Pay Indians our minimum wage

Observations on outsourcing

Is it impossible to stop firms going to countries in the developing world and undercutting British workers by paying rock-bottom wages? Reputable businesses such as the Norwich Union, Lloyds TSB and the legal services giant Hammonds Direct increasingly employ call-centre and back-office staff in developing countries where there are no minimum wages, let alone discrimination and other employment protection legislation. The usual rate for such staff is about £1.40 an hour, nominally lower than Britain's £4.50 minimum, but in terms of purchasing power equivalent to about £6.50 in a country where a schoolteacher's hourly rate is roughly 35p.

Good for the Indians? Not necessarily. Teachers, nurses, engineers, even doctors will inevitably be tempted away from more socially useful employment. Good for Britain? If we accept direct competition from people paid £1.40 an hour, then a minimum wage of even £4.50 will eventually become unsustainable. The banks and insurers will still make charges that are designed for their relatively affluent customers. Law firms such as Hammonds - which mainly outsources the data input part of conveyancing - will continue to charge around £700 for a service that will now require perhaps merely an additional hour's work by a lawyer in England.

There are few signs of consumer boycotts or even of trade union action. So the only remedy lies with parliament. And there is no reason why any worker providing services direct to Britain should not be protected by the same legislation as British workers.

There may seem to be practical difficulties in giving a legal right to those who are not physically present here. But the law could impose an obligation on British businesses, subjecting them to the jurisdiction of courts and employment tribunals here as well the Inland Revenue's powers. EU anti-discrimination legislation already moves some way to extending rights to people who work outside the UK. Those who are notionally UK residents are protected wherever in the world they work for a British employer. This is but one of numerous instances of legislation seeking to regulate behaviour abroad. There would be no conceptual difference between the well-established law that prohibits British businesses paying bribes to foreign officials to one prohibiting them paying less than the minimum wage to certain foreign workers.

Inevitably, companies would try to avoid the legislation, most obviously through employment contracts with foreign subsidiaries and agencies. But most tax law is designed to deal with precisely this kind of avoidance. If someone is providing services to a business in a way that is deemed consistent with employment by that business, the label of "self-employed" or "foreign subsidiary" need make no difference. The same extra-territorial effect could be applied not only to the minimum wage but to other employment protection legislation, including the anti-discrimination laws. It would be more difficult for foreign workers to enforce their rights, never mind to argue a hotly disputed unfair dismissal, but it is not unknown for courts to deal with complaints effectively without the claimant being physically present.

Over the past century, British manufacturing has diminished as firms discovered they could make greater profits from using cheap foreign labour. Now the service industries face the same fate. Jobs that can be done remotely include most software development and support; much accountancy, from basic bookkeeping to high-level audits; and some journalism and industrial design. Making big firms based in the developed world pay a decent wage would be a dramatic blow for world equality as well as for British industry.

Richard Colbey is a barrister