The Overview & Scrutiny Committee of Southwark Council met on Monday 15 June 2015 to discuss national minimum wage enforcement in the borough. The committee heard from Councillor Andy Holt, an expert on minimum wage enforcement, who presented findings from his report Settle for Nothing Less. The discussion focused on understanding the extent of underpayment of the national minimum wage in Southwark and exploring potential improvements to the current enforcement situation.

National Minimum Wage Enforcement

The committee discussed the issue of national minimum wage (NMW) underpayment, with Councillor Andy Holt highlighting that an estimated 300,000 people in the UK still work for less than the NMW, representing approximately £5.3 million in owed wages. He explained that enforcement is primarily handled by HMRC, which operates with a budget of £8 million and identifies around £4 million in arrears annually, leading to questions about its cost-effectiveness.

Councillor Holt detailed that 60% of HMRC's enforcement work is reactive, relying on calls to the Pay and Work Rights Helpline, while 40% is proactive, targeting specific sectors and areas. He identified several sectors where NMW underpayment is prevalent, including home carers not being paid for travel time between appointments, apprentices in hairdressing working beyond their first year without increased pay, unpaid internships in media and politics, and hotel cleaners paid per room rather than per hour.

The report noted that London is particularly affected by NMW issues due to the concentration of certain industries and a significant migrant population, who are often more susceptible to exploitation. Councillor Holt's report, Settle for Nothing Less, funded by Trust for London, made several recommendations, including building NMW compliance into council contracts, abolishing the low first-year apprentice rate, and encouraging employers to publish pay information. He also suggested that arrears should be channelled through HMRC or an independent third party rather than directly from the offending company.

Councillor Holt advocated for increased fines for non-compliance and more consistent prosecution of repeat offenders. He also stressed the need for greater publicity around the NMW and suggested that local authorities could play a more significant role if given more relaxed information-sharing protocols. A key recommendation from his report, which was included in the Labour Party manifesto, was the devolution of NMW enforcement responsibility to local authorities, arguing that councils are better placed to understand local businesses and workers.

During the discussion, councillors explored how Southwark Council could identify problem areas. Councillor Holt suggested engaging with reputable businesses, as competitors may have intelligence on rivals' practices. He also proposed integrating questions about pay into the council's customer service interactions. However, he cautioned that third-party reporting to HMRC is often deprioritised compared to direct employee complaints, creating a catch-22 situation.

Councillor Rosie Shimell inquired about best practices for councils in raising awareness and engaging with businesses. Councillor Holt highlighted Newham Council's proactive approach, which has involved multi-agency raids with HMRC and the Home Office's Immigration Enforcement directorate, focusing on specific sectors. He noted that while these raids can identify NMW underpayments, they are often linked to broader immigration enforcement.

The discussion touched upon the statistics for NMW underpayment in different boroughs, with Newham reporting 17% of workers being paid less than the minimum wage, while Southwark's figure was cited as 2.3% based on Low Pay Commission data from 2012. Councillor Holt acknowledged that the Newham figures were more up-to-date and based on a rigorous methodology.

Councillor Johnson Situ raised concerns about vulnerable residents, particularly those with precarious immigration status, being hesitant to report NMW violations. Councillor Holt explained that true anonymity in reporting is difficult to guarantee, as arrears need to be paid to specific employees. He suggested offering support through trade unions or council officers, while acknowledging the fear of repercussions.

The issue of workers being classified as self-employed to avoid NMW obligations was also discussed, particularly in sectors like hairdressing. Councillor Holt noted this as a wider issue of tax avoidance that might require a national response.

Councillor Tom Flynn questioned the direction of NMW underpayment figures since 2012 and how to ensure consistency in enforcement across London boroughs. Councillor Holt suggested that if local authorities could retain fines imposed for NMW breaches, it could create a financial incentive for them to engage more actively in enforcement. He believed the overall picture of NMW underpayment has remained relatively constant over the past decade.

Councillor Catherine Dale praised Councillor Holt's report and suggested exploring synergies with the Open Data movement to improve intelligence sharing. She also raised concerns about apprenticeships and unpaid internships, noting that while Southwark has an ethical care charter, the culture of unpaid work persists.

Councillor Ripa asked about the effectiveness of including clauses in council contracts to ensure NMW compliance. Councillor Holt confirmed that while he was not aware of contractual requirements being breached, contractors are more concerned about losing contracts due to non-compliance than facing HMRC penalties. He expressed caution regarding kite marks or certifications, suggesting that focusing on a few key areas, like the living wage, might be more effective.

Councillor Maeve inquired about upskilling council workers to identify NMW issues. Councillor Holt recommended training outward-facing staff to recognise NMW rates and reporting procedures, emphasizing the need for sensitivity when asking employees about their pay. He also suggested that any increase in reports to HMRC would be their responsibility to manage.

The committee also discussed employer landlords and the potential for councils to incorporate wage compliance into licensing and regulations for private rented accommodation. Councillor Holt noted that while this is a significant issue in sectors like agriculture, it is less prevalent in London, where landlords are less likely to also be employers in the same way.

Councillor Paul Fleming asked about the use of financial information, such as rent arrears or business rates, to identify NMW non-compliance and whether HMRC would collaborate. He also questioned the legality and feasibility of incorporating NMW requirements into contracts for businesses operating in council-owned properties, such as theatres. Councillor Holt confirmed that councils could indeed set NMW or living wage requirements for tenants of their properties, though it might limit the pool of potential lessees.

Councillor Tom Flynn revisited the idea of contractual penalties, particularly in the construction sector, suggesting that explicit penalties for NMW breaches should be included in council contracts. It was noted that Southwark Council is an accredited living wage employer, and this requirement is expected to extend to its construction companies.

Councillor Jasmine Ali proposed a joint initiative with other councils and data campaigns to explore open data opportunities related to NMW enforcement. She also suggested that London councils could coordinate a letter to the Business Secretary advocating for the devolution of NMW enforcement responsibilities to local authorities, potentially fostering competition among boroughs to improve enforcement.