It’s time to increase the dignity of work through a National Living Wage

By Alexandra Kemp

We are at our best when we are boldest. The time has come to end the poverty pay of sub-prime jobs. A national Living Wage should be at the top of the new Labour manifesto.

Inequality cost lives. Michael Marmot’s report, published yesterday, nails inequality as the key culprit for poor health. Health inequality knocks off 7 years’ average life expectancy from people in our poorest communities compared to the richest areas. It reduces healthy life expectancy by an average of 17 years. We have to act on this now.

The Tories still cannot grasp how much income inequality matters. They would not lead on the introduction of fair pay. Family income in early childhood, however, is strongly linked to educational outcomes at age 16. Persistent poverty corresponds to higher rates of exclusion from school. Educational attainment is still more strongly related to social background in this country than in many others.

Marmot paid tribute to Labour’s Sure Start Programme in helping communities. Labour must now build on its successes: the civilising and protective measure of the National Minimum Wage, opposed by the Tories, which placed a floor under low pay and helped over a million women; Working Tax Credit which helped make work pay after 18 years of Tory cut-backs, employment market deregulation, sharp rises in relative poverty and the doubling of child poverty. The next step is to drive a new change in workplace culture around fair pay.

The Institute of Fiscal Studies show the incomes of the top 1% are 6 times the average, with the top 0.1% at 32 times the average. A year working full time on the minimum wage gives a salary of around £12,000 but the Joseph Rowntree Foundation’s basket of essential goods and services needed to live a healthy lifestyle requires an income of £13,900 a year before tax. In 2008, 10% of full time earners were paid less than £13,614. The UK now needs to benefit from a roll-out of the recent grassroots achievement of London Citizens for a London Living Wage.

The Working Tax Credit is important, but it was not intended to be a long-term measure. To what extent has it now become a subsidy for low pay and a state handout to employers?

This is not so much about the state spending more, it is about how we share the economic cake more fairly. It is about employers valuing work and the skills essential to the smooth running of the economy.

What about the low-paid gender-segregated jobs which women often do, known as the five Cs — cleaning, clerical, catering, caring and cashiers — which result in the gender pay gap and child poverty? These are often insecure jobs, un-unionised work with low bargaining power, but necessary to the economy. There is a real need to value women’s skills. The Women and Work Commission found that half of women who work part-time are employed below their true skills level.

Nobel Laureate Joseph Stiglitz said tax philosophy should be to tax bad things rather than good. But by taxing income higher than capital gains and speculative profits, we have incentivised companies to pay out less in wages.

We must now set a goal to reduce income inequalities as the top priority for a fourth Labour term in six steps:

1 – Set up a National Fair Wage Commission.

2 – Consult on the level of a National Living Wage using the Joseph Rowntree democratic model.

3 – Set a National Living Wage to be uprated annually, in line with earnings in the National Living Wage Bill, to apply to large companies and the public sector with immediate effect, with transitional arrangements for small and medium-sized firms.

4 – Transitional Arrangements: allow SME’s in the economic downturn to offset from their company tax bill a proportion of the difference between the National Living Wage and a notional amount of Working Tax Credit in respect of the lower earners whose pay has increased as a result of the NLW.

5 – Offset in (4) to be conditional on transparency and openness around payscales — with the tax deduction only allowed where employers publish details of pay rates of all employees and managers. This would also assist in placing the gender pay gap under scrutiny in the private sector and could go considerably further than the Equality Bill.

6 – Make the criterion of paying the National Living Wage essential for private firms tendering for public sector work in the transitional period; and incentivise pay audits to reduce earnings gaps for the future.

The concept of the Living Wage represents a transfer from benefits given by the state to the employer, to renumeration from the employer to the employee through the paypacket. It would also result in a decrease in the tax burden and a healthier nation with an increased healthy life expectancy, able to work longer and pay for the pensions of the next generation,. It would send the message that a worker is worth his or her wages.