LPC: apprentices currently exempt from the minimum wage TUC response

Summary The TUC welcomes the LPC’s review, which aims to extend minimum wage protection in some form to those apprentices who are still exempt from the national minimum wage (NMW). Currently, apprentices under the age of 19 and older workers in the first year of an Apprenticeship are not protected by the minimum wage. We have already established that the current exemptions have been exploited by a minority of unscrupulous employers. There are also serious concerns that low pay is bad for the “brand” of apprenticeships, which has a detrimental effect of its standing with employers, apprentices and potential apprentices alike. This manifests itself in difficulties in recruiting apprentices in certain sectors and by its effect on completion rates, which are better in the higher paying industries. Amongst our new findings are that the number of apprentices that would be covered by extending the minimum wage would be smaller than previously thought, since a closer examination of employment status suggest that there are more non-employed apprentices than previously thought, plus a small group of apprentices report that they are self-employed, and are therefore likely to be exempt from the minimum wage Our conclusion will be that the LPC should recommend the establishment of 3 new age-based hourly rates for those apprentices who are currently exempt from the NMW and set slightly below the existing NMW rates. The new rates should follow the existing NMW practice of being paid by the hour as it would be fairest to both employers and apprentices alike to link pay to actual working time, especially as some 20,000 work either part-time or more than 48 hours per week. We recommend continuing with the established NMW practice of being entitled to be paid for training time that is a requirement of the job. We suggest a target range for the new rates, based on a discount of 10 to 15 per cent from the existing rates. The LPC is likely to be quite cautious when establishing a brand new rate in the current climate, but we would expect the commission to review these rates annually and to increase them to the highest levels that can be sustained. There is no need to review the position of apprentices who are already protected by the NMW, since this will be dealt with in the LPC’s general review The TUC’s recommendations •

£3.00 to £3.18 - Aged 16-17

•

£4.05 to £4.29 - Aged 18, plus aged 19 and 20 (first year of apprenticeship only):

•

£4.87 to £5.15 - Aged 21 and above (first year of apprenticeship only).

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1: Introduction The LPC is currently considering establishing new rates in order to protect those apprentices who are exempt from the National Minimum Wage. At the moment, the minimum wage does not protect young apprentices under the age of 19 or older workers who are in the first year of their apprenticeship. The traditional view of the apprentice wage bargain has been that it is acceptable to exchange lower pay for apprentices in the short-term for valuable training that leads to higher pay in the medium and longer term. This was the rationale upon which the LPC originally decided to exempt apprentices from the NMW. However new face of Apprenticeships is often very different to the traditional model and these changes need to be reflected in the pay protection available to apprentices. The TUC believes that the current exemptions have become unsustainable, as they keep some apprentice pay too low and impact adversely on completions. Sadly, although trade unions have been able to achieve good rates for apprentices where they have collective bargaining agreements, a minority of employers in non-union workplaces simply use the exemptions as a loophole in order to pay low wages, so a robust safety net is clearly needed. The Government and the LPC have quite rightly come to agree with this view, and are now faced with the important question of deciding on the shape of the new regime and the initial rates to apply from 2010. Although the UK economy is currently undergoing a considerable recession, economic predictions suggest that growth and employment will recover in 2010, so the conditions will be more favourable when the proposed rates take effect. At the moment, employee apprentices in England are entitled to a minimum contractual payment of £95 per week. This has recently increased from the £80 payment established in 2005. Although enforcement of the minimum contractual payment has been weak, it is still worth starting our deliberations by considering the course of apprenticeships in the period between its establishment and the onset of the current recession. There were some very vocal prophets of doom in 2005 who said that the introduction of a minimum payment would undermine the development of apprenticeships. In fact, they have been proved simply to be wrong. The latest government figures show that: • • •

The volume of apprenticeship starts in 2007/08 was the highest level ever recorded at 224,800. This was an increase of 21.9 per cent from 2006/07. 107,000 16 to 18 year olds started an apprenticeship framework in 2007/08. This was an increase of 1.9 per cent from 2006/07; 90,100 19 to 24 year olds started an apprenticeship framework in 2007/08. This was an increase of 14.6 per cent from 2006/07;

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•

27,200 25 year olds and over started an apprenticeship framework in 1 2007/08, up from 300 the previous year .

There is certainly no suggestion that the introduction of a minimum contractual guarantee of £80 for apprentices in England and Wales caused employers any difficulties whatsoever. This is an encouraging start to extending wage protection to the most vulnerable apprentices. Now is the time to build on that success. Employers should have no real difficulty in coping with minimum wage rates for these apprentices if they are set with due care. In this paper we will supplement our general labour market intelligence by examining official data on apprentices, trade union agreements and looking very briefly at practices in a couple of other countries. The TUC want to close of the loophole that exempts some apprentices in order to end the exploitative practices of a minority of employers and improve the standing and attractiveness of apprenticeships as a whole. Some well-meaning employers in the low paying sectors would find these goals impossible to achieve without further legislation and the promise of better enforcement in order to prevent undercutting. There is every prospect that new rates can be established successfully and that they will achieve these desirable goals.

