Introduction

7.1 We have always held the view that a rigorous compliance and enforcement strategy is essential to the success of the minimum wage. This continues to be our view. Those who are dependent on work paid at or around the National Minimum Wage will be some of the lowest earners in the UK. As has already been shown in earlier chapters, many will be vulnerable to exploitation. There will always be a minority of employers who try to exploit their workers through non-compliance with the minimum wage and other legislation and there is a greater risk of this during an economic downturn.

7.2 Since the introduction of the minimum wage over 10 years ago, we have made 20 recommendations on awareness and enforcement in our reports. The Government has made a number of changes to the enforcement regime in light of these recommendations and has also made changes in other areas where it believed the regime needed strengthening. We acknowledge that some progress has been made in strengthening the enforcement regime over the last 10 years, although this progress needs to be maintained and bolstered in the coming years.

7.3 In this chapter we briefly look back at how the enforcement regime has evolved and at changes that have been made. We look at how HM Revenue & Customs (HMRC) operates in its role as enforcer and its interaction with other enforcement agencies and the Department for Business, Innovation and Skills (BIS). We report on changes that have taken place over the last year, particularly in response to recommendations made in our last report, and look at enforcement in relation to groups that are particularly vulnerable. In doing this, we draw on the written and oral evidence we have received and also our visits programme.

Enforcement Regime

7.4 HMRC is the body contracted by the Government to enforce the National Minimum Wage, and has been undertaking this role since the minimum wage was introduced. It is contracted to undertake this role through a Service Level Agreement with BIS and works within the terms of this agreement. HMRC has a number of compliance teams located around the UK, along with a central team. All complaints are directed to the central team which is responsible for allocating them to the correct compliance team. To date, every complaint of underpayment received has been investigated. The capacity that remains once complaints have been investigated is used by HMRC to investigate further cases arising from its risk assessment.

7.5 The activities and processes of HMRC have changed and been refined over the years, as its experience of enforcing the minimum wage legislation has increased. Its staffing levels have also increased as a result of additional funding allocated in 2007, and a new Rapid Response Team will be introduced as a consequence of funding received from the Migration Impacts Fund, which we cover later in this chapter.

Progress on Enforcement

7.6 In the early days of the minimum wage, the Commission reported on, among other things, the importance of raising awareness of the minimum wage and the need for co-operation between the Government’s enforcement agencies. Ten years on, progress has been made on targeting awareness-raising campaigns at those who most need the support. Other areas where the enforcement regime has evolved over the last ten years are:

• setting up two pilot schemes to look at ways of improving advice and support to vulnerable workers (leading indirectly to the work of the Vulnerable Worker Enforcement Forum (VWEF));
• establishing a prosecution strategy;
• undertaking a programme of targeted enforcement in some of the low-paying sectors;
• instigating cases for HMRC’s Compliance Officers to investigate on the basis of risk assessment;
• improving inter-agency co-operation through the Fair Employment Enforcement Board (FEEB);
• introducing a new penalties and fair arrears regime in 2009; and
• increasing funding for enforcement by £2.9m each year from 2007 to 2011.

7.7 Some of these initiatives have had a positive impact, for example the targeted awareness-raising campaigns, and in 2008/09, nearly £4.5 million of arrears were identified through investigations. In other areas, though, concerns remain. For example, in spite of a prosecution strategy, there have only been six successful prosecutions over the lifetime of the minimum wage, and the targeted enforcement programme has now ended. It is vital that the Government’s new compliance strategy, which we report on later in this chapter, builds on the successes of past initiatives and uses them to support and inform a long-term strategic approach to enforcement.

Scale of Non-compliance

7.8 It remains very difficult to get an accurate picture of the level of non-compliance. Official statistics estimate that around 242,000 jobs were paid below the minimum wage in April 2009. This figure cannot be used to determine non-compliance, though, as there are legitimate reasons for paying below the minimum wage, for example the exemption for apprentices or deductions for the accommodation offset.

7.9 While some may legitimately be paid less than the minimum wage, there will also be workers who are not receiving the minimum wage and who do not show up in the official statistics, such as those working in the informal economy. These workers are likely to be the most vulnerable to underpayment and exploitation.

