Amendment of the National Minimum Wage Regulations 1999

‘(1) The National Minimum Wage Regulations 1999 are amended as follows.

(2) In Regulation 31, sub-paragraph (1)(e) leave out “that is not paid through the payroll” and insert “whether paid through the payroll or by any other method”.’.—[John Hemming.]

Brought up, and read the First time.

I beg to move, That the clause be read a Second time.

With this it will be convenient to discuss New clause 7—National minimum wage: gratuities—

‘In the National Minimum Wage Act 1998 (c. 39), in section (2) (determination of hourly rate of remuneration), after subsection (5) there is inserted—

“(5A) The regulations shall make provisions with respect to employees in service industries, to provide that gratuities paid to them in the course of their employment shall not be included in the calculation of the national minimum wage to be paid to them.”.’.

There has been some concern about this issue. New clause 7 would have similar effect to new clause 1, which is meant to probe the issue. Depending on the Government’s response, however, we might be inclined to divide on new clause 7, if the hon. Member for Huntingdon wants to do so.

This issue is important because it is complicated to have a mix of service charges and extra bits on credit cards with some things being paid through the payroll and others not. Some subtlety is required to handle the matter. Perhaps there should be a standard service charge rather than it simply being put in the price, so that there is clarity. I am interested to hear what the Government have to say on that.

It is a pleasure to serve under your chairmanship, Mr. Caton. Obviously, I rise to speak to the new clause tabled by my hon. Friend the Member for Huntingdon, but I support the sentiment in the new clause tabled by the Liberal Democrats.

At the start of the Committee’s proceedings on Tuesday, the Minister referred to an article that he had read in the Sunday Mirror purporting to convey some foresight into what might be a future Conservative Government’s approach to the minimum wage. On behalf of the Conservatives, I should say that we are positive about the minimum wage. When discussing an amendment earlier this afternoon, my hon. Friend said that changes can occur in political parties. One change in our party is that we recognise that the minimum wage has been a good thing, and we want it to be properly enforced and to be effective.

We are also positive about the service industry. We recognise that we have a vibrant, successful service sector that is an increasingly important component of the economy, and we want that success to continue. Our new clause would support a successful and vibrant service-based economy, from the perspective of both employees and employers. From an employer’s perspective, our new clause would make a significant difference to many people working in cafÃ(c)s, restaurants or hairdressers. Let us take, for example, the case of a student working in a city centre restaurant, doing three shifts a week, six hours each shift, totalling 18 hours a week. That person might be paid the minimum wage rate of £5.73 an hour and can expect to take home £103.14. If they anticipate that they will receive £20 in tips per night, which is not unusual in a city centre restaurant, an extra £60 will bring their wage up to £163.14. By having a properly enforced minimum wage, £163 is far better than if they were receiving a wage below that level.

Let us compare that scenario to the one uncovered by The Independent on Sunday and reported on in May this year. It was about a leading Italian restaurant chain that employed its 300 members of staff at £3.75 an hour. There was a substantial difference in what those employees were taking home. The company said in its defence that it took care to maintain that the money that its employees received at the end of each week or month was equivalent to the minimum wage level, and that it bumped it up to ensure that its staff received at least the minimum wage. That defence was weak.

Many restaurant owners argue that that it creates an incentive for good performance on the part of their staff if they know that they need to work hard and put  in a good performance just to bring their wage up to the minimum wage level. I do not buy that. A far more powerful incentive for employees in cafÃ(c)s, restaurants, hairdressers—or whatever the service-based scenario—is to be guaranteed a decent legal minimum wage at the end of each week, knowing that whatever tips, bonuses or gratuities they receive are in recognition of extra-good performance.

I am sure that I am not the only hon. Member who has experienced particularly bad service or an unhelpful, stroppy waiter or waitress, nor would I be the first to observe that we have a problem of patchy quality in our service sector. Guaranteeing a decent minimum wage for people in the service sector will help to raise their esteem and lead to overall gain for the industry and the British economy.

I support new clause 7, and I largely support what my hon. Friend the Member for Preseli Pembrokeshire has said, but I want it to go a lot further. It hinges on the word “gratuity”—a tip. A gratuity is given to someone who has done something above what we would normally expect them to do for us. The whole issue of tipping is completely out of control in this country. I have never understood why a taxi driver who is rendering us a service when we contract him to take us from A to B expects a 10, 11 or 12 per cent. tip on top. Even when I was a little younger than I am now, taxi drivers used to emerge from the comfort and warmth of their front seats to open the door and help elderly people with suitcases. Alas, that is no longer the case, yet they still expect a tip on top of what we pay them. That is completely unacceptable.