2: The LPC’s remit and the current inquiry The TUC has been calling for some years for a review of the minimum wage exemptions for apprentices under the age of 19 or in the first year of their apprenticeship. The LPC’s 2009 report concluded that: “a minimum wage for apprentices should be introduced under the National Minimum Wage framework (paragraph 6.87). We recommend that the Government asks the Low Pay Commission, as part of the work for its 2010 Report, to consider the detailed arrangements for an apprentice minimum wage under the National Minimum Wage framework, and to recommend the rate and arrangements that should replace the existing exemptions, together with the timing for its introduction (paragraph 6.93).2”

1

Source: ONS Data Service, Post-16 Education & Skills: Learner participation, outcomes and Level of Highest Qualification Held, June 2009 (table 5, p6). http://www.thedataservice.org.uk/NR/rdonlyres/82B63DA1-7024-4F74-A0CEFC61C085D649/0/nat_SFR_Post16_Education_and_Skills_July09.pdf 2

LPC Report, 2009, pxxii. ESAD

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The Government duly picked up this recommendation in its remit for the 2010 minimum wage review, which was published in spring 2009. This instructs the LPC to: •

“Consider the detailed arrangements for an apprentice minimum wage under the NMW framework (as set out in the NMW Act 1998), and to recommend the rate and arrangements that should replace the existing exemptions, together with the timing for its introduction.

•

The Commission is asked to do this with reference to: a) the need to ensure that sufficient volume, quality and sectoral variety of apprentice places are available to meet government targets, in particular when the education participation age is raised in England in 2013 and 2015; and b) the effective functioning of the education market and young peoples’ choices with reference to the level of financial payment available on other education and training routes.”

The LPC subsequently published the details of the review in June 2009: “We have been asked to advise the Government on the rate and detailed arrangements for an apprentice minimum wage. We would welcome your responses on the questions listed below and any evidence you have in support of your views. • What is an appropriate rate for an apprentice minimum wage? • At what level(s) of apprenticeship should the apprentice wage apply? • Should the apprentice minimum wage vary by age, and if so, how? • Over what time period should the apprentice wage apply? Should the wage vary over the duration of training (e.g. be staged between years)? • Should the apprentice wage apply on a weekly or hourly basis? • How should time spent training (either ‘on-the-job’ or ‘off-the-job’) rather than working be treated?3” The TUC will consider all of these questions in our response. 3: The current economic situation and prospects for 2010/2011. The LPC is considering setting new apprentice rates to apply to some apprentices for 2010/2011. It is well known that the UK economy is currently undergoing a considerable recession. However, as the table below suggests, most economic commentators believe that economic growth will return by 2010. Although unemployment is unlikely to continue to increase for some time after the onset of the recovery, the situation should be improving by the end of 2010. Most employees continue to receive pay rises during a recession, albeit at a somewhat lower rate than in the boom years, and the growth in average earnings continues to outstrip reported pay increases by a considerable margin. 3

Letter from the LPC Secretary, 16 June 2009. ESAD

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The economic situation should not deter the LPC from setting new rates to protect those apprentices who are currently exempt from the minimum wage, but it does mean that the Commission will want to proceed with due caution when setting the rate, so as to ensure that genuine apprentice opportunities are preserved. Table 1: Economic predictions 2009-2011 2009 whole year forecast

2010 forecast

2011 forecast

Earnings growth

1.0%

2.4%

-

GDP

-4.0%

0.6%

1.9%

Employment

-2.3%

-1.4%

-

Claimant Unemployment

1.99 million

2.28 million

2.23 million

CPI inflation

1.1%

1.7%

1.5%

RPI –x inflation

1.1%

2.8%

-

Source: HMT roundup of independent forecast for the UK economy (July 2009 for 2009/2010; May 2009 for 2011 forecasts) Median forecast made in last 3 months for 2009/2010; average new forecasts for 2011.

The table below shows that employment has held up better across the low paying sectors than in the general economy, although it must be said that retail has fared rather worse. However, the industries that employ most apprentices are not in the low-paying sectors. Whilst apprenticeship numbers have fallen somewhat in both the construction and manufacturing industries, economic conditions have been to blame. The minimum wage has not been a factor since low paid workers are spread thinly in these sectors, whilst industries where the minimum wage is important are mostly holding up reasonably well.

Table 2: GB Employees in low paying industries (thousands) ESAD

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Industry

March 2008

March 2009

Change

Agriculture, hunting and forestry*

237

238

+1

Textile, clothing and leather goods manufacture

99

91

-8

Retail trade (not motor vehicle)

2,785

2,711

-74

Hotels & restaurants

1,749

1,7`18

-31

Social work activities

1,174

1,202

+28

Investigation and security services

170

176

+6

Industrial cleaning

450

441

-9

Hairdressing & other beauty treatment

121

126

+5

Total employee jobs in low paying sectors

6,785

6,703

-82 (-1.2)

All employee jobs

26,384

25,853

-531 (-2.0)

Source: UK Statistics Authority GB Employer Jobs Survey http://www.statistics.gov.uk/elmr/09_09/6.asp , table 6.05

