Big companies can afford a living wage

17th May, 2012 10:42 am

Many of the UK’s largest employers could afford to pay their staff a ‘living wage’ without taking a significant hit to their profits or passing on the costs to customers. This is the conclusion of a new report from the think tanks IPPR and the Resolution Foundation. For FTSE companies in banking, construction and computing, the extra costs of paying all staff at least a living wage would be so small – adding around 1% or less to the total wage bill – that companies could easily absorb them as part of their annual pay deals.

A living wage is one that, when combined with benefits and tax credits, provides a basic but decent standard of living for low earners and their families. Unlike the minimum wage, it is explicitly calculated against the cost of living and rises with inflation. Despite David Cameron declaring that the living wage is ‘an idea whose time has come’, more than 6 million people across the UK earn less than the living wage, around one in four of all workers. In Yorkshire and Humberside, around 700,000 employees earn less than a living wage.

The living wage is most closely associated with London, where coalitions of unions, faith groups, schools and universities have campaigned for a living wage over the last decade. A London Living Wage has been calculated annually since 2005 and now stands at £8.30 an hour, while the national minimum wage is just £6.08.The community-led organising that has driven many of the London-based campaigns has been a vital ingredient, helping to empower low earners and local communities as well as securing material gains.

More recently, the Living Wage Foundation has been established to accredit living wage employers across the UK, taking the struggle for a living wage beyond the capital. The Foundation has calculated a single living wage rate for employers outside London of £7.20 an hour. This follows successful living wage campaigns in a number of towns and cities outside London, most notably in Scotland, where over 15,000 public sector workers have gained entitlement to a living wage since 2008.

The new findings from IPPR and the Resolution Foundation give campaigners across the UK extra ammunition, suggesting that the extra costs for many major companies will be minimal. However, costs for some of the major low-wage employers – like those in retail, hotels and catering – will be higher even outside London. In these sectors, over half of employees are paid less than the living wage and a living wage could add around 5% to total wage bills for FTSE firms.

But this does not rule out a living wage in these companies, who could chose to deal with higher wage costs by accepting slightly lower profits, passing some of the extra costs to customers through higher prices, or reorganising their business to improve productivity. Negotiating a living wage can be the starting point for companies to rethink their wider strategy and make changes that not only raise wages but also help move them into more profitable markets or adopt more advanced working practices. This means that some companies will need time to implement a living wage and find their own particular way to absorb the extra cost.

The extra costs associated with a living wage also need to be balanced against the benefits. Studies have found that the major benefit perceived by companies is the reputational boost. Some companies also find that staff turnover and absence is reduced, while motivation and morale is improved, although the importance of these factors varies across sectors.

A key feature of living wage campaigns is that they require companies to take greater responsibility for the living standards of low earners, including employees like cleaners and security staff who are not directly employed by the big firms but spend their working day serving the company.  This shifts the some of the burden of responsibility away from the state, potentially creating a significant boost to the public finances by reducing tax credits payments and raising income tax contributions. This is a key argument for living wages in an era of fiscal austerity.

This does not mean that a living wage allows low earners to support their families without the help of the state. For most living wage workers, in-work benefits and tax credits will remain an essential source of income. Because the living wage represents the wage an ‘average’ family needs to ensure a decent standard of living, it remains insufficient for larger families or families with high living costs (perhaps because of a disability or very expensive local childcare) even after tax credits have been taken into account. A living wage is no panacea to the enduring challenge of low pay and in-work poverty, but it can make a vital contribution to improving the lot of low income families, while also supporting the development of stronger communities.

Kayte Lawton is a Senior Research Fellow at IPPR

  • Gareth Siddorn

    Must not forget the international dimension to the living wage debate too. Multinational companies who have supply chains and levels of
    profitability where a full living wage could be paid to workers should be held
    accountable for ensuring that wages are paid at that level.

    Fair pricing models are key but that involves consumers in richer countries also accepting their share of the responsibility. 

    Strictly formulaic approaches to calculating a living wage aren’t always appropriate here though. It should be more about a process of structured dialogue between companies, producer groups and their workers; so as to determine what is the  level of income required to sustain an acceptable standard of living in their particular context.

    • gunnerbear

      “involves consumers in richer countries also accepting their share of the responsibility.”

      Hmm, what a slogan, “We at X are proud to ask our customers to pay more so the staff doing ‘Y’ can get paid more….”

      Let’s see, cash is tight so what does a customer do? Go round all the local shops looking for a cheap desklight (thus paying parking) or do just hit the shopping sites and click ‘Buy It Now’?

    • treborc1

      All it actually takes is a government who have got the gollies to state the wages will be £7.45 out side of London not forgetting that labour have stated that in London the Living wage will be compulsory.

  • JC

    Is this a weekly slot? Merge NI and Income Tax, abolish employer’s NI and set the personal allowance to the equivalent of 42 hours/week at NMW. You’d be surprised at the result.

    I’m on NMW and last week was paid £252, of which £32 went in NI and Income Tax. If they were removed, I’d be on nearly the Living Wage, with no cost to my employer. Wouldn’t that be a better outcome?

