Britain’s biggest independent co-op, Midcounties, has had to make a record payout of over £14,000 to a newspaper delivery worker it had been underpaying for more than four years, as the Guardian reported on Monday. A second delivery worker, who complained that on some days his pay averaged 69p an hour, also received compensation. There is no data to show how many workers in Britain might be paid at illegal levels below the statutory minimum. Compliance action mainly depends on individuals or their unions making complaints. However, it is a matter of fact that, since Labour introduced the minimum wage in 1999, the enforcement arm of HMRC has identified nearly £70m in underpayments affecting more than 300,000 workers. According to the National Audit Office, the number of workers identified as being owed arrears more than doubled from 2014-15 to 2015-16, rising from 26,000 to 58,000. Yet in the past five years, just £5m has been levied on non-compliant employers and since February 2014, although 700 employers have been named and shamed on the department for business’s website after claims were settled, there have been just three prosecutions.
A low wage economy comes with a heavy price tag. It is not only that employers have no incentive to invest in training or upgrading skills for their employees, or buying new equipment for their factories when they can increase productivity by hiring more cheap workers; the gap between take-home pay and what a worker actually needs to live on is met by the taxpayer, through the working tax credit system. That is why when George Osborne triumphantly announced that he was replacing the minimum wage with a “national living wage” just over a year ago, he declared that it would be the first step on a trajectory that would take Britain from a low-wage, high-tax, high-welfare economy to the higher wage, lower tax, lower welfare country of his ambitions.
Mr Osborne’s national living wage came in last April at £7.20 an hour. It is projected to rise to somewhere around £9 an hour by 2020. It is intended to reach 60% of median earnings. That will be a severe shock to those industries and sectors like food and agriculture, and in particular social care – the source of one in ten of all low pay complaints – where there is a culture of low pay. That will be changed only by consistently high levels of enforcement. As the NAO observed in a report earlier this year, without knowing the scale of the problem, it is impossible to assess the effectiveness of the HMRC compliance operation. On one recent analysis, there were so few HMRC inspectors that it was estimated they could get round every employer only once ever 250 years. Since then, the enforcement budget has been increased, and the maximum fine has doubled from 100% of the underpayment to 200%. But the number of prosecutions remains vanishingly small. The priority is compensation, not costly court cases. That is wrong.
When the national living wage reaches 60% of the median wage it will cover nearly 14% of the workforce. The minimum wage covered just 5%. The extension of differing rates for people up to the age of 25 has also made it more complex – an even bigger compliance challenge. If the government is serious about ending low pay, it must get serious about enforcement. That means prosecutions.