4: Mapping apprentices and pay Data Sources – DIUS/ DBIS and the ONS Labour Force Survey DBIS has now taken over responsibility for apprentices from the old department DIUS. DBIS publishes regular information about apprentice starts and completions. However, information about apprentice pay rates is much less complete. The most commonly used sources have been the two surveys commissioned by DIUS in 2005 and 2007. One criticism of these surveys has been that they are likely to err on the low side because they combined data about gross pay and net pay. In contrast, the minimum wage is of course purely a standard for gross pay. Net pay is usually somewhat lower, since it excludes deductions for income tax and National insurance. It is also unlikely that the DIUS surveys took sufficient account of the employment status of their respondents to be able to able to judge the impact of extending the minimum wage to those currently exempt. The results suggest that the data for some unpaid non-employed apprentices may have been included in the calculation of average pay rates. ESAD

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The ONS Labour Force Survey (LFS) also collects data about apprentices. The LFS is a quarterly sample survey that reaches nearly 100,000 people in 60,000 households. It also collects data about pay rates, but this part of the survey draws on only one wave of the sample, which is about one third of the total. Given that apprentices account for less than 1 per cent of the employee population, this limits the usefulness of the LFS for our purposes. Nevertheless, as DBIS has not chosen to repeat the DIUS apprentice pay surveys this year, it remains the only regular official source of data on apprentice pay – and certainly the only official source that can tell us anything new. The other qualification that needs to be applied to the LFS result is that they report that there are slightly fewer apprentices than a close reading of the DBIS commencement and completion statistics would suggest. The Labour Force Survey results The LFS reports that there are currently 192,000 apprentices. The table below shows that this total has declined by 11,000 since last year, and by 24,000 since 2007. Table 3: current apprentices by year (thousands) 2000 213 2003 202 2001 188 2004 231 2002 184 2005 227

2006 2007 2008 2009

214 216 203 192

Source: LFS Microdata Service (spring quarters). Note: includes employee, self-employed and nonemployed apprentices.

One likely effect of the apparent shortfall in the number of apprentices in the LFS data is that it reports only 39,000 female apprentices, which amounts to just 20 per cent of all apprentices. The TUC’s working hypothesis is that some apprentices in low paying sectors identify more strongly with the NVQ element of their training than with the apprentice role, and report their status accordingly. This apparent shortfall in the number of apprentices does not seem to be associated with the inclusion of proxy answers in the LFS, as the ratio of male: female apprentices are the same for both direct and proxy responses. It is also likely that a similar rationale for underreporting apply to college based apprentices who are not in employment. The LFS, apprentice pay and the gender pay gap. As the pay element of the LFS survey is only given to one third of those taking the survey each quarter this limits the extent to which the result can be broken down beyond the headline rate.

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Despite their imperfections, the DIUS surveys allowed much more analysis of pay differences between gender, ages and industries. However, the LFS headline rates presented below are much more up-to-date: •

£8.67 per hour - all employee apprentices

•

£10.32 per hour – all male employee apprentices

•

£6.55 – all female employee apprentices

•

29.1 per cent gender pay gap

Source: LFS spring 2009

These results bear the health warning that they are drawn from a relatively small sample that is part of a bigger survey. However, they all meet the ONS minimum standard for publication, although the result for female apprentices is only just above the minimum quality threshold. Nevertheless, they certainly indicate that there is still a very significant gender pay gap in apprentices persists. This gap appears to be strongly driven by the traditional gender stereotyping of apprentice places. Males very strongly predominate in the longer, higher paid apprenticeships in engineering and construction, whilst females very strongly predominate in the shorter, modestly paid social care and childcare occupations. Extending a minimum wage to those currently exempt would go some way towards attenuating the apprentice gender pay gap - at least at the bottom of the pay distribution.

Employment status and the scope of the national minimum wage. One strength of the LFS is that it tells us rather more about the employment status of apprentices than can be gleaned from the DBIS data. This is an important consideration when considering the application of the minimum wage, which applies to “workers”, but not to the genuinely self-employed. In fact, the LFS reports that only 157,000 apprentices are employees, whilst a further 10,000 say that they are self-employed. This previously unreported phenomenon would bear further exploration, but it may reflect the large part played by self employment in some craft trades and the tendency for their children to take up the family business. Indeed, nearly 700,000 self-employed people in the UK report that they hold an apprenticeship qualification. The LFS also identifies 25,000 non-employed college-based apprentices. In particular, 18,000 non-employed apprentices say that they are taking part in a government training scheme. In sum, it is therefore likely that around 82 per cent of apprentices would be “workers” and therefore due to be paid the minimum wage in some form if the current exemptions were removed.

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Details of apprenticeships by nation, age and occupation from the Labour force survey The table below shows a breakdown of employee and non-employee apprentices by UK nation. This is an important consideration, given that training is a devolved matter. It is worth noting in passing that the number of employed apprentices in Wales and Northern Ireland is too small to be identified by the LFS, which does not report results of less than 10,000. Table 4: Apprentices by UK nation (thousands) All male All female All apps apps apps employees employees employees England 89 24 113 Wales * * 10 Scotland 22 * 25 Northern * * * Ireland Total 128 29 157

All male apps

All apps

104 11 24 14

All female apps 33 * * *

153

39

192

137 12 28 15

Source: LFS Microdata Service (spring 2009). Results of less than 10,000 are omitted because they are not statistically significant.