I represent a constituency that has many people working in the service industry. The industry is casual and seasonable, and it pays a low wage. To them, the minimum wage is important. I would come down harder than my hon. Friend the Member for Preseli Pembrokeshire on the Italian restaurateur, or on any other restaurateur who acted in that way. There is evidence throughout the country of people regarding gratuities or tipping as a supplement with which to bring poor wages up to the minimum wage. Such a practice should be illegal, and it should be enshrined in law that it can never happen.

For the sake of clarity, I too regard it as absolutely unacceptable for a chain of restaurants to use arguments about incentives as a smokescreen for paying an illegal wage to its workers.

Indeed. If I suggested that my hon. Friend did not feel as strongly about the matter as I do, I completely withdraw that remark.

I am sure that all members of the Committee feel strongly about it. Does the hon. Gentleman agree that we need to put an end to the practice whereby restaurants automatically add the service charge to a bill but leave the total blank so that people unwittingly add an extra amount? That is bad for consumers as well as for staff.

The hon. Lady is stealing my script. I completely agree with her. An hon. Member—I cannot remember who—was going to introduce a private Member’s  Bill on the whole question of tipping, but alas he lost his seat or is otherwise no longer with us. I am quite tempted to do the same, although I do not want to lose my own seat. Nor do I wish to irritate the entire taxi-driving community of London, although I fear that I have already done so. I shall have to resort to my Vespa motorcycle, which I ride most days anyway like a good green Conservative.

The hon. Lady rightly raised another issue about gratuities and tipping in general. As well as the appalling practice whereby service is added on and then the bill is left open, when one asks whether service is included it can seem almost like a threat to be told, “Yes, 12.5 per cent.” or whatever, as if that is not enough. Where does that money go? Increasingly often, I ask waitresses and waiters, many of whom come from eastern Europe and many of whom are struggling students, what happens to their tips. When I hear that they are all pooled and handed out at the end of the week, I do not much like the sound of that either.

Order. We are getting into the issue of tipping generally. It would be useful if the hon. Gentleman could bring the debate back to its relationship with the national minimum wage.

Indeed. I shall therefore call them gratuities.

Does the hon. Gentleman agree that bringing in such a change would make a distinction between the service charge, which is really a way of hiding part of the price of the food, and a gratuity, which is a bonus for extra work?

Absolutely right. A gratuity is a gratuity. As I said, it should reward service that is way and above that which one would normally expect to receive.

I am getting a little concerned about the anti-business attitude in all this, and I want to defend the people who act properly with their staff. Many of those who levy a service charge, whether or not my hon. Friend agrees with that, act properly towards their staff and ensure that they receive it. There is a difference between a service charge, which embraces the whole of the operation, and a gratuity to a given waiter or waitress. We have to be careful that we are not seen as being seen as anti-business.

I do not agree with my hon. Friend. I have never understood why one needs to pay any kind of charge to sit at a table in a restaurant when one is going to pay for one’s food. A gratuity is for service, and it should go to the person who is serving. That is why I increasingly pay in cash at the end of my meal to ensure that it goes to the waiter serving me and is not used by the proprietor to get that person up to the level of the minimum wage.

Does my hon. Friend agree that if people go into restaurants feeling compelled to tip merely to ensure that whoever serves them, whether they perform well or badly, receives a legal wage at the end of the  week, that dilutes the potency of a well run system of gratuities? At the end of each night or each week, an employer should have an idea of which staff are receiving large gratuities or tips and which are not. That sends a good economic signal to him about how well his staff and his business overall are doing, and it is therefore pro-business.

I agree. I do not believe that any well run business—I have many in my constituency and there are many up and down the country—should have to resort to any underhand way of paying their staff through the gratuities left by their customers. That is not anti-business—it is pro-employee and pro-well run businesses.

I therefore assume that the hon. Gentleman would agree that suggesting to businesses that they make it clear what the price list on the menu means is not anti-business but good for business because it provides clarity.

