The Midlands - Can't pay, won't pay

By the end of July, a national minimum wage will be on the statuten pins down Midlands employers’ reactions. books. Only a couple of months later, we should see the formation of regional teams of investigators charged with tracking down and punishing employers who break the rules. Before the year is out, there are likely to be scores of companies caught paying staff illegal wages and being pilloried in their local newspaper.

It is not a prospect that fills many Midlands employers with glee. They are already under pressure from skills shortages and a high pound that is wreaking havoc with their export orders. The last thing they need, most argue, is a law establishing a minimum wage and a government carrying a big stick to enforce it.

Tony Bradley, policy officer for the Birmingham Chamber of Commerce (BCC), believes a minimum wage of more than #3.50 would seriously damage the health of local companies.

‘We have always made it clear that we are not in favour of ridiculously low wages. But if it was set at more than #3.50, it would lead to inflationary pressures,’ he says. ‘There would be an impact on wages at the bottom of the scale, obviously, but there would also be an impact on wage differentials.

Even companies that pay all their staff more than the minimum wage are likely to face pressure from their staff to maintain differentials.’

Gerald Godbey, chairman of the Staffordshire and West Midlands region of the BCC, agrees. ‘It is being looked at with fear by members who will be affected,’ he says. ‘Shopkeepers and other retailers are telling us it won’t be good for their business and they might need to lay off staff.’

In December, the BCC presented the results of a survey to the Low Pay Commission, outlining the concerns of local businesses. The commission has been given the job of recommending a figure to the Department of Trade & Industry by the end of May on which the Cabinet can agree. For the last six months, it has toured the country listening to the views of employers, unions and other groups interested in the outcome of the debate.

The BCC poll, based on responses from 300 companies across the region, revealed that 74% of manufacturers feared any rate above #3.50. There was also strong support for variations in the rate. About 60% of companies favoured a regional variation, but there was a 50/50 split of opinion on whether there should be variations between sectors.

Respondents derided the government’s request to the Low Pay Commission that it should look at taking under-26-year-olds out of the scheme. Most employers supported the idea that rates should be allowed to vary for trainees, but nearly 50% said that studying for a NVQ should be used as the definition of a trainee, rather than age. If age were to be used, most argued that exemptions should apply only to workers aged 18 or under.

The poll also supported Bradley’s view that wage differentials would be affected. Sixty-four per cent believed there would be higher wage demands from staff. The effect would not be allowed to drag down profits, said respondents. Most said they would cut their workforce, the number of hours employees worked and increase prices, rather than let the change dent the bottom line.

The unions, though, are pushing for a rate that is closer to #4.50. They want the figure to have a significant impact on pay levels and are lobbying ministers vigorously to keep it above #4.00. The Confederation of British Industry and the Institute of Directors are worried the unions will get their way because the minimum wage is one of only two measures in the Labour manifesto that explicitly backs union policy and is likely to become law (the other is union recognition).

Richard Ireland, chairman of Severn Trent Water, says employers find it difficult to plan because they are uncertain about the true impact of the minimum wage. He is also angry the Low Pay Commission has ruled out regional variations. ‘An imposed uniform rate, without regional or sector variations, is a very dangerous move,’ he says.

BCC members turned out in force at a recent dinner at which David Blunkett, Secretary of State for Education and Employment, was the keynote speaker.

The audience welcomed his emphasis on training and investment and the government’s attempts to raise educational standards across the board, but questioners afterwards left him in no doubt of their concerns.

Despite the fears, few financial directors or other business leaders are prepared to take on the unions in public debate. A recent television discussion organised by local cable company LiveTV failed to attract any business people onto the show. Accountants in the Midlands argue local businesses need a rise in costs like they need a hole in the head.

Alan Robertson, a partner with Birmingham-based firm Clement Key, says most of his clients are concerned about the knock-on effects of a rise in wages at the bottom end of the scale. ‘The biggest worry is the ratchet effect of lifting one lot of workers up the scale and then finding the next group want to keep the differentials. There are already skills shortages in the region. Everyone, including us, is finding it difficult to recruit high-calibre staff. The minimum wage is only going to raise costs.’

Godbey says his employees want to maintain pay differentials. ‘It’s one of the reasons why I don’t employ anyone anymore. I tell people they should consider employing people on a self-employed basis, which will give them lower costs and flexibility,’ he says.

If other employers follow Godbey’s lead and there is a widespread move to shifting employees off the payroll, then there is likely to be a dirty battle with the Inland Revenue’s inspectors. Godbey says he fights the Revenue all the time to prove that his workers are genuinely self-employed.

Robertson believes there are serious problems for employers that go down this route. He argues that Revenue officers have been given greater licence to crack down on self-employed workers and take a stricter line when they think the employer is effectively evading tax. ‘Taking the fight to the Revenue is a high-risk strategy,’ he says. ‘I wouldn’t recommend it to any of my clients. If employers get it wrong, there are fines and backdated tax – it can get messy.’

But the unions are sticking to their line that a minimum wage of no less than #4.50 should be introduced. Publicsector union Unison has told the government the base figure should be #4.81. Employers continue to fear that union pressure could bear fruit, says Bradley, especially if Tony Blair is persuaded that a high minimum wage and union recognition will keep union leaders, like the TGWU’s Bill Morris, off his back until the next election.

At the moment, though, there are strong hints that pressure from the CBI and IoD is beginning to pay off. A figure around the #3.60 mark looks as if it will be chosen as the amount least likely to upset employers and unions.

If these signs become a reality, then employers are unlikely to crack open the champagne, but they will certainly breathe a sigh of relief.

LOW PAY COMMISSION SETS THE FIGURE

The Low Pay Commission has taken on a dual role since it started touring the country last summer. On the one hand, it has been charged with explaining the government’s proposals for a minimum wage and when the explanations are finished, its officers are supposed to listen.

The commission, which is headed by George Bain, the former boss of the London Business School, has been particularly struck by the complaints from sectors, such as leisure and retail and specialist businesses like nursing homes. They often pay workers less than #3.00 per hour – sometimes because the employer operates in a low-margin business or because the work is viewed as almost charitable.

Their lobbying has dragged down the likely figure from #4.50, which unions have put forward, to #3.60. Bain said last month that a figure somewhere around the #3.60-#3.70 mark would be the likely outcome.

Large employers have complained that smaller rivals are likely to ignore the rules unless they are policed. A spokesman for the Department of Trade & Industry says the government has yet to decide if special teams will be put together using existing staff from agencies such as the Health & Safety Executive or Inland Revenue.

‘But’, he said, ‘there is a fairly tough enforcement regime that will be put in place because companies have impressed on the government their concerns that their rivals will pay below the minimum rate to undercut them.’

The commission visited the Midlands region in December and was presented with a survey of local opinion by the British Chamber of Commerce.

It is due to finish its work at the end of May. Any recommendations will be put to the Cabinet. The Minimum Wage Bill, which is an enabling Bill, completed its third reading in the Commons earlier this month and should become law by the end of July.

Once it is passed, it will allow Bain’s recommendations to be incorporated in time for the policy to get started in the autumn.