Make the Living Wage Compulsory

The campaign for a living wage is now supported by the TUC and the Labour Party, plus many universities, some local authorities, and some businesses and charitable organisations. It is long overdue, says ERNIE JACQUES, but to have a real impact a living wage must be compulsory.

Wages, conditions of employment, pensions and standards of living among working people, especially the lowest paid, have been mercilessly attacked by the Conservative/Liberal Democrat government, and by many employers since the start of the recession in the third quarter of 2008.

In stark contrast, Incomes Data Services (IDS) reports huge rises in pay for directors of FTSE 100 companies to just short of £2.7 million with a typical chief executive getting £3million. Year-on-year these captains of industry and commerce receive rises in salary, social benefits, bonuses, and their pension pots that bear no relation to what the staff of their companies receive, or to the performances of the firms they run and control.

IDS report that their pay rose by 43 per cent in 2011. Even the Prime Minister, David Cameron, said the IDS findings were “concerning” and called for big companies to be more transparent when they decide executive pay. Labour leader Ed Miliband described these pay increases as part of a “something for nothing” culture that prevails in company boardrooms. The IDS report said that “executive largesse is evenly spread across the board”.

They have also benefited from the cut in the top rate of income tax from 50 per cent down to 45 per cent. The avarice and lack of social conscience of wealthy individuals and assorted celebrities (who make their money off the backs of the UK population) seems to know no bounds when it comes to using clever and complicated tax avoidance schemes, so they end up paying little or no tax – a situation mirrored by many multinational companies, such as Amazon, Starbucks and Google.

Despite Starbucks’ claiming that the firm made no profits from its UK operations, its four senior directors were paid £50m between them over the past three years and were able to accumulate shares options worth £563.7m.

This growing problem was underlined by Treasury statistics for October (2012) which  showed that while total tax receipts (paid by all) rose by nearly 6.5 per cent, corporation tax (paid by big business alone) fell by 10 per cent, a not insignificant £8.7 billion drop on October 2011.

Meanwhile, our legislators and MPs are cutting the incomes of the poorest in the name of recession, and capping housing benefit, forcing thousands of families to move sometimes hundreds of miles away from their families, friends and local communities, in what amounts to a class cleansing of poor people from some areas. Across the UK it is estimated that more than 67,000 households will lose some housing benefit under Iain Duncan Smith’s cuts strategy.

At the same time, 27 MPs have moved out of their London homes, renting them out to fellow MPs while claiming £1600 per month in expenses for flats they have moved into. One of those parliamentarians is ex-ILPer Jon Tricket, now Labour MP for Hemsworth and shadow minister for the Cabinet Office.

This then is the level of inequality and unfairness that now permeates the UK and indeed most other European and western economies. This is the basis for justifying a living wage.

An acceptable standard of living

The living wage campaign stemmed from influential research carried out in 2008 by the Joseph Rowntree Foundation (JRF) when it published a report into minimum income standards needed “to achieve a socially acceptable standard of living”. The study was updated earlier this year, allowing researchers to revise the MIS rate relative to its pre-recession report.

The methodology used to determine the MIS involved interviews with focus groups across the UK tasked with prioritising essential household goods and services. This information was complemented by the views of experts with knowledge of basic dietary and home energy needs (among others). The total cost of purchasing these goods and services is the means by which the MIS is determined.

It is important to note the JRF report argues that “a minimum standard of living in Britain today includes more than just, food, clothes and shelter. It is about having what individuals need in order to have opportunities and choices”. In this regard “it extends beyond survival, covering needs, not wants, necessities, not luxuries, and access to the goods and services thought to be necessary to enable people to participate fully in society”.

The current living wage has been set at £6.45 an hour throughout the UK, except in London where the figure is £1 higher at £7.45.

The living wage rate is set independently by the Centre for Research in Social Policy and in London by the Greater London Authority. This, to my mind, is an astute move, in so far as leaving the MIS to be determined by government, parliament, semi-retired politicians or employers is a recipe for dilution and pointlessness, as inflation gets to work – in much the same way as the national minimum wage has been grotesquely eroded by successive governments over the past six years.

The minimum wage

Since 1 October 2012 the minimum wage rates are:

1. Adults: £6.19 per hour (an 18p increase)
2. Workers aged 18 to 20: £4.98 per hour (no increase)
3. 16 to 17-year-olds: £3.68 per hour (no increase)
4. Apprentice rate: £2.65 per hour (a 5p increase).

A recent report by the Fabian Society stated that 2012 represents “the sixth year in a row that the national minimum wage has failed to keep up with inflation. Low paid workers will be £1,000 per year worse off than they would have been if the NMW had been indexed to inflation since 2006. The government is willingly presiding over rising earnings inequality.”

But of course it is important to recognise that it is not just the so called “nasty party” which is responsible. The failure to index link the value of the minimum wage started with the Labour government, although for some reason the Fabian Society report failed to mention that part of the equation. While the Blair government should be praised for introducing the National Minimum Wage Act in 1999, it is pertinent to ask, what is the point if you allow inflation to negate its purpose?

