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LITRG reports that, from 1 January 2011, National Minimum Wage regulations will change, preventing low-paid workers from participating in travel and subsistence expenses ‘schemes’ used by some employment businesses.

Introduction

Earlier this year, a consultation proposed a change to the National Minimum Wage (NMW) regulations to counter the use of certain travel and expenses schemes in the context of low-income workers, as the Government felt they primarily served to give some employment businesses a competitive advantage through exploitation.

Our recent article highlighted that - whilst of course we do not endorse exploitation - such a change on its own could make some workers worse off, in turn tipping the balance against ‘making work pay’.

For that reason, our key suggestion in responding to the consultation on the change in regulations was to look at the bigger picture, as the current system for travel expenses - its origins in the 19th Century - is not fit for the modern world. The Government’s response is, however, to proceed with a change in NMW regulations without that wider review.

The bigger picture

Whilst we understand that one of the objectives of the proposed change is to level the playing field for both employment businesses and low-income workers alike, the response document acknowledges that some workers will be made worse off. This is for a combination of possible reasons: a reduction in take-home pay due to increased tax and national insurance contributions; reporting increased tax credits income which will eventually lead to a reduction in their award; and knock-on effects for Housing Benefit and Council Tax Benefit.
 
The original consultation proposed to change the regulations from 1 October 2010, but this has been deferred to 1 January 2011 to ‘allow employers to make the necessary changes to systems and processes’. But there is no mention of support for affected employees. Indeed – as the Government acknowledges – there is evidence that workers signed up to the schemes do not understand what they are involved in, so how will they understand when the arrangements are withdrawn?
 
Moreover, the proposed changes will not block this type of scheme altogether, but primarily affect workers earning at or near the National Minimum Wage. Yet the response document states:

‘[Tax credits] are not intended to provide support where arrangements have been introduced by employers which reduce the amount of employer and employee contribution to the Exchequer. Also, the Government is concerned about the unfairness that these schemes create, as those workers who participate benefit artificially from enhanced eligibility for Tax Credits, compared to other workers, with similar levels of income who do not or cannot participate.’ 

But it is not only NMW workers who can claim tax credits, so why remove this ‘unfairness’ and not others?

Work incentives

As above, we have said many times in the past that the cost of getting to a place of work can be a major disincentive to work and, particularly in such difficult economic times, people have to take work where it is offered. The existing combination of tax, national insurance, tax credits and benefits rules does little to recognise this.

Whilst our request for a thorough review in the context of the NMW consultation has been overlooked, we draw some comfort that the DWP’s new ‘21st Century Welfare’ consultation acknowledges in its discussion of work incentives that ‘in-work costs such as travel… can easily wipe out a meagre financial gain.’

But once again we would stress that it is essential to look at the issue of travel costs across government; so even with this further consultation there is a danger that the tax and national insurance position will be sidelined, with the key focus on benefits.