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LONDON: Low pay: A Wage to Live With
People Management
Anat Arkin

February 24, 2011
View the Original Article

More employers – even in tough times – are committing to paying their lowest paid workers one-third more than the statutory minimum. Anat Arkin finds that the benefits of the ‘living wage’ work both ways

At a time of rising unemployment, pay freezes and deep public-sector cuts, you’d expect that efforts to raise the wages of cleaners, care assistants and other low-paid workers would be doomed. Yet a long-running campaign to make sure these workers earn enough to live on is gaining momentum, attracting support from across the political spectrum and from a growing number of employers. As David Cameron said just before the general election, the living wage is “an idea whose time has come” and it’s a concept Labour leader Ed Miliband is vigorously promoting.

Such endorsements would have seemed unimaginable in 2001 when London Citizens, an alliance of community groups, trade unions, universities, schools and faith organisations, launched the campaign. It took years of hard work to persuade – and, in some cases, embarrass – employers into adopting the living wage, according to the campaign’s lead organiser, Matthew Bolton. “But now it’s starting to gain more recognition and, in some sectors, especially universities, financial services and legal services, it’s almost become a mark of responsible practice,” he says.

The concept, he adds, is also spreading beyond the capital, with employers such as KPMG and PwC (see bottom of article) rolling it out nationally across their operations, and the living wage campaign now calling for adequate pay for every worker in the country. Those involved in the original London campaign are also advising their counterparts in other cities, including Cardiff, Glasgow, Leeds, Norwich and Oxford.

The message is also spreading to sports organisations. Last year Brentford FC signed up to the campaign, while Ed Miliband wrote to England’s Premier League football clubs urging them to pay a living wage to their low-paid workers. (Boris Johnson, the mayor of London, had also previously written to London’s Premier League clubs.)

But the campaign received its biggest boost to date in 2004, when the former Labour mayor of London, Ken Livingstone, introduced the living wage, setting up a unit within the Greater London Authority (GLA) to calculate the hourly pay rate needed for an acceptable standard of living in one of the world’s most expensive cities. Livingstone’s Conservative successor, Boris Johnson, embraced the London living wage, which is now paid to all GLA employees, as well as to more than 2,200 of those working for the authority’s contractors. When announcing the latest annual increase last summer - to £7.85 per hour - Johnson urged other organisations to follow the GLA’s lead and pay at least that rate, arguing that this would not only lift out of poverty the people who carry out essential functions, but would also bring huge benefits to their employers. “The success of the London living wage depends on the extent of its acceptance by employers,” he said. “There are huge benefits to employers and society of implementing the London living wage.”

These benefits obviously include good publicity. That’s one reason, perhaps, why the living wage campaign has scored some of its biggest victories in the City of London, where salaries and bonuses are fast reaching pre-crash levels - and companies may be looking for ways of deflecting public anger.

There are also more tangible advantages for employers. Barclays Bank, for example, has benefited from significantly higher levels of staff retention, as well as lower absenteeism, since introducing a living wage in 2007. This currently stands at £8.17 an hour - well above the recommended London living wage, let alone the national minimum wage of just £5.93 – and covers 700 cleaning, catering and mailroom staff. While requiring its suppliers to pay this rate to employees working in London on Barclays contracts, the bank itself funds all the extra costs involved. This investment has paid off - not only in terms of staff retention, which in the case of cleaners is now 92 per cent, compared with an industry average of 35 per cent - but also in terms of service quality.

“Of course, if you treat people well, value what they do and pay them competitively, you expect to see greater retention,” says Barclays employee relations director, Dominic Johnson. “People build longer-term careers, they acquire skills and become more effective at what they do. So it’s a virtuous circle.”

While most of the 115 organisations paying the London living wage do so indirectly through their suppliers, Queen Mary, University of London (QMUL) has gone a step further and brought its cleaning service in-house. Cleaners who had previously worked for the minimum wage, with few benefits, are now paid above the London living wage and are also entitled to sick pay, paid leave, an annually negotiated pay increase and access to a pension scheme.

Some managers were initially concerned about the costs of these generous new benefits, according to Jane Wills, professor of human geography at QMUL. But in a report on how the college became a living wage employer, she tells how once the arrangements were in place, managers found that better supervision of staff and higher productivity kept costs lower than expected. By bringing the service in-house, the college also made savings on VAT, with the result that the move was almost “cost neutral”, says Wills. She is now carrying out research on the business case for paying a living wage for the Trust for London, a charitable body that aims to reduce poverty in the capital.

A study by the consultancy London Economics for the GLA published in 2009 confirmed anecdotal evidence that introducing a living wage leads to lower rates of staff turnover, which then results in substantial cost savings on recruitment and induction training. The research also found that absence levels fell in participating organisations - in one case, by 25 per cent. In addition, over 80 per cent of employers said that the London living wage had enhanced the quality of employees’ work, while nearly 70 per cent of both the buyers of contracted-out services and their suppliers thought it had increased consumer awareness of their commitment to being ethical employers.