In terms of those apprentices who are likely to be covered by the minimum wage because of their employment status, 72 per cent are in England, 17 per cent in Scotland, 6 per cent in Wales, and about 5 per cent in Northern Ireland. In terms of the minimum wage age bands, the LFS reports that 15 per cent of employee apprentices are aged 16/17, 54 per cent are aged 18-20 and 31 per cent are aged 21 or above. Only a handful of industries employ significant numbers of employee apprentices, with just 4 industries accounting for 78 per cent. The construction industry has 40 per cent of all employee apprentices, manufacturing 17 per cent, “service activities” 12 per cent, and retail 11 per cent.

5: Apprentice pay and completion rates In our response to the 2008 LPC inquiry the TUC argued that eliminating low pay from apprenticeships would help completion rates. We realise that current pay rates are not the only factor determining how apprentices make career decisions, but there can be no doubt that they play a significant part. For example, research published by the Learning and Skills Council earlier this year showed that those who quit before completion received significantly lower average pay rates in their apprenticeships than did those who went on to finish their apprenticeships. The average wage in first week of apprenticeship for an early leaver was £104, compared with £117 for a completer4.

4

LSC, “The benefits of completing an apprenticeship”, April 2009, p73. ESAD

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We believe that apprentices make decisions on the basis of their knowledge of a combination of factors including current pay, likely future earnings, the quality of training, and the availability of other job opportunities. It is also likely that setting a minimum standard for pay will remove the most exploitative employer offers from the labour market, thus leading to improved completion rates and a better reputation for apprenticeships as a brand. It is certainly true that the introduction of a minimum contractual payment of £80 for employee apprentices in England was followed by a substantial increase in completion rates. Furthermore, this increase was eroded slightly when the minimum payment was not increased in the subsequent years. Table 5 – Completion rates, England 2002/03 – 2007/08 Year

Apprenticeship

Advanced Apprenticeship

Total

2002/03

23

32

28

2003/04

27

28

28

2004/05

38

40

40

2005/06

48

52

49.5

2006/07

62.5

63.5

63

2007/08

58

63

59.5

Source: www.apprenticeships.org.uk

A detailed examination of the change in completion rates by sector indicates that the percentage increase was biggest in the low paying sectors, where the minimum contractual payment might be expected to have had most impact and smallest in the vehicle maintenance sector, which was already reasonably paid. It follows that the establishment of well-judged minimum wage rates to replace the current exemptions would be likely to result in a further improvement in completion rates.

Table 6: Change in Apprenticeship pay and completion rates in England by sector, 2004/05 – 2007/08 ESAD

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Apprenticeship

Completion rate 2007/08 (%)

Completion rate 2004/05

Average pay rate 2007 (£)

Increase in completion rates (%)

(%)

Construction

54

35

174

19

Hairdressing

56

28

109

28

168

26

186

31

187

28

142

39

189

12

170

5

Business Administration

70

Customer Service

63

Hospitality and Catering

51

44 32 23

Children's Care Learning and Development (childcare)

60

21

Engineering

64

52

Vehicle Maintenance and Repair

48

43

Retail

55

21

168

34

Electrotechnical

64

49

210

15

Health and social care

157

33

55

22

Source: WBL Leavers, Success Rates and Average Length of Stay in weeks by Sector Framework, 2007/08 (www.apprenticeships.org.uk), 2004/05

It has sometimes been said by employers that apprentices are not very productive during the early stages of their training. However, this criticism can be made with more justification in high value jobs in engineering, car manufacturing, defence and aerospace, where the cost of any errors can be high. It is far less true in the low paying apprentice sector where the minimum wage bites most. For example, apprentices in retail are likely to be carrying out productive work for most of the time during their very first week of employment. Setting a decent minimum rate for those apprentices who are currently exempt should help employers by widening the recruitment pool and to improve retention rates and motivation. It is obvious that unnecessary turnover imposes higher costs on employers. However, the size of the recruitment pool is also a valid consideration. Whilst some apprenticeship places are vastly oversubscribed because it is widely known ESAD

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that they are a sure route to a well paid job, there are other apprenticeship offers where it is unlikely that there will be as significant financial premium for the apprentice on completion. The TUC has spoken to some employers who have been unable to attract any appointable candidates for their apprenticeships, since young people have preferred to take the jobs that have been on offer at the minimum wage or just above. Therefore, the personnel benefits generated by the new rates will help to offset the cost of extending the minimum wage.