7.10 Table 7.1 shows that nearly 35,000 enquiries were received by HMRC’s helpline during 2008/09. This was a reduction of 26 per cent on 2007/08 and a reduction of 33 per cent on 2006/07. It is not clear why there was such a substantial reduction in 2008/09. One reason is likely to be greater use of technology in disseminating guidance (minimum wage guidance is now on the Directgov and Business Link websites) and the introduction of an online decision-making tool and National Minimum Wage calculator.

7.11 In 2008/09 the number of cases closed decreased marginally on the previous year but the number of cases of non-compliance increased slightly. There was an increase in the strike rate (the percentage of cases investigated where non-compliance was found) from 36 per cent in 2007/08 to 40 per cent in 2008/09. The average arrears per worker for all cases in 2008/09 was £193. This was slightly down on 2007/08, even though the total arrears identified increased by 15 per cent over the same period. Although the cases of non-compliance increased by only 6 per cent in 2008/09, the number of workers not paid the minimum wage increased by 21 per cent. This indicates that there was a greater proportion of cases of non-payment covering large numbers of workers.

Table 7.1: National Minimum Wage Enquiries and Complaints to HMRC, Enforcement Action Taken, and Incidence of Non-compliance Identified, UK, 2006/07–2008/09

Source: HMRC, UK, 2006–2009.

Notes:

a. Enquiries completed are the number of cases closed after an inspection has been made.

b. The strike rate is the percentage of the cases investigated where non-compliance was found.

7.12 It is difficult to draw any firm conclusions about the extent of non-compliance from these data. Other than a dramatic fall in the number of calls received by the helpline in 2008/09, the figures remained relatively constant. The strike rate was between 34 and 40 per cent, the number of enquiries completed was constant and the average arrears per worker were around £200 (although the total arrears and number of workers fluctuated).

‘It is essential that non-compliance is punished and seen to be punished by appropriate and proportionate means.’

CBI evidence

7.13 The data supplied by the Government provide an overview of the outputs of the enforcement activity of HMRC. However, there has not been any assessment as to the actual extent of non-compliance, either in the formal or informal economy. We believe that the Government’s new compliance strategy should be founded upon a clear understanding of which are the low-paying sectors and jobs, and who are the lowest paid and most vulnerable workers. This can then be used to inform the measures of compliance and the success of the enforcement regime.

Recommendations in the 2009 Report and Further Action

7.14 In our 2009 Report, we made three recommendations to the Government on enforcement. The Government accepted two of these: that a ‘name and shame’ policy should be put in place to expose those employers who show a wilful disregard for the minimum wage; and that the Government gives urgent consideration to measures that can be taken to effectively tackle employers in the informal economy. The Government noted the third recommendation: that the Government allocates sufficient resources to HMRC to increase significantly the number of errant employers prosecuted in a criminal court.

Naming and Shaming

7.15 In its evidence to us this year, the Government said that it agreed that more should be done to expose those employers who showed a wilful disregard for the National Minimum Wage. It believed greater transparency of enforcement was appropriate, particularly as the minimum wage had been in place for ten years and was an established part of labour rights. In collaboration with HMRC, BIS is currently developing the policy for a greater transparency strategy.

7.16 We welcome the Government’s acceptance of this recommendation and look forward to seeing details of the policy when it has been developed. We believe that effective publicity of non-compliance can act as a strong deterrent to others. The Government will need to give careful consideration to the criteria for who will be named, and also to how the impact of naming and shaming can be maximised. This process, we believe, should be undertaken as part of the new compliance strategy, which we report on later in this chapter.

Informal Economy

7.17 We have previously raised concerns about the extent to which enforcement activity has tackled those in the informal economy who pay less than the minimum wage. We recognise that tackling those who operate in the informal economy requires extra time and resources and the results may not always reflect the effort put in. It is also understood that there is a small core of employers who deliberately do not comply with the minimum wage and, most likely, a range of other employment and tax requirements.

‘Cost pressures on the cleaning industry mean there is always the spectre of the informal economy.’

Cleaning and Support Services Association evidence

7.18 In its evidence this year, the Government advised that HMRC’s National Minimum Wage Unit had been pro-active in sharing information with other parts of HMRC. It had been working with HMRC’s Hidden Economy Group to develop a more focused approach to sharing information on the hidden economy. Procedures had been put into place to enable both teams to monitor and report on the outcomes of referrals. In addition, the National Minimum Wage Unit was building links with specialised units within HMRC, to share best practice and to look at the benefits of joint visits. It had also built up relationships with other regulators and the UK Border Agency.

