The minimum wage now up and running exempts 16 and 17 year olds and pays those aged 18-21 a lower rate (£3.00 per hour compared with £3.60 per hour for those aged 22 and over).

Many people argue that young workers should be paid the same national minimum wage rate as older workers - especially when both young and older people are working together, doing the same job.

First, let me say there is nothing new about the setting of different rates of pay for young people - either in statutory or non-statutory pay fixing arrangements.

Before 1986 the Wages Councils set age-related minimum rates and, until the Councils were abolished, workers under 21 years of age were excluded.

Age related minimum wage rates are also commonly in force abroad.

The reason the Government asked the Low Pay Commission to give this area careful examination was because it did not wish to see the national minimum wage provide a disincentive for young people to stay on in education and training or run the risk of restricting employment opportunities for those looking for jobs.

Experience from abroad shows us that where there is any negative impact of minimum wage fixing on jobs, it is felt most keenly by the younger age groups.

By setting the young persons rate at £3.00 per hour, we are simply being cautious and further reducing the possibility that the minimum rate will adversely affect take up by firms of the New Deal for Young People.

We had to be careful not to restrict employment opportunities for young people, given that the average wages paid to younger workers - who are often in the process of gaining skills and work experience - are lower than those paid to older workers. We believe we have gone the right way about this.

This is something the Low Pay Commission will be putting under their microscope over the coming months and reporting on in December.

Impact of Minimum Wage on employment

Many opponents of the national minimum wage policy claimed in the past, that it would have a damaging effect on job prospects.

We always believed that a rate set at a sensible level would not have such an effect. Reports show that since June 1998, when the date of the implementation of the national minimum wage was set along with the main rates, many firms started adjusting their pay structures to comply in advance.

Small firms

There are those who argued that small firms should be exempted from paying minimum wages. We resisted this suggestion, not wanting to see small firms perpetuated as some sort of low pay ghetto.

But recently the Federation of Small Business carried out a survey which showed that the majority of small firms were paying their staff, on average, £4.69 per hour. Little need there, then, for them to have been exempted from the legislation!

Conclusion

More and more people are now coming to see the sense of our minimum wage policies and you would be hard put to it these days to find many people prepared to stand up and say that it should be scrapped! There are even reports that the Conservatives have accepted the policy now that it is seen to be such a success.

I look forward to hearing your views.

Other speeches by Ian McCartney - Former Minister of State for Competitiveness (May 1997 - Jun 1999)

(the following are available from the archive)
• Launch of NMW Best Practice Materials (07/07/99)
• 'Institutional And Organisational Obstacles To Labour Market Participation' (05/07/99)
• "Stimulating Inward Investment within the North West" (17/06/99)
• Speech to Allied Distillers (04/06/99)
• Address to the AnUMan "Partnership in Practice" Conference. (27/01/99)
• Speech to the ICAEW (30/11/98)
• Working Time Directive (26/10/98)
• Speech to the Communication Managers' Association Annual Conference (11/05/98)
• Post Office Review (24/11/97)
• GFTU Conference (12/05/97)