6: The case for establishing minimum wage rates paid by the hour The principal argument for setting hourly rates rather than weekly for those apprentices who are currently exempt from the national minimum wage act is simply one of mutual fairness. Hourly rates reflect the amount of work completed and paid for. Weekly rates take no account of either part-time working or long hours working. Whilst just over two-thirds of employee apprentices usually work between 35 and 40 hours per week, one in five work between 41 and 48 hours per week according to the LFS. Furthermore, about 10,000 employee apprentices work for less than 30 hours per week, whilst a similar number work for more than 48 hours per week, so there is a strong argument for matching pay to hours worked. In the case of the unscrupulous minority of apprentice employers, setting a weekly rate could have the unintended consequence of incentivising them to try to make young people work longer hours. It is also worth considering that the national minimum wage is calculated on the basis of hours worked. This includes the statutory minimum rates for apprentices who do not fall under the exemptions. It would also be unnecessarily overcomplicated to establish two separate ways of calculating the minimum rates for apprentices.

7: Payment for training time The TUC has also examined the question of whether all of apprentices training time should be paid at the proposed new minimum wage rates. The LFS reports that 16.7 per cent of employee apprentices receive only on the job training, 19.0 per cent receive training at colleges and training centres only, and 64.3 per cent receive both on and off the job training5. The earlier DIUS surveys reported that the greater part of apprentice training now takes part “on the job”. There can be no question that this time should be paid at the appropriate rate.

5

LFS Microdata Service, spring 2009 ESAD

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“Off the job” training requires a little more discussion. In the past, apprentices on “day release” schemes who spent one day a week at college were quite often either not paid for the training day or paid at a reduced rate. We believe that the advent of the minimum wage and the changing nature of apprenticeships have already diminished this practice, although it still occurs in some cases. Training that is a requirement of the job is simply classed as working time for minimum wage purposes, regardless of the location where it takes place. The TUC therefore proposes that all working time and training time is covered by the new minimum wage rates. Those who employ apprentices are paid by the state for the full cost of training plus the cost of administering the apprenticeship. Therefore it does not seem unreasonable to expect employers to pay a relatively modest minimum rate for all the hours required by the job. Our proposals for new apprentice rates include the assumption that “off the job” training should be paid. If for any reason the Government were to decide to exclude “off the job training, then one result would be that slightly higher minimum rates would be sustainable.

8: Enforcement and awareness At the moment, the £95 minimum contractual payment for apprentices in England and Wale is weakly enforced. Although in theory contracts could be enforced where they are breached, the current system suffers from the fatal flaw that apprentices do not know where to go for redress. The situation in the other nations of the UK is if anything slightly worse, since the amounts recommended for apprentice pay are both lower than that in England and the contractual arrangements are weaker, so that even the theoretical possibility of enforcement is lacking. The TUC made the case that there is a fair amount of exploitation and noncompliance going on in its 2008 LPC submission. Whilst we do not propose to revisit that evidence in any detail, suffice it to say that the situation has not improved since last year. It is certainly not acceptable that some unscrupulous employers have been allowed to benefit from public money in order to provide apprenticeships whilst ignoring their contractual responsibilities to apprentices. That is why the quality of the enforcement regime is an important issue. In contrast, the regime for enforcing the National Minimum Wage is much stronger and more transparent. The NMW is a statutory right rather than a contractual right, and can be enforced either by complaint to HM Revenue and Customs or by talking a case to an employment tribunal. Whilst no system can be perfect, there is no doubt that the NMW is being enthusiastically enforced wherever possible, and would significantly improve not just the rates of pay but also the quality of protection offered to those apprentices who are currently exempt. ESAD

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Therefore the introduction of the new rates should be preceded by an awareness campaign and supported by vigorous enforcement action.

9: Trade union agreements on apprentice pay Despite the recession, trade unions have continued to negotiate good rates for apprentices. Trade union representation is associated most strongly with the larger, more successful enterprises. However, trade unions have also worked hard in the past few years to re-establish apprenticeships in the public sector, where they have been almost non-existent in recent times. The best of these schemes, such as the one instituted by North Yorkshire County Council, simply pay apprentices the normal collectively agreed rates without any discount. The table below shows a broad selection of rates reported to the TUC and Income Data Services. Many of these agreements come from the traditional strongholds of apprenticeships. A brief glance at some of the rates for the final stages of apprenticeships shows very clearly why apprentices might be willing to bear a lower rate at the start of their course with an eye to high earnings on completion. The same cannot be said about apprenticeships in some sectors where unions have less coverage. The prospects of high earnings are simply not there for most retail or social care apprentices, and this fact imposes a limit on how much of a discount from the minimum wage it would be fair to demand from them. Clearly a safety net is now needed in order to protect some young apprentices from exploitation. Table 7: Trade union agreements on apprentice pay rates Agreement

BVT Surface Fleet (Clude) Electrical Contracting JIB

Plumbing Mechanical Services JIB

Union and date agreement effective Unite, GMB, UCATT 1 April 2009 Unite 5 January 2009

Unite 5 January 2009

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Apprentice level and pay rate (hourly unless stated otherwise) Yr 1 -£3.76 Yr2 - £6.29 Yr3 – £7.38 Lower “Transport provided” rates Stage 1 - £4.14 2 - £6.10 3 - £8.84 4 - £9.35 st 1 year - £5.29 nd 2 year - £6.06 3td year - £6.85 rd 3 year (NVQ 2) £8.32 th 4 year - £8.43 th 4 year (NVQ 2) -