So paying a fair wage can be a smart business move for employers. But why should they be put under pressure to raise wages when they are already legally obliged to pay the national minimum wage?

Duncan Brown, director, HR business development at the Institute for Employment Studies says there are a number of compelling reasons.

“A lot of HR people are feeling the pressure to cut costs amid the current economic conditions but there is an important agenda of us trying to move up the value chain. We can’t compete with countries such as China on cost but research suggests that the added value from higher pay is proportionally greater than the cost of the increase. However HR needs to think about how jobs can be done differently, offering more interesting jobs, perhaps with more autonomy, so they are getting the return.”

Significantly, implementing the living wage would also help to close the equal pay gap, according to Brown. “Pay is generally falling in low-paid sectors, which tend to be dominated by female staff, while high-paying male jobs are going up and up. The national minimum wage did more to close the equal pay gap than legislation, so implementing a living wage would help even further.”

While the business imperatives exist, Brown thinks the simple issue of fairness should not be underplayed. “HR cannot ignore the low pay issue. Yes, we want best value but, at the end of the day, what kind of society do we want to create? The evidence that low wages create more jobs is highly suspect. Introducing the minimum wage didn’t cost jobs.”

Deborah Littman, a trustee of London Citizens and a national officer for Unison, which represents many low-paid workers, points out that the minimum wage is meant to be a safety net, set at the highest rate that the economy can bear, rather than what people need to live on. “The minimum wage is a good tool: it’s national, it’s got a very good enforcement mechanism, and that’s crucial,” she says.

“But at the same time we have always negotiated higher rates than the minimum wage, so in a sense it is a form of negotiation when we say to employers: ‘Here is a figure. This is based on the actual cost – carefully calculated – of what people need to have an adequate standard of living, and we think you should pay it.’”

The calculations used by the GLA for London and by the Joseph Rowntree Foundation for the rest of the country take account of the cost of living, the rate of inflation and the impact of tax credits and benefits on take-home pay. The result is the minimum wage workers need to provide their families with life’s essentials. This obviously varies in different parts of the UK, but campaigners are concerned that the concept of a living wage could be diluted if too many different rates emerge. Citizens UK, an umbrella organisation for community alliances, including London Citizens, which recently launched an accreditation scheme for living wage employers, is considering giving similar recognition to regional living wage rates. “So obviously we would formally recognise the GLA’s £7.85 in London and then if, say, the Welsh Assembly set a figure we would recognise that,” explains Matthew Bolton. “Until government centrally sets out a position, that’s the best role for us.”

Bolton and his colleagues have been holding what he describes as “constructive” discussions about low pay with the Treasury and the Department for Work and Pensions. “We’ve been trying to encourage them to see that there could be a slightly more sophisticated approach to low pay, with a statutory national minimum wage and then a moral minimum that would have the authority of a government living wage commission.”

This commission would set living wage rates, and the public sector would then be expected to lead by example through its employment and procurement practices. “That would allow and encourage those parts of the private sector that can afford to pay a living wage to do so,” says Bolton. It all sounds highly idealistic, and possibly unrealistic, especially in these economically gloomy times. But, then, so did the living wage campaign at its launch 10 years ago.

Case study: PricewaterhouseCoopers

As a firm that prides itself on its values and community programmes, PricewaterhouseCoopers couldn’t very well ignore the London living wage campaign. “So when we became aware of the campaign, we were not only sympathetic to it, but decided to do something about it,” says Steve Sherwood, the firm’s head of business services.

PwC introduced the London living wage for cleaning, catering and other contract staff in August 2006, bearing all the extra costs involved, rather than passing these on to its suppliers. Then, in July 2008, the firm brought in a regional living wage – worth 12 per cent above the national minimum wage - for over 160 cleaning staff in other parts of the country. Despite the subsequent recession, PwC persisted with these policies and even introduced English language classes for its London-based cleaners.

The costs of paying a living wage have not been outrageous, according to Sherwood, who estimates that they have added up to around £100,000 so far. On the other hand, the benefits have been considerable, with turnover of contracted staff falling from 4 per cent to only 1 per cent. As Sherwood says: “In real cost terms that is a win-win for both the suppliers and ourselves because of the hidden costs of constantly having to hire and recruit.”

Employers sign up to the London living wage

The new Living Wage Employer mark was launched in November 2010. Citizens UK, the organisation that manages the accreditation process for this mark, hopes that it will become a recognised badge of good practice in employment and procurement.

The simple accreditation process requires employers to provide evidence that all employees, as well as contracted workers who regularly provide a service on their premises, are paid a living wage.

For further information contact Rhys Moore.

Counting hourly wages
£5.93 national minimum wage, aged 21 and over
£7.85 London living wage
£7.97 median, part-time employees
£12.50 median, full-time employees
£26.25 and above, rate earned by top 10 per cent of full-time employees

Source: ONS 2010 Annual Survey of Hours and Earnings. Gross pay rates, excluding overtime