7.19 The Association of Labour Providers (ALP) told us that the informal economy was thriving because of the lack of enforcement. It believed there needed to be better joined-up enforcement. It also said that HMRC’s enforcement concentrated on businesses that had records to inspect and where transgressions were often technical, rather than on areas or targets likely to be engaged in real evasion. The Association of Convenience Stores (ACS) said there was a strong informal economy, usually in family-run businesses. The Recruitment and Employment Confederation (REC) believed HMRC needed to take a more targeted approach to enforcement among businesses on the margins of legality rather than trying to find technical breaches in more visible sectors. Anecdotal evidence given to the Secretariat suggested there was an increase in cash-in-hand business, especially in the hairdressing sector.

‘The present economic crisis may make more employers think they can avoid their statutory responsibilities over wages.’

Union of Shop, Distributive and Allied Workers (Usdaw) evidence

7.20 As we have previously noted, the lure of the informal economy becomes greater during an economic downturn. We have not, however, received a lot of specific evidence this year about the extent of the activity in the informal economy. We welcome the efforts HMRC’s National Minimum Wage Unit is making to work more closely with other parts of HMRC, and look forward to seeing the outcomes of this work. As the informal economy is an area that includes workers who are particularly vulnerable to underpayment and exploitation, we will continue to monitor closely what is reported, both from official sources and stakeholders.

Prosecutions

7.21 In noting the recommendation made in our 2009 Report, the Government recognised the importance of the role criminal prosecutions played in enforcing the minimum wage. It stated that prosecutions were focused on cases that would do most to promote compliance with the law by deterring employers who deliberately disregard minimum wage requirements.

7.22 In its evidence this year, the Government said that prosecutions were widely perceived to have a deterrent effect and that the right balance was needed between this form of deterrence and other forms, such as civil enforcement and greater transparency in cases of non-compliance. As part of its work on a new compliance strategy, the Government was looking at whether it was possible and appropriate to prosecute more National Minimum Wage offences. The Government was also examining its policy on civil and criminal enforcement to ensure that it gets the greatest impact from the budget available for enforcement.

7.23 In its evidence this year, Usdaw said there should be more high profile prosecutions and the Public and Commercial Services Union (PCS) said more prosecutions would send a stronger message to employers who tried to evade the law. The Trades Union Congress (TUC) wanted to see the number of prosecutions increased in order to raise employer awareness of the risks of getting caught cheating their workers out of the minimum wage. The CBI said the number of penalties and prosecutions should be increased over the next two years.

7.24 Our belief that it is necessary to see more criminal prosecutions for offences under the minimum wage legislation is well documented in previous reports and culminated in the recommendation we made last year. While we understand the Government is reviewing the mix of criminal and civil enforcement, we believe there remains a strong case to increase the number of prosecutions.

New Penalties and Fair Arrears Regime

7.25 Changes to the National Minimum Wage enforcement regime introduced by the Employment Act 2008 came into force on 6 April 2009. The aim of these changes was to improve and strengthen the minimum wage enforcement regime by providing more effective penalties to deter non-compliance, and a fairer way of dealing with minimum wage arrears. In our 2009 Report, we welcomed the introduction of these new provisions, as they resulted from previous recommendations we had made. Stakeholders also welcomed them and the fact that workers who had not been paid their minimum wage entitlement would receive fair arrears.

7.26 The Government reported that it was too early to evaluate the new regime, in particular how successful the new penalties and method of calculating arrears have been in influencing the behaviour of employers. Initial feedback it had received suggested that implementation of the new regime had not led to delays in completing cases and identifying arrears for workers paid less than the minimum wage.

7.27 The ACS expressed its support for a strong enforcement regime. However, it thought there should be some discretion with regard to the imposition of fines, for example, if it was a genuine mistake. The CBI also supported these new provisions and wanted the enforcement regime to incentivise compliance as well as providing disincentives to non-compliance. PCS, the trade union that represents HMRC’s Compliance Officers, said that it was possible that HMRC’s strike rate would drop under these new provisions; not because fewer employers were underpaying but because of the increased bureaucracy. Previously, arrears were agreed informally between HMRC and the employer, whereas now a formal Notice of Underpayment had to be made. We have also had a number of discussions with Compliance Officers during our visits around the UK and they confirmed that their flexibility to agree the amount of any arrears with employers had been removed.