    • UKAzeri

      there is logic to what you are saying, there is no denying that..

      However a good example of a country without  income tax or NI is Somalia and Afghanistan :))

    • gunnerbear

      Yep, but I’d also want everyone to pay a little bit of tax….makes people think how services are paid for.

      If too many people don’t pay tax, well you can bet that the non-taxpayers will soon be demanding more ‘free services’ and the very wealthy will say enough is enough and start reducing what they actually pay in tax leaving the ‘middle rankers’ to pay even more.

      • treborc1

        Well if you look at me and my wife she gets a pension I get disability I’ve a pension for when I retire and I’ve just paid income tax of £1600 which is a fair whack from my benefits, I only make £8,900.

        I suspect a lot of people on benefits pay income tax I do not pay national insurance

        • gunnerbear

          When I say pay, I don’t even mean that much, just maybe £10 a month – just as a reminder that ‘services ain’t free’.

  • UKAzeri

    Though of course the report and its conclusions are most welcome,it is painfully clear that campaigns outside of politcal processes have certain  limitations in achieving desired goals.
    Imploring a business to take it a hit on profits for the sake of human beings is missing the point about Capitalism as a whole. Profits come FIRST. This is a fact of life when it comes to capitalism. The only language that it speaks is profit and loss. There is nothing unethical about it! It is just its nature, it was born like this :)) If we want somethign else then people ( particularly low earners) need to start realising that their votes count and start voting. Labour is changing and we if will be successful in getting out our core vote ( the low earners) then such an idea could become a reality nationaly. Hopwever for this Labour will need to ditch a section of swing voters.
    Furthermore is there public support for this? Londoners voted for Boris and he was pretty clear about the need to reduce workers rights for the sake of higher employment and low wages are very much a part of it.
    It is also important to remember that there is a very large, voting part of UK population which believes poverty ( and low wages) to be the responsibility of the individual and thus accurately reflects the way things should be.

    • Redshift

      Well it isn’t just a question of voting of course but organising in the workplace. It is no surprise that income inequality has risen in correlation with the decline of collective bargaining coverage. Workers can win living wages and the more they do the easier it will be for governments to bring up the minimum wage – eventually to living wage levels.

      • UKAzeri

        spot on!

    • gunnerbear

      “It is also important to remember that there is a very large, voting part of UK population which believes poverty ( and low wages) to be the responsibility of the individual and thus accurately reflects the way things should be.”

      Brutally cynical but accurate. And not all of those people are on the right.

      • MikeHomfray

        But hardly a view that a social democratic party would be likely to espouse

        • gunnerbear

          Ahh…but we know all parties are broad churches……

          • treborc1

            No they are not, not anymore they are mostly following Thatcher. that’s not a broad church.

      • treborc1

        Well yes Tories like your self, easy to spot.

        • gunnerbear

          Actually, you might be surprised to hear I’m not a Tory.

          For example I don’t want private companies to be involved with any but the fringe of the NHS (as to an extent they have been for years).

          I think PFI is utterly stupid – far cheaper if HMG just borrowed the cash directly instead of employing a middle man.

          I think taxes should be paid by all, but I’ve never bought into the idea that HMG should set some sort of store by ‘fairness’ as that can mean anything to anyone.

          HMG should set down in black and white what people are expected to pay and close the loopholes. I see no point shouting at individuals or firms that take advantage of loopholes or allowances (think of the patent box for example).

          I don’t mind paying taxes for the NHS, education, defence, the Emergency Services and parts of the Welfare State. I object most strenuously to the idea that £12bn worth of UK taxpayers cash should be spend abroad on non-emergency relief.

          I think that the infrastructure of the railways should be in public hands (not because it will save cash – it won’t) but simply because the taxpayer has to underwrite the thing anyway (and who knows with modern technology and a ‘directing mind’ the network may become more efficient.

          Ohh…lets see….I favour the notion that key workers should not be allowed to strike but that their pay and conditions are set by an independent pay review body rather like the Police and Armed Forces.

          I think it is bloody stupid to change the Fire Service Pension Schemes to cover serving officers (because if some older officers can’t quickly meet newly mandated fitness standards then they are out of a job post haste which is disgracefully unfair).

          But I think the changes should apply right away to new recruits who should easily be fit enough to meet the required testing standards and have plenty of time to adjust to the new pension systems.

  • Redshift

    It also important to note for all Labour councils that actually the cost of implementing a living wage in local government is usually fairly minimal as you would just normally have to up the pay of cleaners and possibly the very lowest paid admin staff. If every Labour Council (and obviously we’d hope the odd non-Labour one would follow) did this then there would be a very positive upward pressure on the wages of some of the lowest paid workers nationwide. 

    If you get local councils on board, then universities and colleges are another obvious target – some private sector employers will follow suit and before you know it, not paying the living wage will be embarrassing for an employer.

    • treborc1

      Totally agree, but In Wales the cut back are fierce and the councisl have stated it will not happen, Unions are talking about strike and ballots but the councils are holding out saying sorry you strike and we will carry out redundancies, that is more then the redundancies they have already announced.