Per of rate for fully qualified adult craft worker (lowest rate) unless otherwise stated. 33.6% 55.9% 65.6%

36.5% 53.7% 77.9% 82.4% 48.5% 55.5% 62.8% 76.3% 77.3% 87.6% 96.7% 15

Institute of British Organ Building

GMB 1 January 2009

Sanofi Aventis (chemicals)

Unite 1 January 2009

British Furniture Trade JIC

GMB 1 January 2009

GE aviation (Hamble)

Unite, GMB, UCATT 1 January 2009

Scottish and Southern Energy

Unite, Unison, Prospect, GMB 1 January 2009 Unite 1 January

BMW (Oxford)

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£9.56 th 4 year (NVQ 3) £10.55 Year 1; 2; 3; 4 Age 16/17 £3.70; £4.18; £4.99; £6.06 18-21 £4.99; £5.77; £6.55; £7.32 18-21 (with previous qaul) £4.99; £6.06; £7.32; 22 and over £5.99; £6.43; £6.87; £7.32 22 and over (with previous qaul £5.99; £6.54; £7.32; Age 16 - £7.13 17 - £8.42 18 - £11.01 19 - £11.66 20 - £12.31 Age 16 – £3.27 Age 17 – £4.05 Age 18 – ££4.83 Age 19 and above £6.23 Start (16-17) £5.12 Start (18) - £7.66 Completed 1 year £8.44 Completed 2 years £8.57 Completed 3 years £9.14 Finalisation (NVQ3) - £9.72 Between £8,006 £17,382 per year

Stage 1 - £5.35

50.5%;57.1%;68.2%; 82.8% 68.2%;78.8%;89.5%; 100% 68.2%;82.8%;100% 81.8%;87.8%;93.8%; 100% 81.8%; 89.3%; 100%

55% 65% 85% 90% 95% 52.5% 65% 77.5% Full rate 50.2% 69.7% 76.8% 78.0% 83.1% 88.4%

46.1%-100% of bottom craft rate

Per cent of bttm craft grde 16

Nissan (Sunderland)

Building and Allied Trades Joint Council (House building)

2009

2 - £6.44 3 - £7.94 4 - £9.44 5 - £10.23 6 - £10.90

Unite

Admin assistant £4.52- £6.69 (36 months) Manufacturing staff (60 months) £3.08 - £5.92 Maintenance technician 60 months £4.52 - £9.05 16 - £4.26. 17 - £5.68 18 (without NVQ2) - £7.12 18 (with NVQ 2) £7.53 Entrants 19 and above: st 1 year - £6.82 nd 2 year - £7.53 rd 3 year (without NVQ2) - £7.53 rd 3 year (with NVQ2) - £8.66

UCATT, GMB, UNITE June 2008 – June 2010

39.6% 47.7% 58.9% 70.0% 75.8% 80.8% 63.5%-93.9%

37.1%-71.4%

47.4%-94.8% 90.2% of 16 year old rate 92.2% of 17 year old rate 79.5% of adult with NVQ2 84.1% of adult with NVQ2 76.2% of adult with NVQ2 84.1% of adult with NVQ2 84.1% of adult with NVQ2 96.7% of adult with NVQ2

Sources: TUC unions, Income Data Services

10: The Agricultural Wages Board One of the duties of the Agricultural Wages Board (AWB) is to set statutory minimum rates for the one thousand or so apprentices currently employed in the agricultural sector. Although the AWB’s bottom rates usually bear a close resemblance to the general minimum wage rates, they have not chosen to retain in full the exemptions for apprentices in the National Minimum Wage Act. Rather, they have chosen simply to set a discounted rate for apprentices aged 19 and over and in the first year of their apprenticeship. From 1 October 2008 onwards the AWB rates are as follows: ESAD

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•

Apprentice in first year of apprenticeship: £3.53

•

Apprentices in second year of apprenticeship age 16-18: £3.53

•

Apprentices in second year of apprenticeship age 19-21: £4.77

•

Apprentices in second year of apprenticeship age 22 and above: £4.776

Note that the AWB recommendations must be taken as a package. They also set statutory minimum overtime rates for apprentices, which start at just under +50 per cent. It appears that the employer representatives on the AWB were willing to agree to statutory minimum rate for all apprentices in order to meet labour supply worries. The TUC is heartened by this example, which we judge to be a success for a measure that has the support of employers and unions alike. However, think that the detail may not be the most appropriate way to deal with apprentices across the whole economy. In particular, we are very concerned about the employment position of 16 and 17 year olds, and the sharp rise in worklessness for this age group. It follows that there is a case for a further discount on the general minimum wage rate for this age group, and this is reflected in a few of the union agreements reported in the previous section. Conversely, £3.53 is too low a rate for older apprentices in their first year of training.