7.28 It is early days for the new regime and some time will be needed for Compliance Officers to accustom themselves to the new arrangements. We would like, however, to see a firm commitment from the Government as to when it will undertake an evaluation of the new regime. In the meantime, the regime must be rigorously implemented and the desirability of any changes should only be considered if there is compelling evidence that changes are required, following a detailed review.

Compliance Strategy

7.29 As we have already noted, the Government’s approach to compliance and enforcement has evolved over the last ten years in an effort to improve and enhance the enforcement regime. While these changes are welcome, what has become apparent this year is that while there is widespread support for effective enforcement, there is little understanding of the Government’s regime and actions it is taking. A frequent criticism is that HMRC focuses on the easy targets and that it does not publicise what it is actually doing in relation to enforcement. While we support the Government’s efforts to improve the enforcement regime, we believe it is time to review the overall strategy for enforcing the minimum wage.

7.30 We welcome, therefore, the Government’s decision to take stock of its compliance activities, against the backdrop of the introduction of the new penalties and fair arrears regime. The Government said it wanted to look at the mix of activities undertaken by HMRC to ensure that it continued to get maximum impact from the resources and tools that it had available. BIS has, therefore, started work on a new compliance strategy, which will cover both enforcement and awareness-raising activities. Its work on this is ongoing and covers, among other things:

• the balance between civil enforcement and criminal prosecutions;
• the balance between reactive enforcement (responding to complaints) and proactive enforcement (investigating complaints identified by HMRC’s risk assessment);
• the balance between initial enforcement and ‘follow-up’ activity;
• HMRC’s risk assessment; and
• best practice in other enforcement areas.

7.31 It is important for the Government to consider carefully the balance between reactive and proactive enforcement and whether the level of resources put into investigating all complaints could be better used. The Government should also consider whether unannounced checks on employers, like those conducted by other government enforcement agencies, have a role to play in detecting non-compliance. In addition, we believe the risk assessment activity might be further refined to target areas of non-compliance more accurately, with the result that the activity of Compliance Officers will be redirected to greater effect. The TUC said this year that there was a strong case for shifting the emphasis more onto investing in enforcement so that complaints could be dealt with more swiftly and more inspections could be conducted on the basis of risk assessments.

‘Enforcement action takes too long…many workers have moved jobs or left the country before a case can be completed.’

Unite oral evidence

7.32 While enforcement must be a key element of the new compliance strategy, this has to be inter-linked with actions taken to raise awareness among workers and employers of their rights and obligations under the National Minimum Wage Act. We believe there is generally good awareness of the minimum wage, but the Government should be proactive in targeting the areas where the most vulnerable workers are, and this has to be part of the new compliance strategy. We look at actions the Government has taken in raising awareness later in this chapter.

7.33 We understand that there is a need for confidentiality, particularly in relation to employers who may be exonerated after an investigation. We believe, however, there is scope for HMRC and the Government to be more open about what they are doing in relation to enforcement. At the moment, individuals report that they feel information provided to HMRC falls into a ‘black hole’. As individuals are a vital source of intelligence, it is important that they understand that HMRC will make the best possible use of any information provided. As we noted earlier in this chapter, the Government itself believes greater transparency of enforcement is appropriate, particularly as the minimum wage has been in place for ten years.

7.34 We believe that the Government’s review of its compliance strategy is timely and we have welcomed the opportunity to contribute to that review. We look forward to seeing the strategy set out clearly and publicly how the Government will use its resources to ensure all workers receive their entitlement to the National Minimum Wage. Looking ahead, we believe success for the Government will be shown by:

• its strategy for compliance and its enforcement activity being visible and widely understood;
• a free flow of information between enforcement bodies, which informs the strategy;
• an enforcement regime capable of tackling systemic and sectoral issues, as well as detecting individual businesses that do not comply;
• enforcement success being widely publicised to demonstrate that non-compliance is not tolerated; and
• annual statistics and evidence showing a measurable reduction in non-compliance as a result of Government action.

Resourcing Enforcement Activities

7.35 It is crucial that BIS and HMRC, give careful consideration to the best use of resources, to ensure that they are targeted where they will have the most impact. In 2006, the Government announced that funding for monitoring and enforcement of the minimum wage would be increased by 50 per cent (an additional £2.9 million) in each of the next 4 years.

