One of the biggest challenges facing this Government has been the persistence of low-paid work, and I welcome any and all measures to address that, including the national living wage.
However, young workers under the age of 25 rightly feel a sense of injustice at having been left out of the pay rise.
As of last month, many workers under 25 will have discovered that their pay package is substantially less than that of their older colleagues. About 6 million young people aged 18 to 24 in the UK could be affected. I sought this debate to provide an opportunity to examine the inequality underpinning that decision and to ask the Government to plan for an extension of the national living wage to under-25s.
As it stands, those between the ages of 21 and 24 are currently paid 50p less than the living wage per hour. That is predicted to rise to a difference of £1.21 per hour by October 2020. The margin is greater again for those between 18 and 21, who are paid £1.90 less an hour. It has been estimated that under-25s on the minimum wage will earn just over £11,000 less than an older colleague over the next five years.
We all welcome the recent rise in youth employment. It is up by 94,000 as stated by a Treasury Minister in the main Chamber yesterday. However, this debate is about the value of work. The Resolution Foundation suggests that wages have fallen significantly for young people in recent years, with incomes for 22 to 29-year-olds falling by 12.5% between 2009 and 2014, so I am asking the Government to use the living wage as a means to put that right.
I am sure that the Minister will accept that comments made by the Minister for the Cabinet Office and Paymaster General have rubbed salt in the wounds of young workers, who were already demoralised at being left behind in relation to the living wage. When he outlined at the Conservative party conference the Government’s rationale for taking the decision, he said:
“It was an active choice not to cover the under 25s.”
“Anybody who has employed people knows that younger people, especially in their first jobs, are not as productive, on average.”
What a kick in the teeth for the next generation. We know that young people are often the ones asked to work the longer shifts, lift the heavier packages and work the antisocial hours. I know that from personal experience. When I graduated from university, I started working for a business in my home town dealing with sales both overseas and across the UK. My boss was a good man, but as one of the few employees who at the time was young, unmarried and without children, I was regularly asked to travel at short notice and work out of hours, at evenings and weekends.
Young people are regularly asked to work harder and longer hours because of their youth and are often keen to oblige through a desire to prove themselves and to move up the ladder, but sometimes they feel that they have little choice. Sometimes their circumstances mean that it is easier for their employers to ask them to work the more antisocial shifts rather than older members of staff, who might have commitments at home, so when the Government say that young people are not as productive, how are the Government measuring productivity? What does an underproductive young employee look like? Shockingly, when I asked the Government in a written question for their figures to back up their claims that young workers are unproductive, I was told that they have absolutely no evidence to prove that. In his answer, the Minister told me that
“there are no official statistics estimating the productivity of workers by their age.”
So we know that the Government cannot provide evidence for that claim.
I accept that those embarking on a new role often require training and support from their employers and perhaps represent initially a reduced return on the investment for an employer. However, that could be said of any employee, of any age, taking on a new role or returning to the workplace. I ask the Government to avoid making generalisations that single out the under-25s, and I will give an example of how unjust that could be in practice.
Let us imagine a young person who takes their A-levels at 18 and goes either into training in the workplace or directly into employment. They could potentially be in a job for six years before being entitled to the living wage, but a new employee could start in the same role, sit at the next desk and be paid the living wage, at 50p more an hour, with six years’ less experience, simply because they are over 25.
Alternatively, a young person might study hard at school and decide to pursue an academic route, going to university. Research undertaken by Which? indicates that a typical student on a three-year course outside London might expect to graduate with about £35,000 to £40,000 of student loan debt. Most students on a three-year course graduate at the age of 21. The Office for National Statistics has identified that about 47% of graduates are employed in non-graduate roles, a trend that has steadily increased since the 2009 recession. So a young graduate, who has done all the right things by working hard and getting a degree, is saddled with up to £40,000 of debt as a result, has only a 53% chance of securing a graduate job and is not even entitled to the new living wage. Up and down the country there are countless examples of young people who give it their all and are a huge asset to their firms, yet now face the demoralising prospect of unequal pay.
Having raised this issue in the debate on implementation of the living wage in the main Chamber in April and having asked for a debate on this issue in business questions, I can say that it feels as though the Government have sought hastily to move away from the comments by the Cabinet Office Minister about falling short on productivity and are instead arguing that the ability to pay the under-25s less will incentivise firms to hire young workers. Indeed, when I asked the Leader of the House for a debate on this issue, he replied:
“I…think it is important to do everything that we can to incentivise employers to take on young people.”—[Official Report, 28 April 2016; Vol. 608, c. 1564.]
Tackling youth unemployment is a goal that I am sure hon. Members on both sides of the House support, but organisations including the Federation of Small Businesses have pointed out that the Government’s approach could see employers wandering into legally precarious territory. Any employer that actively seeks to recruit under-25s to cut wage costs will almost certainly fall foul of age discrimination legislation. The Equality Act 2010 prohibits discrimination on a number of grounds, referred to as protected characteristics, with section 5 of the Act recognising that age is one of those characteristics. It is direct discrimination if, because of a protected characteristic, one person is treated less favourably than another. The House of Commons Library has confirmed that to recruit workers on the basis of their age would constitute direct age discrimination.
Firms interviewing for a role are legally required to choose the best candidate for a position, regardless of age. The employer is forbidden from acting on the financial incentive to hire the younger applicant so how, exactly, do the Government anticipate the incentive will work in practice? In its evidence to the Low Pay Commission, the Federation of Small Businesses said
“our survey data suggests that some businesses may focus their recruitment on the under 25s. However by doing this they run the risk of potentially breaching age discrimination legislation, which should lead many employers to re-evaluate this stance.”
