Clause 11

Employment Bill [Lords] – in a Public Bill Committee am 12:45 pm ar 14 Hydref 2008.

Danfonwch hysbysiad imi am ddadleuon fel hyn

Offences: mode of trial and penalties

Question proposed, That the clause stand part of the Bill.

Photo of Pat McFadden Pat McFadden Minister of State (Department for Business, Enterprise and Regulatory Reform) (Employment Relations and Postal Affairs), Member, Labour Party National Executive Committee

I just want to draw the Committee’s attention to one or two points in this clause. It relates to the mechanism by which criminal offences under the National Minimum wage Act 1998 can be tried. Criminal offences already exist under that Act so this does not create new criminal offences, but it relates to the overall strengthening of the penalty regime which we have just heard that the Conservative party supports. The overwhelming majority of cases of non-compliance with the minimum wage have been dealt with under the civil law. That will continue to be the case under the new regime proposed in the Bill.

The national minimum wage is enforced under current arrangements by Her Majesty’s Revenue and Customs. As I said, that is initiated either by a complaint from workers or through risk assessment, including targeted enforcement at low paying sectors. An HMRC enforcement officer will visit the employer, interview the employer and the workers, check the employer’s national minimum wage records and so on. The vast majority of cases are resolved with the employer repaying arrears to workers who have been underpaid, which we have discussed. It is only in cases in which Her Majesty’s Revenue and Customs cannot achieve payment of arrears to workers that the issue and enforcement notice requiring the employer to repay the arrears takes effect. Let me give the Committee some figures. In 2007-08, HMRC investigated 4,500 cases. It found non-compliance in 1,649 cases. Of those, 96 per cent. were settled without the need to issue an enforcement notice and HMRC had to resort to the formal mechanism of issuing notices in only a small number of cases.

Clause 9 changes the enforcement notice process. Following recommendations from the Low Pay Commission, we also want to make changes in other areas, too. I want to talk about the criminal sanctions that are affected by the changes that we propose in clause 11. The National Minimum Wage Act provides for a number of criminal offences—deliberately paying below the minimum wage, failing to keep minimum wage records or keeping false records and obstructing enforcement officers. Currently, such offences can be tried only in a magistrates court in which the maximum fine is £5,000. Criminal conduct by employers is the exception rather than the rule.

As well as considering how we need to strengthen the enforcement regime with the penalties under the civil law, we also considered whether the sanctions for the criminal offences were sufficient. We concluded that in order to ensure a balanced spectrum of enforcement, the potential fine available to a criminal court when sentencing for an offence should be greater than the maximum penalty that can be imposed by notice of underpayment. Secondly, HMRC’s investigative powers, which we believe are necessary and are proposed in clause 12, could not be used if the offences remained triable only as summary offences in the magistrates courts. The clause is important on its own and in relation to clause 12.

Photo of Jonathan Djanogly Jonathan Djanogly Shadow Minister (Business, Innovation and Skills), Shadow Solicitor General, Shadow Minister (Justice), Shadow Solicitor General

We only have a few minutes, but I will make a start. There are some important principles in relation to this clause. My main issue is to address whether these provisions dealing with the level of penalty and mode of trial are going to fulfil their objective of improving payment of the national minimum wage. The underpayment of the national minimum wage is poor practice. It has a negative impact on both employers and compliant companies, with the former being underpaid and the latter being undercut. Further, those businesses that are undercut are often small local businesses which bear the resulting burden of unfair competition heavily. For this reason, we welcome the Government’s proposal to address the issue of enforcement of the minimum wage, which comes on the back of recommendations of the Low Pay Commission’s report. However, I have recently had the opportunity to review that report and I was surprised to read the figures that it recorded for enforcement actions taken by HMRC. In the period of 2006-07, it identified some 1,523 cases of non-compliance but issued only 71 enforcement notices and two penalty notices. The total value of underpayments was identified at some £3 million, with the average arrears per worker being £214, as against a figure of only £130 for the previous year.

The Committee is no doubt aware that under the National Minimum Wage Act, provision is made for criminal prosecution under six offences that relate to the payment of the minimum wage, the maximum penalty for which is £5,000. Those were not used for nine years until 2007 when two prosecutions were successfully made. One of them, a director of a day nursery, was fined £2,500 and ordered to pay costs of £500 for the offence of obstruction under section 31(5)(a) of the Act. More recently, there have been two further prosecutions, most notably, the case of a Sheffield butcher’s shop, which was fined £800 plus costs and ordered to pay more than £11,000 in compensation to two previous employees. The payment of that fine was due by 1 October. I would be interested to hear from the Minister whether it has been paid. My point is that we must not wonder why we are being asked to give HMRC more powers when those that it currently has are being used so sparsely.

Photo of John Bercow John Bercow Ceidwadwyr, Buckingham

Order. My understanding is that the room will be locked so that hon. Members can safely leave their papers here if they so wish.

It being One o’clock, The Chairman adjourned the Committee without Question put, pursuant to the Standing Order.

Adjourned till this day at half-past Four o’clock.