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Employment LawUnited Kingdom

Will a rise in the National Minimum Wage be sufficient to turn the clock back on low pay? – Dr Lydia Hayes

23 September 2014

It looks likely that in the run up to the 2015 election, all the political parties will promise to do something to improve the national minimum wage (NMW). Since the financial crisis, the NMW has stalled, and gone into reverse. On October 1st 2014 a NMW of £6.50 comes into force. It is based on a 3% increase and marks the first time since 2007 that the NMW has risen at a rate which outstrips the rate of inflation. Millions of workers who wait tables, clean hotel rooms, work on the checkouts or care for the elderly have taken a severe hit in their pay packets for the past five years. According to the latest report of the low pay commission, Wales has a large number of jobs paying at, or just below, the NMW. In Carmarthenshire more than 10% of jobs fall into this category. Yet however welcome it is to hear politicians promise that the hourly rate will now improve, is it enough to fix Britain’s low wage problem?

Following the financial crisis, UK Governments allowed the real value of the NMW to shrink and focused instead on legislative action to deter underpayment by strengthening the associated penalty and enforcement regime. For example, the Employment Act 2008 enhanced the ability of HMRC to issue an underpayment notice to employers and boosted the basis on which wage arrears were calculated. Should the Small Business, Enterprise and Employment Bill be carried in the 2014-2015 Parliamentary session, it will amend the Minimum Wage Act 1998 to increase the penalties for employers that underpay their workers and make it easier to recover monies owing from employers who lose claims at Employment Tribunals. However, at the same time as the Government has been sounding tough about a NMW crack-down, it has presided over a massive increase in forms of employment under which working people are not entitled to the NMW.

Finding a decent job has become so difficult that millions are turning to self-employment. By the time the next Government is formed, analysts predict there will be more self-employed than public sector workers. This is an illustration of massive structural change in the UK labour market. Self-employed people are not entitled to minimum wage rights under section 54(3) of the National Minimum Wage Act 1998, which excludes them from the scope of the legislation. In fact, self-employed people do not benefit from employment rights more generally (although they may be covered by equality law and in some circumstances have rights under the Working Time Regulations). Should the Deregulation bill pass into law it will dilute health and safety protection by exempting self-employed people who do not work in prescribed high-risk sectors or activities from the general duties set out in the Health and Safety at Work Act 1974.

Self-employment is becoming so common that there is a real risk that employers will continue to hire from this growing pool of labour instead of creating new jobs. This would effectively force people to become self-employed and promote the idea of working for wages which may be below the rate of the national minimum wage. The homecare sector is an example of an industry with a chronic low-wage problem and a notorious reputation for paying less than the minimum wage. Available data from the Office of National Statistics suggests that zero-hours contract jobs for homecare workers are being transformed into ‘opportunities’ for self-employment. Women who identify themselves as ‘working from home’ are more likely to do care work than any other job, they are mainly self-employed, their numbers add an additional 10% to the government’s ‘official’ count of homecare workers, and their situation is increasingly common.

Dr Lydia Hayes is a Law and Society Research Associate at Cardiff School of Law and Politics and is the co-author of Trade Unions and Economic Inequality, Institute of Employment Rights (2014), with Tonia Novitz.