It can only be described as shambolic when the FSB feels compelled to advise its members to avoid acting on those very incentives.
I would be grateful if the Minister could clarify the Government’s intention around the 25-year-olds threshold as a financial incentive and if he could respond to the advice of the FSB. If, as a result of the Equality Act 2010, the under-25s threshold is not permitted to serve any purpose in boosting youth employment rates, why have a lower rate at all?
Thankfully, many companies recognise the contributions made by under-25s and are opting to pay them more than the minimum wage. Nestlé employs up to 1,000 people in my constituency and was accredited by the Living Wage Foundation in June 2014 as the first mainstream manufacturer in the UK to become a living wage employer, paying at least £8.25 an hour from the age of 18.
Nestlé’s senior public affairs manager told me that, as part of its European youth employment initiative, Nestlé decided to go above and beyond the basic requirements of becoming an accredited employer, extending its living wage commitment to apply to graduates, interns and those on its fast-start school leaver programme. It said:
“As a major employer in Halifax and across the UK, we know this is the right thing to do. Not only does it benefit our people but also the communities they live and work in.”
Nestlé has joined 2,575 living wage employers up and down the country to recognise that, regardless of age, young people are hard workers. The company knows that it is important to maintain morale in the workforce, and that young workers deserve respect. The Living Wage Foundation is explicit in outlining that the living wage should apply to everyone over the age of 18.
I anticipate that the Minister will most likely point out the difference between the Living Wage Foundation’s living wage, adopted by Nestlé, and the Government’s living wage, and he would be absolutely right. However, the Government did not decide to call their increase in the minimum wage a living wage by accident. Therefore, I am asking the Government to consider adopting the Living Wage Foundation’s principle that fair pay for fair work starts at 18, in the same way that it has adopted its name.
Given that there are several examples of best practice, such as Nestlé, which has independently recognised the benefits of an equitable pay scheme, why have the Government taken the decision to set the bar lower than the standard that many of our more responsible employers are already attaining? In his 2015 Budget, the Chancellor announced that, with the living wage, he wanted to move towards a higher wage and lower welfare country. However, although the living wage has delivered a benefit to thousands, under-25s are the exception. With this Government benchmark, we risk undermining the good work of trailblazers who are going above and beyond in the market place, with the potential to suppress wages for the under-25s.
In April, when the living wage was introduced, The Guardian ran a story about Anthony, who is 23 and works in a London warehouse. He was quoted as saying:
“I was already getting £7.20 an hour … I’m now on £6.70. It’s been cut just because I’m 23 and not 25…I’m getting less for doing the same job…I feel so worthless.”
I think we can all agree that that is shocking and I do not believe that the Government intended for wages to be cut in any way, but that is not to deny that that is the very real danger in sending out the message that it is okay to pay young workers less for no reason other than their age.
I am, of course, willing to accept that minimum wage rates must be set at a rate that firms are able to support, but previous rises in minimum wage rates for young people have not had an adverse effect on employment. Indeed, that was the case when 21-year-olds covered by the youth development rate were moved on to the adult minimum wage in 2010. That is the perfect case study for measuring the effects of a large increase in wages of a certain age group; in that case, it was a rise of 22.8%. The Low Pay Commission has reviewed that case, saying:
“Looking specifically at 21 year olds, there was an absence of negative employment effects in 2011; on the contrary their employment rates, which had been falling, stabilised until the end of 2011”.
When giving evidence to the Low Pay Commission earlier this year, the TUC voiced its opposition to a lower rate for under-25s, saying:
“We strongly oppose a separate rate for 21-24 year olds. The key point here is that while it is true they have higher unemployment and lower pay, their rate of improvement in employment is impressive and faster than for 25-29 year olds. Their rate of labour market improvement shows they can bear increases in line with the National Living wage.”
The TUC was keen to point out that, by setting the threshold at 25, the Government had adopted the highest threshold for being paid the standard adult rate in the developed world, matched only by Greece. Hon. Members might be interested to hear that Japan, Canada, Turkey and Spain start the adult rate at 16, while France, Ireland, Germany and New Zealand pay the full adult rate from 18. Even in America, there is no age threshold apart from the option to pay workers under the age of 20 a lower rate for their first few months of employment. Only the UK and Greece have set the threshold at 25. If the policy worked, surely we would see it reflected across the developed world, but that is not the case.
Looking back to the introduction of the national minimum wage, John Major told his party in 1996 that the minimum wage should be opposed as it would
“price job-seekers out of the market”
and was a policy to “destroy jobs”. I urge the Government to avoid making the same arguments in the current debate because, just three years after Major gave that speech, the Conservatives embraced the minimum wage after it had so clearly boosted wages without harming employment.
There is support for extending the living wage. In a recent poll by Survation, 66% of voters stated that they believe the new higher rate should also be given to workers under 25. There was support from across the political spectrum, with 55% of Tories and 74% of Labour supporters in favour. Even 69% of UK Independence party voters supported extending the living wage.
In conclusion, nearly 6 million young people could be affected by the lower wage rates and it is an absolute outrage that they have been told they are not worth £7.20 an hour, with unevidenced claims about poor productivity combined with arguments about low pay incentives that could see employers who act on them being open to legal challenge.
We would all like to see youth unemployment improve, but debt and low wages are not a sustainable solution. The Government’s adoption of a higher minimum wage is welcome but, unless under-25s are included, that flagship policy will have a great unfairness at its heart. Once again, the Government are on the wrong side of the equal pay for equal work debate. That has to change and I will work with young people and colleagues from across the country to ask the Government to rethink their unjust and unworkable decision, and extend the living wage to under-25s.