Small Business, Enterprise and Employment Bill

Baroness Drake Excerpts

Monday 26th January 2015 Grand Committee

[Baroness Drake (Lab)]

My Lords, I support Amendment 68ZY. My noble friend Lady Hollis has been tenacious in seeking to achieve fairness for a section of the workforce that is excluded from the national insurance system.

As my noble friend explained, this group of workers is caught by the rules whereby someone has to earn, in a single job, an amount above the lower earnings limit—£5,700 a year—to come into the national insurance system, although they do not have to pay national insurance contributions until they earn more than £7,500 in a single job. If, however, they have two or more short-hours jobs—mini-jobs—all of which pay below £5,700 but which may involve them working, say, 30 hours a week, they cannot add the wages of those jobs together to get above the lower earnings threshold and into the national insurance system. The amendment is simple. It proposes lowering the earnings threshold for entering the national insurance system to allow many more of the growing number of workers on mini-jobs and non-guaranteed hours to get into the national insurance system.

In the past, it was thought that perhaps 50,000 people, mostly women, were affected, as they sought to get an income by putting together a series of mini-jobs. But the scale of the problem is now far greater because of the increase in the use of zero-hours and minimum guaranteed hours contracts in the economy, which can deliver little or no wages in some weeks if little or no work is offered. Workers may need several casualised jobs to get an income but then find that not one of them pays above the £5,700 entry level for the NI system.

According to the ONS’s Annual Business Survey in January 2014, there were some 2.7 million zero-hours contracts, of which 1.4 million provided work to people and 1.3 million did not. The 2011 Workplace Employment Relations Study revealed that 23% of workplaces with 100 or more employees used zero-hours contracts. My noble friend has provided far more detail on the growing evidence available but it is clear that the number who find themselves excluded from the national insurance system will increase.

A modem welfare system has to be inclusive and responsive to the realities of the contemporary labour market. Over the years, Parliament has recognised the unfairness of locking certain groups of people out of the national insurance system and has amended the rules accordingly. As my noble friend listed, mothers of children aged under 12, disabled people, carers, a grandparent caring for a child whose mother works, and the unemployed on JSA are credited into the national insurance system. It seems all the more unfair that there is a group of workers whose pattern of employment and earnings does not deliver wages in any one job sufficient to meet the entry point of £5,700 for the NI system and they cannot add their wages from their other jobs to get through the turnstile. A hundred pounds per week, which is below the lower earnings limit, equates to almost 16 hours on the national minimum wage, so a person with more than one such mini-job could be working a significant number of hours but still be excluded.

Universal credit is income-based so it will not provide a comprehensive solution to this problem. For example, if a single person is earning more than £4,000 a year in any job, they are above the level for universal credit so they do not get credited in. However, £4,000 is significantly below the lower earnings limit of £5,700 and if not one of their mini-jobs pays above this level, they still cannot get credited in. My noble friend gave us another example. If a partnered woman is working but has no single job paying wages that reach £5,700, and if her husband is in work and they have two children aged over 12 when his earnings float him off universal credit, the woman cannot get credited through to the national insurance system. The need to address the position of such women is made even more urgent because from April 2016 these women will no longer be able to gain state pension though their husbands, as the married women’s dependency pension will cease. They will be locked out either way you cut it. Yet the ONS report revealed that women make up a greater proportion of those on zero-hours contracts, and that people who report being on such contracts are more likely to be younger and, I presume, to be single.

The Secretary of State, Vincent Cable, and other employer bodies such as the EEF, the CBI and the IoD argue that zero or no guaranteed-hours contracts have a place in today’s labour market and that employers need flexibility in today’s global economy to manage the consequences of economic downturns. If that is the case, the issue of workers who accrue income across one or more contracts but cannot enter the NI system is here to stay. It means also that it is here to be addressed. The right of businesses to employee flexibility should not deprive workers of access to the national insurance benefits system—but that is exactly what it is doing and will do, unless the problem that my noble friend has so tenaciously and consistently articulated is addressed.

It is argued that such zero-hours contracts are required to meet a short-term need of employers but the persistency of zero-hours contracts is evidenced by the Chartered Institute of Personnel and Development, whose findings indicate that of the workers affected, 65% have been on such contracts for two or more years, 40% for five or more years and 20% for 10 or more. The employer’s need may be short term but the employee’s contractual position can be long-term and bring a long-term lock-out from the national insurance system. The Government’s ban on exclusivity clauses in zero-hours contracts allows people to work for more than one employer but will not provide a definitive solution to the problem. The freedom to have several contracts does not provide entry into the national insurance system if none of them produces a wage above £5,700.

My noble friend Lady Hollis has faced varied rebuttals from the Government on her proposed solutions: that it is not reasonable to try to share employer’s NI across mini-jobs; that the women will still not want to pay class 1 contributions; that there are only a few of them; that their situation is temporary; that they have time to make up missing years; that universal credit will solve it and that, if all else fails, there is pension credit. That persistent rebuttal is becoming increasingly hollow, though, since both the Secretary of State and business itself confirm that there is an integral need for these minimum and no-guaranteed-hours contracts as a functioning part of a modern labour market, so we need to find a solution.

I repeat: over the years, Parliament has recognised the unfairness of locking certain groups out of the NI system, including the state pension, and has amended the rules accordingly. As my noble friend has advised, it has rightly accepted that those who are unemployed and in receipt of benefits such as JSA, have no employer and do not pay national insurance are in the national insurance system. Those who are lucky enough to get a single job earning £6,000 or £7,000 do not pay national insurance contributions but are also in the system. Lowering the lower earnings entry point to allow many more of the growing number of those on mini-jobs and no-guaranteed-hours contracts to enter the national insurance system has the merit of simplicity and is the fair thing to do.

[Lord Young of Norwood Green]

My Lords, after that forensic double examination, I cannot help reflecting that I am glad I am not responding. I support the amendment because it raises a significant issue. I also want to add the point that here are a Government who say that the best thing we can do is to encourage people to get into work, and I think that that is right; people who are locked out of the employment market, for whatever reason, face a real challenge. So these are people who are determined to work, which is what the Government want them to do, and determined to make a contribution not only for themselves but for their families, yet they are being penalised. The case being made is a valid one. We recognise by the nature of the contributions that this is quite a complex issue, so I look forward to the Minister’s response.