The minimum wage has not always matched the press headlines or people’s assumptions. The gloom and doom merchants said the minimum wage would be catastrophic for business, for the UK economy, and for jobs. I presumed it would be a win-win situation for all working people. In the event, while millions of workers did benefit, there was a not insignificant minority who ended up worse off because the Act was full of anomalies which allowed greedy and uncaring employers, unprepared to take a hit on their overheads and profits, to short-circuit the legislation at the expense of their own employees.

For instance, many thousands of home careworkers working for private care firms, following council outsourcing of home care services, now have only have 30 minutes (sometimes less) to help elderly clients get out of bed, get washed and make breakfast, check medication needs and write up a daily log book (some quality service that), plus they no longer get paid for time spent traveling to and from their clients.

Because the minimum wage excluded extra pay for overtime and unsocial hours, some employers (especially those in the hospitality and care sectors) simply conflated the total hours worked (by deleting premium pay rate hours) with the result that many workers ended up worse off.

For example, someone working a 10-hour daily shift made up of six normal hours and four premium hours at time and a half, would have got the following gross daily and weekly wages before and after 1 April 1999, day one of the minimum wage Act:

In March 1999 their daily pay would be 6 hours at £3.60 + 4 hours at £5.40 = £43.20, a weekly pay of £216.00.

After 1 April 1999, their daily pay was 10 hours at £3.60 = £36.00, a weekly wage of £180.00, a pay cut of £7.20 an hour or £36.00 a week.

Similarly, many thousands of workers in the catering industry found that their employers simply counted tips and service charges as part of their minimum wage entitlement. In this regard, the catering firm Tragus, which owns hundreds of restaurants across the UK, including the Café Rouge, Bella Italia and Strada chains, instructed its managers “to print weekly reports to check the amounts of service charge individuals were collecting to ensure they were not pocketing any of it”.

A Bella Italia waitress complained about undercover checks by mystery diners used to find out if waiters were attempting to get cash tips. If the undercover diner said they were the waiter was subject to a disciplinary hearing and, for a second offence, the sack. The manager who blew the whistle on the practice said that “encouraging cash tips was (said to be) tax evasion”. He went on to say that “the service charge heavily subsidises staff wages”. Of the £6.50 per hour staff in his restaurant receive, only £2.50 comes from the company, with the rest from gratuities paid on debit and credit cards. Cash tips go directly to staff.

“A medium-size Strada restaurant would take around £2,000 a week in service charges. All our business models are based on collecting this income,” he said.

HR Revenue & Customs, charged with enforcing the minimum wage, estimate that hundreds of thousands of workers are being paid below the legal minimum. And for some young people, employed by government departments on job placements and as apprentices, the minimum wage really is a minimum, at just £2.65 per hour.

Workfare again

To make matters worse, tens of thousands of unemployed people are now being forced onto the governments’ latest workfare programme, compelling them to take unpaid work at employers such as Poundland and Domino’s Pizza, as well as with government offices, charities and social enterprises, with very few getting jobs at the end of their time on this cheap labour scheme.

The Miliband brothers, together with Cameron, Clegg, and many other moderate politicians and opinion shapers, have endorsed living wage, and have praised organisations and businesses that have signed up. Many workers will undoubtedly benefit from it, as will hard-pressed families, who should have extra spending power, in turn simulating neighbourhood communities and local economies.

But because it is a voluntary system, previous experience tells us that many small employers, and the worst of the larger firmers, will ignore the living wage campaign and carry on business-as-usual. Even employers who sign up (like the much-lauded John Lewis Partnership and Co-operative Society) are likely to continue to outsource cleaning, security and catering services, knowing full well that a living wage for those workers is an unrealisable dream.

To my mind there is an unanswerable case for compulsion, including a measure requiring all firms tending for public sector contracts to pay the living wage. While in theory, all workers subject to outsourcing are covered by TUPE rules, in too many cases the system is not working. The purpose of TUPE is to protect workers when the business or work they do changes hands, either by outsourcing or by company takeover. Its effect is to move employees, and any liabilities associated with them, from the old employer to the new employer by operation of law.

But again, in too many cases, this protection means very little because the regulations are very complex and because unscrupulous employers are adept at getting round the rules.

The ILP and the living wage

Of course, as Ian Bullock’s recent article made clear, the campaign for a living wage is not new, far from it. Eighty-seven years ago, in 1925, ILP MP James Maxton campaigned vigorously for a living wage, and introduced a Bill in parliament, saying: “A living wage would allow the population to consume the essential things of life: food, better housing, better furnishings, better illumination of those homes and better sanitation.”

In his Labour conference speech in Manchester, Ed Miliband talked eloquently about a “one-nation” economy, in which everyone has a stake and prosperity is shared fairly. To achieve this, the living wage needs to become the minimum wage; it must be compulsory and vigorously policed. This is a chance to put clear, blue water between the Con-Dem government and the Labour Party; it could be an example of Miliband and the party he leads putting principle into practice.

But don’t hold your breath. I fear this is not going to happen, that the work of Maxton will remain a dream and a campaign for the future. Mililband’s conference speech went down well, but what he had to say didn’t amount to a row of beans – warm words, 10 times better than either Cameron’s or Clegg’s speeches but without substance or strategy, or any real intention to implement a policy based on fair shares for all the UK’s working people.

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For more on the campaign for a living wage, click here.

To read Ed Miliband’s Labour conference speech, click here.

To read Miliband’s living wage announcement, click here.