As the wage floor rises, there is always a danger that more people will slip through the cracksby Sarah O'Connor / January 30, 2019 / Leave a comment
Published in March 2019 issue of Prospect Magazine
You know a policy is successful when its former opponents steal it. The UK’s minimum wage law is a perfect example: introduced by Labour in 1998 at a cautious level, it has been seized on and supercharged by the Tories in the last few years. In an otherwise sluggish economy, the employment numbers have been surprisingly buoyant, and the big issue has switched from the quantity of work to its sometimes dubious quality. Raising the wage floor seems a fitting response to that. But to improve working life at the bottom of the labour market, it’s not enough to just make laws. You also have to enforce them.
There is no doubt the rising minimum wage has boosted pay for millions. Most employers, after all, do what they are told. But consider Leicester as a window into the policy’s patchiness. More than a thousand factories crammed into subdivided old buildings are supplying the UK’s booming online “fast fashion” retailers. I found in an investigation last year that the going rate of pay in many such places is about £4.25 an hour, far below the legal minimum for over-25s of £7.83. The illegality in the sector is so brazen that workers have concluded that no one is serious about their rights. “The government knows what’s happening in Leicester,” one worker said bleakly. “And that’s it. They don’t do anything.” David Metcalf, the government’s Director of Labour Market Enforcement, concurred in a report last year that lack of effective enforcement in Leicester had created a “perceived culture of impunity.”
Sub-minimum wages are far from rare in the UK. The Low Pay Commission estimated in 2017 that somewhere between 13 and 20 per cent of low-paid over-25s were receiving less than the supposed floor. The government has committed to raise the rate ambitiously until at least 2020. Indeed, this is its flagship policy to boost living standards for the working poor. It has also upped funding for HMRC, which is responsible for enforcement, and expanded the powers of the Gangmasters and Labour Abuse Authority.
But as the wage floor rises, there is always a danger that more people will slip through the cracks. Decent enforcement comes down to two things: resources to fund inspections and investigations, and sufficiently sharp penalties to be a deterrent. You might get away with being weak on one, so long as you are strong on the other. But the UK is still too feeble on both. In the words of Metcalf, “the chances of being inspected and the size of any civil penalties are both far too low.”
The International Labour Organisation’s benchmark is that countries should have one labour market inspector for every 10,000 workers. Even if you include Health and Safety inspectors, the UK has only one for every 20,000. Based on 2017 figures, an employer in the UK can expect to face a minimum wage inspection from HMRC every 500 years. And in the 20 years since the minimum wage was introduced, just 14 employers have been prosecuted.
“Employers can expect to face a minimum wage inspection every 500 years”
Last year, Metcalf recommended the UK should increase the civil penalties, currently set at 200 per cent of wage arrears. Last month, the government rejected the proposal. It did agree to other requests, such as a 50 per cent increase in the number of inspectors at the Employment Agency Standards Inspectorate. But that sounds less impressive when you realise it means adding five inspectors to a team of nine, who are responsible for 18,000 agencies employing more than a million people.
The other question is how well you deploy the resources you have. HMRC has focused increasingly on big employers, where the breaches are often smaller for each worker, but add up to large sums. For example, at the start of this year, Iceland complained that HMRC was demanding £21m for a technical minimum wage breach caused by a voluntary staff savings scheme. Primark was “named and shamed” in 2017 by the government for failing to pay £231,973.12 to 9,735 workers (an average of £24 each). It is easier for HMRC to go after these national companies for small errors than to bang on doors in places like Leicester, where the average garment factory employs nine people and record-keeping can be sketchy. Of course the big employers should get it right. But what matters more to us as citizens: that a Primark worker is reimbursed £24, or that a sewing machine operator is reimbursed—and their employer punished—for years of deliberate and drastic underpayment?
Decent employers—and most employers are decent—support the idea of better and more targeted enforcement. It stops the good guys from being undercut by the bad guys. And while it would cost money, a badly-regulated labour market allows vast sums of uncollected tax revenue to slip through the Treasury’s fingers.
Last month, ministers unveiled a package of fresh policies they called “the biggest upgrade in workers’ rights in a generation.” New rules might be eye-catching, but if the government wants to make life better for people in the job market’s underbelly, it should start by enforcing the rights they are already supposed to have.