‘Funding for enforcement and awareness must be entrenched and increased…’

National Union of Students evidence

7.36 In July 2009, the Communities Secretary announced that nearly 200 projects were to be supported over the next 2 years by the £70 million Migration Impacts Fund (MIF). Although mainly aimed at helping communities and local public services deal with the short-term pressures of migration, he also announced that the fund would be used to help protect existing workers through enforcing the National Minimum Wage. In December, the Government announced that MIF would resource a Dynamic Response Team for HMRC, which would work on the most high profile and complicated National Minimum Wage cases, particularly in areas where some employers were exploiting migrant labour to undercut legitimate businesses.

7.37 A number of trade union stakeholders have raised concerns this year regarding the funding for enforcement. Usdaw felt that the current economic circumstances might make employers think they could avoid their statutory responsibilities over wages and, as a result, called for more spending on enforcement. UNISON wanted additional funding to allow for more proactive and targeted enforcement. PCS wanted to see additional funding to allow for better policing and joined-up enforcement, as well as for more prosecutions.

7.38 The TUC called for the 50 per cent increase in funding to be consolidated in the next spending period. The CBI, supporting our call for compliance and enforcement to continue to be a high priority for government, wanted to see the 50 per cent increase continue until 2011 so that companies that comply with the requirements of the National Minimum Wage Act were not undercut by unscrupulous organisations. The CBI also reported that its members view effective and thorough compliance checks and enforcement actions as vital to the success of the minimum wage regime.

7.39 We have received only anecdotal evidence that the recession has increased non-compliance with the minimum wage legislation. We know that the recession has had an impact on businesses and, in a move to reduce costs, some unscrupulous business owners might be lured into not complying with the minimum wage (and other employment) legislation.

7.40 Against this backdrop, and with the new regime in its earliest days, we believe it is imperative that resources allocated to enforcement activities are maintained. We therefore recommend that the Government commits, as a minimum, to maintaining current funding in real terms for monitoring and enforcement of the National Minimum Wage until at least March 2014.

7.41 We now go on to look at some of the other issues around enforcement on which we have received evidence this year.

Awareness

7.42 An important part of compliance with the minimum wage is ensuring that employers know what their legal obligations are and that workers are aware of their rights. We have previously made a number of recommendations in relation to awareness and these have been acted on by the Government.

7.43 This year, the Government reported that the overall aim for its 2008/09 publicity campaign was to increase minimum wage compliance. Some of the specific objectives were to: increase awareness of the minimum wage among workers, particularly new entrants to the employment market; promote the minimum wage helpline, including an explanation of its functions; and inform employers about the changes to minimum wage enforcement, in particular the new penalties and fair arrears regime. The campaign focused on workers and employers in low-paying sectors, young people and migrant workers. It included online advertising aimed at young workers, a direct mail-out and online campaign for employers, community messaging, washroom posters, and ATM advertising. The Government spent £850,000 across the range of campaigns.

7.44 Research undertaken for the Government studied the effectiveness of the 2008/09 campaign and compared it with the results of similar research for the 2007/08 campaign. It found that, despite a lower spend (£850,000 compared with £1.2 million in 2007/08), the total level of campaign recognition was not significantly lower than in 2007/08.

7.45 The Government advised that the 2009/10 campaign would run in conjunction with the vulnerable workers’ campaign, whose objective was to raise awareness of all government-enforced employment rights to vulnerable workers. One important part of this was raising awareness of the new Pay and Work Rights Helpline as a source of additional information on these rights. The Government believed that working in conjunction with the vulnerable workers’ campaign would produce a greater impact on the target audience by providing a more coherent package of messages.

7.46 In evidence this year, the GMB said the Government should use social networking sites and websites/organisations aimed at migrant workers to help raise awareness of the Pay and Work Rights Helpline. Usdaw said there was a lack of knowledge of minimum wage rates and that there should be a more vigorous awareness campaign. The YWCA would like to see more action around education of the minimum wage to ensure that young people and vulnerable workers were not exploited.

7.47 We are pleased to see that the Government continues to target its awareness-raising messages at those who need them. Efforts to raise awareness must continue to be focused on those groups which are particularly vulnerable and those which are hardest to reach. As we have noted earlier in this chapter, raising awareness will be an important element of the new compliance strategy. We note the work undertaken in this area and will continue to monitor progress.

Migrant Workers and Vulnerable Workers

7.48 In Chapter 4 we looked at the labour market position of migrant workers from European accession countries. Migrant workers have been identified as a group at particular risk of being paid less than the minimum wage. Over a number of years, the Government has taken specific steps in relation to enforcement to address the issues faced by migrant and vulnerable workers, particularly in relation to its awareness-raising campaigns. We have commented on the steps taken in previous reports.

