An unreported scandal: Wages so low they’re illegal

A row over the coalition's wavering enforcement of the national minimum wage is acting as a smokescreen for the real reason workers are being let down. It's austerity, of course.

Getting companies to pay their employees at least £6.50 an hour is not as straightforward as it might seem.

The Centre for London thinktank estimated that at the end of 2013 there were up to 300,000 workers being paid less than they should be. Businesses are deducting the cost of uniforms, accommodation and transport out of their employees' pay. Legal loopholes are being used to bring in migrant workers who are exploited into accepting lower rates. In the social care sector, non-payment of travel time is sending many workers' wages under the minimum wage line. "It almost seems to be the norm in the industry to try and get away with that," one campaigner said.

Others agree the problem is huge. The TUC's work on this suggests 250,000 workers are being underpaid. Its claims are backed up by the Audit Commission's analysis of the social care sector and the Department for Business, Innovation and Skills' own work on apprentices. So you'd think the government would be doing all it could to enforce the national minimum wage.

Yet when Lord Christopher asked a question about the number of investigations HM Revenue and Customs (HMRC) had pursued in the last four years, that didn't appear to be the case at all.

The number of investigations carried out by HMRC, the table shows, has halved from 2,904 in 2010/11 to just 1,455 in 2013/14. True, the total amount of arrears it has netted has increased slightly, but this only suggests that greater enforcement would lead to even greater amounts of unpaid cash being returned to hard-working staff.

"Under the Tory-led government, life at work has become less secure and families have been left £1,600 worse off," shadow trade and industry minister Ian Murray said.

"Ministers are turning a blind eye when bad employers fail to pay the national minimum wage. It is a scandal that the number of investigations have halved under the Tories while at the same time there have only been two prosecutions for non-payment under this government."

This is not the story the government wants you to hear. In the world occupied by ministers and civil servants, it is enforcing national minimum wage vigorously. Earlier this month, it points out, the government named and shamed 37 rule-breaking employers, taking its total of embarrassed firms up to around 100 in the last 12 months. Yet there were 680 cases with arrears in 2013/14. Why have they not pointed the finger at many more?

Business secretary Vince Cable, who has been defending the government on the issue in the Commons, says there have only been two prosecutions because it's "very difficult to demonstrate" proof of intent. He does not say why ministers have not changed the law underpinning this.

What he does point out is that the coalition is quadrupling the fine faced by rule-breaking bosses to £20,000. The big difference, he says, is that this now applies per worker rather than per company. "That is a considerable escalation of penalties," Cable insists.

And he's right. The problem isn't in the penalties but in the enforcement and the bottleneck of investigations. They have resulted in the average arrears per worker totalling £167. In 2013/14, according to figures from the Low Pay Commission, they had reached £205.

HMRC says it also undertakes other interventions designed to identify employers who may be underpaying. From September 2010 to the end of March 2014 there were over 400 'employer contacts' made. A spokesperson said: "We investigate every single minimum wage complaint we receive. In addition, last year alone our NMW enforcement teams secured over £4.6 million in wage arrears for more than 22,000 workers through investigating complaints and careful targeting of unscrupulous employers."

That quote contains a clue to the real problem here: it's not in the activity of HMRC in beginning investigations, but in the number of complaints it is receiving. There is a reason for this. The stumbling block is that the complaint must be made by the worker themselves and no-one else. Many care workers are shy about taking this step, it's claimed. Furthermore, not enough of them know this is what they must do to get their money back.

The government used to spend money promoting its pay and work rights helpline. But the £1 million spent on this in 2010 was slashed to zero, before restoring around £100,000 to the budget. It's all part of the broader austerity drive. Doing so has not helped the number of investigations coming in, though. The problem persists.

It begs the question: what will happen in the next government? HMRC says it is increasing the total funding for enforcement by £1.2 million in 2014/15 and will hike it by a further £3 million, bringing the total funding to £12.2 million. This will pay for over 70 new enforcement officer posts, some of which are already in place. Labour offers its own promises, too. "The next Labour government will ensure the minimum wage is properly enforced, including by giving local authorities new powers, and would set a more ambitious target with an £8 minimum wage where its value has been eroded and undermined in recent years," Murray says.

Neither of these appear to address the underlying problem: that more workers need to be making complaints. If they fail to do so, those extra staff at HMRC will be left twiddling their thumbs.

It is, as the opposition says, a scandal that so many workers are being denied the basic pay supposedly guaranteed to them by law. Spending cuts caused by the coalition's austerity drive are driving down ministers' ability to deal with this problem. Whatever kind of government we end up with after the election, it's far from clear this problem will be decisively addressed.

"Our goal must simply be to get to a position where cheats are never allowed to prosper from their misdeeds," the TUC's manifesto on this issue states. In Britain in 2015, cheating bosses are prospering on a daily basis.