I agree. We are very dependent on tourists in the south-west—we have 15 million of them. No doubt many more would come if the trade unions did not ban them from trade union homes in the south-west, but we have to overcome that. Of course we want tourists, not all of whom are English or speak English as their first language. They might come to London, or wherever, and not understand about service charges and whether they have to tip. It is a complete mess. In no sense is this proposal anti-business—it is pro-business and good for well run businesses. Gratuities should not be used as a supplement in order to pay the minimum wage.

The new clauses cover an issue that we all care about and which has come into increasing prominence over the last couple of years. The minimum wage, which we have discussed during consideration of the Bill, has evolved over time. For example, the situation for 16 and 17-year-olds was changed a few years ago. We have discussed changes with regard to voluntary workers and expenses, and the law has changed with regard to work experience and so on.

This is one such change, and it is something that I have wanted do since I became employment relations Minister. In July, I was pleased to announce that the Government would change the law to ensure that tips could no longer count to make up the minimum wage. That is profoundly within the instincts of the British people, and I was glad to make that announcement.

When we leave a tip in a restaurant, however it is divided among the staff—I might come on to that—we expect that it will be additional to the minimum wage and will go to the staff who served us, on top of their pay. It should not be used to make up the minimum wage.

The hon. Member for Preseli Pembrokeshire said that some businesses operate a system in which they guarantee the minimum wage, although some of it will be made up from tips. At the moment, that is not illegal if the tips or gratuities are processed through the payroll. Things partly depend on that. The change would ensure that all tips were additional to pay. We have announced that, and we believe it is the right thing to do.

Under the law, all workers are entitled to the minimum wage. The measure will deal with the situation raised by the hon. Gentleman so that the practice of using tips to make up the minimum wage will no longer be possible. That is why we announced the change several months ago.

There is a question about what happens to tips. It is more difficult to legislate on that, but we would all like to achieve transparency. In the end, the money is ours as customers—as the hon. Gentleman said, we can choose to leave or not leave a tip, or to leave a smaller one should we wish. We must work with the hospitality industry to promote transparency over what happens to tips. That is equally as important as changing the law to ensure that tips are additional to the minimum wage.

I risk your wrath, Mr. Caton, but I agree with what the Minister says. I am sure that he and all members of the Committee can give examples of when, after an indifferent meal, they did not seek to reward that indifference, although they wanted to reward the waiter who provided first-class service.

That is a fair point. For the purposes of the Government and the law, the critical point is that in future tips should be in addition to the minimum wage. As customers, we expect that to happen with our tips. I have not carried out a scientific poll, but I suspect that most customers would not like to think that their tips were making up the minimum wage.

How is this going to be implemented in law?

The hon. Gentleman is anticipating me. I have explained how the regulations work at the moment: a service charge, tip, gratuity or cover charge that is paid to the worker through the payroll may, legally, count towards payment or part-payment of the minimum wage. We are seeking to address that issue.

At the end of July, we announced our intentions, and I am pleased to tell the Committee that my Department is preparing a consultation document, which we shall publish in a matter of weeks. We shall consult the hospitality industry on precise implementation. We have heard various comments today about service charges, gratuities, tips and so on—it is true that there are all those different practices. When making such a change, it is right to consult the industry.

I also pay tribute to the people who campaigned for the change. The campaign has increased substantially over the past couple of years. We have heard a lot of talk about trade unions in our deliberations. I do not want to go over all that again, but a number of unions campaigned on the issue and, in doing so, were campaigning for something very much in line with public instincts. Our intention is to consult on exactly how to do this, but let me leave no doubt about the Government’s intentions to do it, which will be made clear in a document in the next few weeks.

As for the amendments, we do not need to make the change through primary legislation. We can do it through the minimum wage regulations, which are debated in the House every year. We have a route forward, having consulted with the industry. There is substantial unity  in Committee—across all three parties—that the issue is one that we want to address. As I said, the Government have announced a firm intention to do so. There is no need to do anything through the Bill or primary legislation. Fairness on tips unites us. On that basis, I hope we can move forward.

Obviously the issue can be dealt with through secondary legislation. Therefore, there is an argument for new clause 1 to be withdrawn, but new clause 7 would create a duty on the Government to act as they intend, which, perhaps, would give legislative cover. That would not be subject to judicial review, which secondary legislation can be. On new clause 1, however, I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.