1. Department of Economics Knoop Lecture 2017
Stopping exploitation of labour Sir David Metcalf CBE Director of Labour Market Enforcement #knoop17

2. STOPPING EXPLOITATION OF LABOUR ENFORCING REGULATORY STANDARDS TO BOOST COMPLIANCE David Metcalf Director of Labour Market Enforcement BEIS and Home Office October 2017

3. CONTENTS
1. How we got here
2. Enforcement bodies
Some evidence on wage underpayment
4. Effective enforcement: principles
5. Themes for Strategy

4. 1. HOW WE GOT HERE Fissuring
Relationship between workers and employers increasingly complex. Employers
have contracted out, franchised and devolved many functions once done in-
house
Changing composition of workforce
PT, Self employment and gig economy all ↑
hollowing out
late 1970s
Employees covered by collective bargaining 9-in <3-in-10
Labour’s share in national income (%)
% working age population born abroad

6. ENFORCEMENT BODIES
Enforcement / / Scope Geographic /17
Body (Responsible funding FTE locations cases
Department) £m staff covered
HMRC All workers UK
NMW/NLW some 2.3m at
(BEIS) NMW/NLW
GLAA* licence England, Scotland, **
(Home holders Wales and by order
Office) m workers in Northern Ireland
EAS ,000 agencies England, Wales
(BEIS) m workers Scotland
*Licensing activity only. The 2016 Immigration Act gave GLAA a much broader role addressing labour exploitation across the entire labour market. The new activity is carried out by Labour Abuse Prevention Officers (LAPOs). LAPOs have powers to: investigate labour market offences; arrest suspects; enter premises; search and seize evidence.
** of which Licence Applications 112, Compliance Inspections 72, Investigations 66
Note: in addition GLAA state there were 3078 “Criminal” cases consisting of 37 informal resolutions, 17 change of business cases, 157 calls to the language line, 1428 intelligence referrals to/from other agencies, 2867 unique intelligence submissions

7. 3. SOME EVIDENCE ON WAGE UNDERPAYMENT
Formal economy
1.3% of jobs paid below NLW in 2016 (see next slide)
18% of apprentices not paid their correct MW
Overall, as % of wage bill 2015
£1.6 billion (holiday pay) + £1.2 billion (other) = £2.8 billion
equivalent to around 3.5% of wage bill of bottom 3 deciles in wage distribution
Employment Agencies
one estimate is that £4.5 billion is misappropriated, mainly from workers but also from HMRC, derived so:
£billion
Holiday pay 2.5
Swedish derogation 1.0
Umbrella schemes 1.0
Equivalent to 15% of Employment Agency revenue (£30 billion)

8. Figure 1: Underpayment of the NLW (£7
Figure 1: Underpayment of the NLW (£7.20) for those due the 25+ rate in 10p pay band
ource 1: NLW and NMW: Government evidence to the Low Pay Commission, July 2017, Department for Business, Energy & Industrial Strategy

9. 4. EFFECTIVE ENFORCEMENT: PRINCIPLES (Weil)
Prioritisation
focus on severity of problem, frequency and level of harm
Deterrence effect
must proactively spur compliance more widely than those directly inspected
turns on perceived probability of investigation and expect penalty
Sustainability
need long term impact on employer behaviour
System-wide impacts
influence behaviour in each layer of a sector (see supply chains)

10. 5. THEMES FOR STRATEGY Intelligence hub
Trade off: enforcement resources cf penalties
Awareness; complaint mechanism; information sharing and joint working; evaluations; proactive cf reactive interventions; sector/geographic pilots
Supply chain: joint liability; hot goods; public procurement
Licencing: how practical?
Individual bodies
HMRC: holiday pay; payslips
GLAA: extend/licencing?; LAPO powers
EASI: umbrella companies; Swedish derogation; recruitment apps
Sectors (not detailed in first Strategy)
eg garments, care, cleaning, construction, car washes, nail bars, hospitality
Not solved in one go. Rather iterative process