Speech

Making work pay in a modern economy

Business Minister Margot James speaks about pay and employment at the launch of the Resolution Foundation’s report on low pay.

Margot James MP

Hello everyone, thank you for inviting me. Today is an auspicious occasion for 2 reasons:

  • the first being the launch of your report which I’m looking forward to reading
  • and the second is this is one of my first speeches as Minister for Small Business, Consumers and Corporate Responsibility in the new Department of Business, Energy and Industrial Strategy

I’m pleased that it’s on a topic as fundamental as pay.

It’s what measures our efforts, we rightfully expect that when we work hard we should be paid to reflect that work.

Although we know that this isn’t always the case. Your work on living standards and how societal changes affect people at different wage levels has been enlightening.

I’m sure your latest report on low pay is no exception, and I want to thank you for your continued work in this area.

It’s an area the government has been working on, too.

Our National Minimum Wage is rightly celebrated as one of the most successful government labour market policies in recent history.

It’s been widely considered to have ended exploitation pay of some of the most vulnerable workers in our society – a point which you have not addressed in this year’s report because it’s on its way to being wiped out:

  • in the recession it protected the pay levels of low-paid workers
  • earlier this month we increased the main hourly rate, now applicable to 21 to 24 year olds, to £6.95, meaning the National Minimum Wage is at its highest ever level in real terms
  • with careful consideration by the Low Pay Commission, increases in the minimum wage have not come at the cost of employment.

But as our economy recovered and GDP increased, we needed to make sure that the lowest paid in society received their fair share of this economic growth.

So we introduced the new National Living Wage in to law. Now, a full-time low-paid worker aged 25 and over earns around £900 more this year than they did last year.

It’s a more forward-looking policy than its predecessor and is part of our long term strategy to tackle low pay.

We continue to think about their future. We have asked the expert Low Pay Commission to increase the Living Wage to 60% of median earnings by 2020 subject to sustained economic growth.

It would mean over 2 and a half million low wage workers are expected to benefit directly from the NLW by 2020, and more could see their pay rise.

And, whilst we await their recommendation, I want to reiterate that we are fully committed to increasing wages for the lowest paid. We value the commission’s judgement and expertise and its excellent work on the National Minimum Wage – showing that wage rises can go hand in hand with rising employment.

We’ve also raised income tax thresholds, meaning employees on low pay get to keep more of their pay.

In total, 31 million individuals will be seeing a reduction in income tax in 2017 to 2018. 1.3 million of these people will be taken out of income tax all together, while basic rate payers will be more than £1,000 better off than they were 5 years ago.

But it isn’t enough to say “we want to make sure people are paid fairly”, then expect it to happen overnight. We need to help businesses wherever we can to put it in to action.

We’re cutting taxes and employer National Insurance through the Employment Allowance and Corporation Tax.

The Employer Allowance has increased from £2,000 to £3,000, benefitting up to 500,000 employers, meaning a business can employ up to 4 people full time on the new National Living Wage without paying National Insurance Contributions.

Corporation Tax will have been cut from 20% to 17% by the end of the Parliament, giving the UK the lowest rate of corporation tax in the G20.

And the recent Budget delivers the biggest ever business rates reduction, cutting the burden by £6.7 billion over the next 5 years, ensuring 600,000 small businesses, occupiers of a third of all properties, will pay no rates at all.

But all this support to businesses would be worthless to the worker if we didn’t, also, enforce the law and crack down on employers who break the National Minimum Wage law.

Employees need to feel they can speak up – I want them to speak up.

HMRC investigate every complaint received from workers who believe they’ve been underpaid and always take action where they believe an employer is not paying its workers the correct wage.

We also proactively target high-risk sectors to improve compliance.

In the last financial year, £10 million in lost wages has been returned to nearly 60,000 workers, more than 3 times the amount returned in the previous year.

We’re helping HMRC to remain diligent by increasing the enforcement budget for the National Minimum and Living Wage from £13 million to £20 million this financial year.

In addition, penalties for not paying the minimum wage are at a record high - we have increased the maximum penalty imposed on an employer to 200% of arrears owed to workers. We continue to name and shame employers once the investigation has been closed.

And we have set up a dedicated team in HMRC, focused on tackling the most serious cases of wilful non-compliance.

But we know there are still employers who do not take their responsibilities seriously. I know, from my first few months as the minister responsible for the minimum wage that publicly naming those who fail to pay staff properly can have a huge impact on an employer.

But, so too can paying a member of staff below what they are legally entitled to. The person who may not be able to make ends meet already, who struggles to feed their family and heat their home, should not be ripped off by their boss.

I want to strike a balance between enforcing the law and helping employees to get what they deserve.

Both the minimum and living wage go a long way in bringing fair reward to the workforce.

But it isn’t enough, not when we want to solve the country’s low pay problems entirely; wages are only part of the problem but, really, we need to look at the economy.

Many of you would have heard the Prime Minister at conference talk about this government building an economy that works for everyone. Well, this is my department’s mission.

Our vision for an industrial strategy is about upgrading everything that comes with boosting productivity – we want to create a country that looks to the future: where we create good jobs, where economic growth is up, where we can tackle whatever challenges come to us.

We are aiming for a higher wage economy that creates more opportunities for young people so that, whatever their background, they go as far as their talents will take them.

But what does that mean in practice?

It means establishing clear links between successful businesses and the financial and development prospects for employees.

It means strengthening accountability of businesses to their workers.

And it means making sure that business success benefits all citizens in all parts of the country – in cities, small towns and rural and coastal areas.

And I’m pleased to say we’re already on our way.

Skills, progression and opportunity are of utmost importance.

We are committed to reaching 3 million apprenticeship starts in England by 2020 and will ensure they deliver the skills employers and the economy need for growth.

Our reforms to the apprenticeship system will lead to a step change in apprenticeship numbers and quality – providing the tools to train millions, increasing our economic productivity and ensuring young people in particular get the opportunities to succeed.

We know from the evidence that apprenticeships lead to better employment outcomes and higher wages on average.

Finally, we mustn’t ignore change – and I understand you have published some other new analysis today on the earnings of the self-employed. The latest data shows that the self-employed account for 15% of all people in work, and there are other forms of work in our economy for which the full suite of employment legislation does not apply.

We are not ignoring change.

We need to ensure that there is the appropriate balance of rights and responsibilities for new business models.

This is why just very recently the Prime Minister announced an independent review of modern employment practices, so that the concerns of workers are being listened to.

Matthew Taylor from the RSA will look at whether the regulations surrounding employment – as well as the support we provide businesses and workers – are keeping pace with changes in the labour market and the economy.

It’s relevant to today’s event, as 2 of its 6 key themes include ‘security, pay and rights’ and ‘progression and training’.

It asks:

  • is there a trade-off between flexible labour and benefits such as higher pay, so that workers can potentially lose out on all dimensions?
  • is the growth in non-standard forms of employment undermine the reach of policies like the National Living Wage, maternity and paternity rights or pensions?
  • how can we encourage professional development within the modern economy to benefit employers and employees?

These are important questions, and I encourage everyone here today to support Matthew in his work.

Those 3 questions are some of the many we have to ask ourselves when it comes to pay.

But we must follow that impulse to question how this – one of the government’s most crucial policies – affects people businesses, and the more we know about this, the better.

We want to build on the legacy of the minimum wage and make sure that people feel supported and paid for their hard work, and it’s with help from organisations like the Resolution Foundation that we understand our impact on people’s lives.

Published 18 October 2016