11: The average length of apprenticeships continues to decline Whilst many traditional craft apprenticeships still take three years to complete and some top-of-the-range engineering apprentices take five years, the average length of an apprenticeship is now very much shorter. Indeed, some only last for six months. Since these short apprenticeships also tend to be amongst the lowest paid, there is a real concern that the minimum wage is losing its coverage of apprenticeships. Furthermore, a substantial number of apprentices quit without completing their course. This means that the average length of stay in an apprenticeship is now just 7 61 weeks . This has declined from an average of 67 weeks in the previous year and

6

AWB Order 2008.

7

WBL Leavers, Success Rates and Average Length of Stay in weeks by Sector Framework, 2007/08

and 2004/05 (www.apprenticeships.org.uk/About-Us/Performance-data/2007-08.aspx ).L

http://www.apprenticeships.org.uk/About-Us/Performancedata/2007-08.aspxLeavers, Success Rates and Average L http://www.apprenticeships.org.uk/About-Us/Performancedata/~/media/Documents/Performance%20Data/200708/Report%205%20%20Cumulative%20Leavers%20and%20Successes%20by%20 ESAD

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suggests that the stabilising effect of the £80 minimum payment in England began to wear off over the period when the rate was not updated. The table below show the number of starts in the most popular apprentice occupations and the change in the average length of stay since 2004/5. Table 8: Apprenticeship starts 2006/07 in most popular frameworks and average length of stay, England

Apprenticeship Framework Customer Service Hospitality and Catering Construction Business Administration Hairdressing Children's Care Learning and Development Engineering

Starts 07/08 (numbers) 21,000 21,000 20,400 18,100 16,500

Health and social care Retail Vehicle Maintenance and Repair Electro technical

15,300 13,900 12,500 11,800 8,412 6,500

Average length of stay (weeks) 2004/05 49 47 77 59 73

Average length of stay (weeks) 2007/8 42 48 64 44 62

64 117 58 47 95 145

56 102 53 39 58 134

Source: WBL Leavers, Success Rates and Average Length of Stay in weeks by Sector Framework, 2007/08 and 2004/05 (www.apprenticeships.org.uk)

12: Evidence from other countries revisited In last year’s submission we looked at the apprentice regimes in Australia and Ireland. The following section revisits these case studies briefly, since not much has changed since last year. Although both of those countries have suffered some economic difficulties during the current recession, they continue to employ significant numbers of apprentices, and to extend to them the protection of specially tailored minimum wage rates.

Case Study - The Republic of Ireland

Gender/Report%205Aug07Apr08.ashxength of Stay in Weeks by Sector Framework (A26) up to Period 9 for 2007/08 ESAD

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The Republic of Ireland (RoI) sets a special minimum wage rate for employees over the age of 18 who are undergoing a course of structured training or directed study that is authorized or approved of by the employer. “The trainee rates provided by the Act8 are as follows: •

First one-third of training course €6.49 per hour (75% of RoI national minimum wage rate) - £5.689

•

Second one-third of training course €6.92 per hour (80% of RoI national minimum wage rate) -£6.06

•

Final one third of the training course €7.79 per hour (90% of RoI national minimum wage rate) - £6.82

Note: each one third period of a training course must be at least 1 month and no more than 1 year10. The Act provides certain criteria which the training course must meet if the trainee rates are to apply. For example, the training or study must be for the purposes of improving the work performance of the employee; the employee's participation on the training or study must be directed or approved by the employer; at least 10% of the training must occur away from the employee’s ordinary operational duties; there must be an assessment and certification procedure or written confirmation 11 on the completion of the training course. ” There are currently 25 apprenticeship trades which mainly lie in the more traditional job categories of construction, mechanics, electrics, printing and 12 engineering . The standard based (designated) apprenticeship system was introduced in 1991 and fully implemented in 1993. The usual duration of an apprenticeship is four years leading to a National Craft Certificate. The Irish minimum wage took effect in 2002. Setting minimum rates for apprentices has certainly not slowed the increase in the number of apprenticeship places on offer13.

8

Section 16, National Minimum Wage Act 2000, http:citizensinformation.ie

9

Exchange rates can vary quite considerably, but at the time of writing (25 August 2009), one Euro

= 0.875614 pounds sterling. 10

http://www.citizensinformation.ie/categories/employment/employment-rights-and-conditions/pay-

and-employment/pay_inc_min_wage 11

‘Minimum Rates of Pay in Ireland’, http:citizensinformation.ie

12

‘’Monitoring Ireland’s Skills Supply: Trends in Education / Training Outputs’’, V.Patterson and J. Behan, SkillsIreland 2006, p32 http://www.skillsireland.ie/press/reports/pdf/egfsn0601_monitoring_irelands_skills_supply.pdf 13 See Republic of Ireland Central Statistics Office website for more details. ESAD