      One council has placed every single worker onto zero hour contract and other have made carers and cleaners the same, my council has told the Unions please your self 800 redundancies or out source the whole work force.

      Seems to be working.

  • hp

    ‘London weighting’ of pay just re-inforces the problem of London being overly expensive.
    Use a flat, countrywide value and the areas of the UK that are not so overcrowded become more attractive.  Yes, even the North.

  • John Reid

    Wasn’t this in our 2010 manifesto, Aren’t the Tories doing this now.the AV referndum and Fixed term parlaiments were in that manifesto too, If Jon Cruddas wants Idea’s on the next amnifesto He should look back to the 200 and 2005 manifesto’s (even Possibly some I stress some of the ’83 one) there were things in the 2005 manifesto Like Changing the Law in Northern ireland on Abortion so It could be the same as In england and Wales that was dropped, Or Letting women set up their own brothels they could run themsleves in their own areas, rather that street workers (to protect them from attackers) that was in that manifesto that was dropped, same as the Police mergers there was about 10 other Ideas in the 2005 manifesto that were good that were dropped too.

  • David

    Paraphrasing: ‘A report says that FTSE companies paying builders, bankers and IT specialists could all pay “living wages” with minimal costs to their bottom line’.

    Honestly you could blow me down with a feather!  As far as I can tell, the only people in such organisations who would be paid anything remotely close to the minimum wage would be a handful of cleaners and, perhaps, security guards.

    • treborc1

      Then what about those who work at the banks you know cashiers most of those if not all are pretty close to the min wage if not on it.

  • gunnerbear

    “In Yorkshire and Humberside, around 700,000 employees earn less than a living wage.”
    Have you got a link for that please. Those figures sound quite interesting.
    Where I live the average wage is around £19-22K (depending on where you draw the boundaries)…..
    ….thus a London-set living wage of £17K is really rather high in comparison.
    Not at all sure if all businesses on the South Bank of the Humber can afford to pay that sort of wage. Not saying it can’t be paid, but rather if £17K becomes the ‘norm’, how many jobs will it cost.

    • treborc1

      TUC report on low wages.

      In parts of Britain nearly half of jobs pay less than the living wage

      In some parts of Britain nearly half the jobs are paying less than
      the living wage, the TUC reveals today (Tuesday) to coincide with the 15th
      anniversary of the introduction of the minimum wage and the second week
      of the TUC’s Fair Pay Fortnight which runs until Sunday (6 April).

      TUC analysis of official figures from the House of Commons Library
      shows that nationally on average one in five jobs pays under the living
      wage – currently set at £8.80 in London and £7.65 across the rest of the
      UK – but in some parliamentary constituencies nearly half of the people
      working there earn less than this.

      Across the UK, around five million people get paid less than the
      living wage. Kingswood near Bristol tops the list of living wage black
      spots with 48 per cent of people working there earning less than £7.65
      an hour, followed by Chingford and Woodford Green in North East London
      (43.4 per cent of jobs there pay less than the living wage), Harrow West
      in North West London (42.4 per cent) and Sefton Central on Merseyside
      (40.4 per cent).

      In other parts of Britain a substantial number of workers also get
      paid less than the living wage. Nearly two in five people working in
      Dwyfor Meirionnydd in North Wales (39.9 per cent), Rhondda in South
      Wales (39.7 per cent), Blackpool South (39.3 per cent), West Lancashire
      (38.2 per cent), Bexleyheath and Crayford in South East London (38.2 per
      cent) and Wells in Somerset (38.1) receive less than £7.65 an hour.

      For working women the picture is even more bleak. More than half of
      women working in two constituencies – Kingswood (56.1 per cent) and
      Bexleyheath and Crayford (51.3) per cent – take home less than the
      living wage. And around half the women working in Heywood and Middleton
      in the North West (49.7 per cent), East Yorkshire (48.6 per cent) and
      Cleethorpes (48.4 per cent) earn less than £7.65 an hour.

      At the other end of the income scale, in some parts of the country –
      mostly in the South East – as few as five per cent of workers are paid
      under the living wage. Just 5.6 per cent of people working in Poplar and
      Limehouse (East London), 5.8 per cent in Runnymede and Weybridge
      (Surrey), 7.3 per cent in South Cambridgeshire and also 7.3 per cent in
      Islington South and Finsbury (North London) earn less than the living

      TUC General Secretary Frances O’Grady said: “Extending the living wage is a vital way of tackling the growing problem of in-work poverty across Britain.

      “Working families are experiencing the biggest pressure on their
      living standards since Victorian times. Pay has been squeezed at all
      levels below the boardroom and it’s costing our economy dear.

      “The number of living wage employers is growing rapidly and unions
      are playing their part in encouraging more employers to sign up and pay
      it – but government must show equal initiative. We need to see a far
      greater commitment to pay the living wage from government and employers,
      and modern wages councils which could set higher minimum rates in
      industries where employers can afford to pay their staff more.

      “During Fair Pay Fortnight we’re asking workers to back our call to
      MPs to get all political parties to put decent pay at the top of their
      agendas in the run up to the election.”

      • gunnerbear

        Thanks for that, I’ll have to read the report.


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