7.49 We welcome that the Government is working on joined-up enforcement as we believe this will greatly benefit vulnerable workers. The VWEF reported in August 2008 and, since then, the Government has been implementing a programme to improve enforcement and awareness of basic employment rights for vulnerable workers, including the National Minimum Wage, under the backing of FEEB. FEEB brings the workplace enforcement bodies together with key external stakeholders on a regular basis to take forward work on the vulnerable worker programme.

7.50 There are a number of elements of the Government’s programme, including the following.

• A Single Enforcement Helpline. Previously, there were five separate helplines about government-enforced employment rights, operated by five enforcement bodies. The new helpline has simplified and streamlined access to these bodies.
• Joint working between the Workplace Enforcement Bodies. The helpline operators are able to diagnose and refer issues that may be of relevance to more than one enforcement body. Enforcement bodies have been working more closely on multi-issue complaints, and considering joint investigations wherever possible.
• Best Practice Group. This was established in autumn 2008 to provide more collaboration at working level across the five enforcement bodies and build on the work of the ‘single points of contact’ network that had already been established. The group discusses operational issues relating to how the bodies work together on complaints referred by the new helpline, together with forward planning, training, and improving understanding of each other’s functions, activities, and priorities.
• Working with Local Authorities. HMRC and the Employment Agency Standards Inspectorate (EAS) ran a 12-month pilot with Newham Borough Council to encourage local council inspectors to pass on suspicions of non-compliance with the minimum wage and employment agency standards. As a result of the evaluation, HMRC is working with Newham Borough Council on shadowing opportunities for the inspectors to improve their understanding of the potential indicators of non-compliance with the minimum wage.

7.51 We welcome the actions the Government is taking to protect vulnerable workers from exploitation. We will monitor progress on these actions over the coming year and we urge the Government to keep these high on its agenda.

Agency Workers and the Employment Agency Standards Inspectorate

7.52 In Chapter 4 we reported on some of the issues around agency workers. In this section we look again at agency workers, specifically in relation to enforcement.

7.53 The EAS enforces employment agency legislation. The Conduct of Employment Agencies and Employment Business Regulations 2003 (The Regulations) require agencies, among other things, to ensure that agency workers are paid in full and on time.

7.54 In our 2009 Report we commented on a number of changes that were happening, which would have an impact on the treatment of agency workers. The number of EAS inspectors had doubled, from 12 to 24, and changes that came into force through the Employment Act 2008 increased the EAS’s powers of investigation (e.g. access to bank and other financial records) and the ability to issue stronger penalties.

7.55 The Government advised this year that it had received a number of complaints regarding the changes to The Regulations that came into force in April 2008. The changes banned entertainment and modelling agencies taking fees on the day or during a casting session, and introduced a seven-day cooling-off period, during which time a work-seeker could withdraw from any contract. In response to these complaints, the Government launched a consultation proposing either to ban up-front fees or to tighten The Regulations. In November 2009, the Government announced that, as a result of its consultation, it would ban agencies charging up-front fees and that new regulations introducing this would come into force in October 2010.

‘The law is good in principle but it is not working. It is being abused on a scale that has become accepted as the norm.’

Broadcasting Entertainment Cinematograph and Theatre Union oral evidence

7.56 The Government also advised that, as a result of the increase in the number of EAS inspectors and the changes to their powers, inspectors carried out regular blitzes on agencies operating in high risk sectors. So far in 2009/10, the EAS has prosecuted one person and retrieved £125,000 of workers’ wages. This is more than double the amount of money retrieved in 2008/09.

7.57 Oxfam told us that there needed to be a stronger enforcement process and the current situation with four bodies dealing with employment law was confusing. It recommended that there should be a single labour inspectorate, incorporating the EAS into the Gangmasters Licensing Authority (GLA) or failing that, the remit of the GLA should be extended to cover the care, construction and hospitality sectors. The TUC said that a disproportionate number of minimum wage problems seemed to be associated with the practices of the less scrupulous employment agencies. While the regulation of most of these falls to the EAS, the TUC said the Commission should consider how the EAS and HMRC were currently working together to ensure that the minimum wage was fully enforced in this sector.

