Fair tipping law 'won't cost waiters their jobs'

Minister rejects claim that 45,000 restaurant workers face redundancy in shake-up

The restaurant trade's warning that 45,000 jobs could be lost when ministers outlaw the use of tips to top up the earnings of staff paid less than the minimum wage has been rejected by an official government study.

The review by the Department for Business, Enterprise and Regulatory Reform (DBERR) is likely to pave the way for the practice to be made illegal in November. The government crackdown was promised last July following The Independent's "Fair Tips, Fair Pay" campaign but no date for implementing it has been set. The campaign uncovered evidence that some waiting staff were being paid as little as £3 an hour, as restaurants used tips and service charges to bring their wages up to the national minimum of £5.73 per hour.

The British Hospitality Association (BHA) asked the Government to delay the move because of the recession. A report it commissioned by the Centre for Economics and Business Research found that 45,000 jobs could be at risk as a result of the change in the law.

But this finding has been flatly contradicted by officials at the DBERR, who conducted their own review. They estimated the cost of bringing in the change at £92m, only 0.5 per cent of the wages bill of the companies affected, while the BHA put the cost at £450m.

Pat McFadden, the minister for Employment Relations, said yesterday: "We take costs to business seriously and have undertaken a robust analysis using the independent Office for National Statistics' annual survey of hours and earnings. Of course, some costs will rise for those businesses using tips to make up the national minimum wage, but the vast majority of businesses do not do this anyway."

He added: "Consumers support tips not being included in basic pay; after all, it is the public's money. Our estimates are significantly lower than the BHA has suggested. There is no evidence that having a decent floor on wages is detrimental to jobs in recent years."

The DBERR made no estimate of the number of likely job losses, but ministers recalled that warnings that between one and two million jobs could be lost if a minimum wage was introduced did not materialise.

The Government claims its estimate is more accurate than the restaurant industry's because it was based on a survey of 140,000 workers, a bigger sample than the BHA's survey of 40 companies. The BHA based its figures on a "pay gap" of £2 an hour between workers who received less than the legal minimum and relied on tips, while the DBERR calculated this figure at 90p an hour. The BHA estimated that 73,000 staff would be affected and the DBERR only 60,000. The civil servants also took account of figures from the Federation of Small Businesses that 96 per cent of workers do not depend on tips to reach the minimum because most companies in the hospitality sector are responsible employers.

The BHA, which is standing by its own figures, insists that it backs the change in the law and is working on a new code of practice to ensure more transparency over tips for customers. "In order to reduce the risk of job losses and business failures, the industry needs time to adjust its financial and operational models," it said.