Richard Angell: Tackle illegal low pay by letting councils enforce the minimum wage

Local government keeping the money from any fines could increase compliance and fund important local services, argues Richard Angell.

As the minimum wage settles into its 18th year, there are still employers who resist paying it. A 2016 National Audit Office report estimated that 209,000 jobs – 0.8 per cent of the workforce – miss out on this important statutory minimum. Yet as of February 2016 – the last year of which figures are available – only 10 employers were prosecuted by HM Revenue and Customs. However, some 490 have been named and shamed by the Department for Business, Energy and Industrial Strategy or its predecessors; household names like Debenhams and Argos have topped lists published this February and August, respectively. Despite this some employers still make ludicrous excuses about why they should not pay.

To be fair to the government, the Conservative-Liberal Democrat coalition government increased the fines that could be awarded for non-compliance in 2014 and in the last two years the national enforcement team’s budget has doubled from £9.2m to £20m. However, a pitiful £5.6m has been levied in penalties since 2009. Despite raising the minimum wage in the 2015 budget, more focus needs to go on enforcement to make it worthwhile. The same is true of Labour’s plans to hike the minimum wage to £10 an hour.

Amyas Morse, head of the NAO, argued in his institution’s report that, “with the implementation of the national living wage, it is even more important that the government ensures its compliance programme reflects the changing risks within the labour market, and maintains its progress in ensuring all employers pay the minimum wage”.

Here there is a role for local councils. Robin Wales, mayor of Newham in east London, has long been an advocate of local government being given duel responsibility on national minimum wage enforcement. The mayor told Progress annual conference in 2010 that the same employers that breach their various licences, health and safety legislation and other such exploitative practices are already known to most local authorities and are more likely be evading this minimum payment too.
He repeated his call in a piece for Progress in July 2016. As he said, the additional resource for the council in question is minimal but the returns could be transformative. Local, engaged and more responsive, council could ensure those ignoring the law could be dealt with quicker.

The local link with social care providers could prove especially transformative. The NAO predicts that 11 per cent of providers are being paid less than the minimum wage. The business department found in a recent survey that 69 per cent of those on less than £15,000 a year did not know they should be paid for the travel time between appointments.

If Philip Hammond used his Budget next month to allow local councils to keep the receipts of any fines levied, it would be a win-win. Enforcement would increase – at no cost to the Treasury, this is the one new power councils would like and would not require additional resources to enforce – and the proceeds can be used to increase prosecutions with anything left over used to fund cash-starved local public services. Once councils were permitted to keep the fines from parking overstays, enforcement went through the roof. The same could only be a good thing for working people, local communities and the good employers who already meet their statutory regulations and deserve to not be undercut by cowboys.

There are multiple demands on that new income – if it were to appear – and each local council would make their choice but a much-needed pay rise for council workforce would be a good place to start; plugging the funding gaps in social care or reversing cuts to any number of vital services are long overdue. The Treasury will protest it cannot find the money for the various demands on local councillors – we know this is a political choice rather than economics – but either way this is additional money. Not from the £350m promised on the side of a bus, but slum bosses profiteering from exploitation.

It is possible that those in Whitehall currently charged with enforcement will fear the loss of a lucrative income stream. This would be a folly. There is more than enough regulatory work to go round and, let’s face it, HMRC does not have the time or resources to go after employers they consider small beer. The vastly different scale at which local government can work means there is no either/or; both could do what they are good at.

Ministers are currently consulting on improved enforcement of the national minimum wage. They should listen to councils, share the responsibility and let local government keep the cash. Those who run with the new powers could generate much-needed funds and give workers what is rightfully theirs. The time to act is now.

Richard Angell is director of Progress.