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Case study - Australia As reported in our previous submission, there are quite a large number of statutory rates for Australian apprentices, around 800 in all, which vary according to certain characteristics such as years of school completed, years of training, the type of Australian apprenticeship and the industry or occupation. Many are also differentiated by federal agreements or collective agreements. For the last three years the Australian Fair Pay Commission has set a minimum percentage increase that applies to all these agreements. However, in 2009 the AFPC announced that rates would be frozen for the coming year – albeit at a somewhat higher level than the UK national minimum wage14. However, rather than being a matter of economic necessity, this outcome has been by many commentators as a piqued response to the forthcoming abolition of the AFPC. The incoming Labor Government is currently engaged in revising the broader industrial relations machinery, and will give responsibility for the minimum wage to the new body Fair Work Australia in future years. Therefore prospects for a significant increase in 2010 seem good. It follows that the multitude of apprentice starting rates in Australia remain as they were last year. Although they vary considerably, the lowest rates start at 6.48 AUD, which currently equates to £3.48 sterling15. There have been statutory minimum pay rates in some industrial sectors in Australia since 1824, and almost universal coverage since 1907. The Australian minimum wage has risen strongly in the years before the current politicallyinspired freeze. The table below shows that the increases in the minimum wage have been accompanied by an increase in the increases in the number of apprenticeships, whilst the apprentice training rate as a percentage of the workforce has broadly held steady in recent years. The latest figures show that these trends continued in 2008.

7

Table 9: Australia - apprentice and trainee incidence , 1998-2008 Apprentices and Apprentice/ trainee trainees in training Employed persons rate (per cent) Year (thousands) (thousands) 1998 216.6 8808.1 2.5

14

The adult rate is currently 14.31 Australian dollars per hour. This equates to £737 sterling per

hour. The cost of living is higher in Australia than the UK, but even when this is taken into account there is still a real purchasing power premium of about 50 pence per hour for Australian workers. 15

Source: Australian Workplace Authority:

http://www.workplaceauthority.gov.au/graphics.asp?showdoc=/payandconditions/PayScaleSummari es2007/PayScaleSummariesS-U.asp ESAD

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1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

252.3 284.5 318.9 362.7 389.8 386.8 390.6 396.2 404.6 415.1

8992.7 9167.2 9253.7 9527.7 9669.8 9916.6 10200.6 10532.8 10797.2 10933.9

2.8 3.1 3.4 3.8 4.0 3.9 3.8 3.8 3.7 3.8

Source: “Australian Vocational Education and Training statistics: Apprentices and Trainees Annual 2008”, National Centre for Vocational and Educational Research, 2009, p10, table 6. http://www.ncver.edu.au/statistics/aats/ann08/A&T_annual2008.pdf

13: Conclusions and recommendations The case for setting new rates for those apprentices who are currently exempt from the minimum wage has quite rightly been accepted by the LPC and the Government. Trade unions will continue to negotiate good rates for apprentices where they are represented, and continue to argue for the principle that employers should pay apprentices the rate for the job as soon as they are qualified or achieve similar levels of productivity to other workers. However, there is clearly a strong need to establish a new safety net in order to protect the apprentices who are most at risk of exploitation. The arrangements for other apprentices, who are already covered by the minimum wage, should be reviewed in the usual way as part of the LPC’s broader inquiry. One of the TUC’s prime concerns is to put a halt to the minority of employers who exploit young people by using apprentice schemes as cheap labour without offering much back in return. Extending minimum wage protection to all apprentices would also go some way to attenuating the gaping gender pay gap amongst apprentices, although there will be much work that should be done to that end that goes beyond what can be achieved by the minimum wage. The TUC also want to see the apprentices thrive as a high quality route to a qualification. Reputable employers want to be able to recruit high quality candidates and to retain them throughout their training and beyond. There can be no doubt that eliminating very low pay from apprenticeships will improve the labour market standing of the “brand” for employers and apprentices alike. The initial rate must be agreed in the current LPC round and set to apply from 2010, by which time the UK economy will be in the process of recovering from the current recession.

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There are compelling reasons for setting hourly rates that mirror the current-age based NMW rates at the moment, although we hope to be able to close the gap between the rates for young apprentices and adult apprentices as soon as economic conditions allow. When contemplating what the new apprentice rates should be the TUC has considered what employers would bear without cutting apprenticeship places, given the current weak labour market position of young workers16. We also took account of the lowest rates that we could identify in trade union agreements and thought about how far below those rates it would be possible to go before the relationship became an exploitative one. This led us to a range of possibilities, which suggested initial rates for those apprentices that are currently exempt of 85 to 90 per cent of the current age-based minimum wage rates. Rather than set a single target for each age group, we present what we believe to be acceptable range for the starting rates. The TUC’s recommendations •

£3.00 to £3.18 - Aged 16-17

•

£4.05 to £4.29 - Aged 18, plus aged 19 and 20 (first year of apprenticeship only):

•

£4.87 to £5.15 - Aged 21 and above (first year of apprenticeship only).

Based on the LFS earnings data, we estimate that these rates would benefit some 11,000 to 14,000 employee apprentices, which would constitute between 14 and 18 per cent of those apprentices who are currently exempt, depending on whether the higher or lower boundaries of the target range are chosen. The LPC’s initial rates will necessarily be quite modest. However, the LPC should review the new rates in every future year in order to ensure that they are always set at the highest level that can be sustained.

16

Remembering that the current minimum contractual payment of £95 for apprentices in England

amounts to £2.44 per hour for a 39 hour working week. ESAD

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