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Non-compliance with the National Minimum Wage

Sir Robin Wales

Date: 17. May 2012 / Category: Commission on Living Standards

This guest post is by Sir Robin Wales, Mayor of Newham

The introduction of the National Minimum Wage (NMW) is widely regarded as one of the most impactful policies of recent decades. Its success as a policy is illustrated by the fact that the need for a minimum wage is rarely questioned any more, even as the government looks to repeal other areas of business legislation. This is great achievement, and the debate has now moved on to discussion over what level the minimum wage should be set at to cover living costs.

These debates are important. But, as the Resolution Foundation has highlighted, with them we have lost sight of a vital issue: enforcement. What many people do not realise is that there is a hidden economy operating where workers are still not receiving the NMW. Without improved enforcement of the law these abuses will continue.

The London Borough of Newham is today publishing research showing that in Newham a shortage of job opportunities combined with a lack of skills, confidence and knowledge of the NMW means workers end up in informal jobs paying measly wages. Tough economic circumstances are just making this problem worse. It’s incredible that in this day and age people are being paid as little as £3 an hour. Our research spoke to someone working in the building trade who was desperate to undertake training and move into a formal job – but being paid below the minimum meant he had no chance to save any money.

Our research shows how people paid below the NMW struggle to make ends meet and are vulnerable to unexpected changes in their working patterns. They face the stress of living on very low incomes and the social stigma and vulnerability of working in the informal economy. One worker spoke about how he felt disconnected from his community because he couldn’t talk about his work. Another spoke about feeling isolated and not being able to socialise because of a lack of spare cash.

In Newham we know that paying below NMW is not just bad for the workers who get exploited, it’s bad for businesses and the local economy. As the informal economy booms so legitimate businesses and good jobs diminish.

It’s vital we tackle unscrupulous employers, create a level playing field for businesses to operate and enforce the law designed to protect workers from the worst. As a local authority we are out and about in our community every day, working with local businesses on a range of issues such as health and safety but one of the things we don’t have the powers to act on is pay abuses. So what is the answer?

We think its local enforcement. And I’m happy to announce that today sees the first of a series of “total enforcement” raids in Newham in partnership with HMRC. These raids will look at a whole range of issues. Our enforcement officers know that a business which isn’t disposing of its rubbish is more likely to be avoiding business rates and less likely to be paying its employees properly. Local authorities are best placed to challenge businesses who are not paying their employees the full NMW and I hope the Government will give us the investigative powers to deal with this problem head on.

These raids are part of our ongoing work to make our borough a place where people want to invest, and residents are proud to make their home. We're sending out a strong message to employers: Newham is on the side of businesses which play by the rules, we are continually working with local businesses and to bring new investment to the borough. But we'll come down hard on those that don't play by the rules. Whether it’s rogue landlords renting out shoddy accommodation, off licenses selling counterfeit booze or fast food shops paying shocking wages with no regard for their employees' rights; we're coming up with ways to drive it out of Newham. The outcome? A thriving local economy full of opportunities for our residents to get into good quality employment. But without the national recognition that pay abuses still happen and without local enforcement that's just not possible.

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