7.58 In Chapter 4 we have explained the problems faced by those employed by agencies, particularly in the entertainment and hotel cleaning sectors. From the evidence we have received, we do not believe that changes to the minimum wage legislation are required. Instead, as we have recommended, guidance should be issued for those in the entertainment sector and HMRC should focus its enforcement activity in the hotel cleaning sector. More generally, we believe that as a result of the forthcoming compliance strategy, HMRC should be able to be more adaptable and responsive in enforcing the existing legislation, particularly where problems are highlighted (for example, in relation to unpaid work experience).

Gangmasters Licensing Authority

7.59 The GLA was set up in April 2005 to curb the exploitation of workers in the agricultural, horticultural, shellfish gathering and associated processing and packing industries. The GLA has been processing applications for licences from labour providers since April 2006. It became an offence to operate without a licence in October 2006 and there are stiff penalties for doing so.

7.60 The GLA’s Licensing Standards, against which licence applications and subsequent compliance inspections are assessed, were revised and updated in April 2009. They include key areas of interest to us, such as the payment of wages, improper deductions and workers’ accommodation. In addition to its own compliance teams, the GLA works closely with other government departments and agencies to share intelligence to ensure legal requirements are met and enforced.

7.61 Since it began operations, the GLA has licensed around 1,200 labour providers. Over 100 licenses have been revoked (8 with immediate effect). There have been 4 prosecutions for operating without a licence and 1 prosecution for using an unlicensed gangmaster.  The GLA has advised more prosecutions will be forthcoming.

7.62 At a meeting with the Secretariat, the ALP said it would like to see the GLA given the job of enforcing the National Minimum Wage, as in practice it was doing a better job than HMRC among the businesses it licensed. UNISON said the remit of the GLA should be widened to include other sectors with a high proportion of migrant and/or vulnerable workers. Unite said the GLA’s remit should be extended into construction, hospitality, social care and the betting and gaming sectors.

7.63 There has been a positive impact from the GLA on the sectors it regulates in a relatively short period of time. Its impact, however, goes wider than this, with organisations again this year calling for the GLA’s remit to be extended to other sectors. We welcome the wide publicity the GLA gives to its activities, for example, frequent press notices regarding operations it has undertaken or details of licences revoked. The GLA is a member of FEEB and the sharing of information and best practice as a result of the work of this group will, we believe, be of great benefit to other enforcement bodies.

Conclusion

7.64 The National Minimum Wage has been in existence for ten years and since it was introduced, HMRC has been undertaking the enforcement function on behalf of the Government. During this time we have made a number of recommendations on ways to enhance and improve the enforcement regime and the Government has reacted positively to what we have said.

7.65 In this chapter we have recognised and highlighted some positive developments that have taken place in relation to compliance and enforcement, in particular the work being done to increase awareness. We have also highlighted a number of concerns that have arisen as we have gathered evidence this year. Some of these concerns relate to how HMRC is perceived to be operating, rather than specific functions it is carrying out.

7.66 Given what we have seen and been told this year, the Government’s decision to establish and publicise a new compliance strategy is welcome. To be effective, we believe the strategy should clearly set out how the Government will use its resources to ensure all workers receive their entitlement to the National Minimum Wage. In future years, as a result of the strategy, the Commission believes there should be: a more flexible enforcement regime which can tackle systemic and sectoral issues; wider publicity of enforcement success; and a measurable reduction in non-compliance through government action. We will monitor closely the effectiveness of the actions taken by the Government as a result of the new strategy.

7.67 It is important that the new strategy is publicised, along with an annual report of actions taken by HMRC, to increase transparency of the enforcement regime. In addition to issues highlighted in para 7.31, we believe it should be possible to provide more information on what is being done, and that greater openness and transparency could be achieved without compromising confidentiality.

7.68 Linked to the work on the new strategy, we look forward to seeing in the coming year the Government’s policy on naming and shaming and the outcomes of the work to tackle the informal economy. We remain concerned at the low number of prosecutions and believe it is important that a timescale is given as to when an evaluation of the new penalties and fair arrears regime will be undertaken.

7.69 To underpin all this work, it will be necessary for sufficient funding to be in place. This is why we have recommended that funding for enforcement is maintained in real terms at its current level until at least 2014.

7.70 In the next chapter, we conclude our report with our analysis of the economic climate and stakeholder views on the minimum wage rates for 2010. We close with our recommendations on the adult minimum wage, Youth Development Rate, 16–17 Year Old Rate, and the level of the accommodation offset.