Living wage – coming to a city near you

The challenges are real, but the living wage chimes with the public mood.

The last time a letter left on a desk caused such a stir it involved an exchange between two senior politicians about the future of the country’s finances. This time the note was from a group of Whitehall cleaners to Iain Duncan Smith asking him to make good on his commitment to make work pay and make his department, DWP, a living wage employer. The fact that it so caught the public mood says something about how the question of low pay has risen in salience.  

This is in no small part due to the success of the living wage campaign, a grass-roots movement formed just over a decade ago, to push for a decent wage – above the minimum wage - for workers. It has helped shine a light on the rising problem of in-work poverty. In an era when there are many structural forces bearing down on low pay – from shifts in technology and trade to the continued demise of collective bargaining and the real terms falls in the minimum wage - the momentum behind the campaign for a living wage is a rare example of at least some countervailing pressure.

Yet for all the verve and campaigning success it is still the case that only a relatively small number of people are getting paid a higher wage as a result of working for a living wage employer. For example, in London it is estimated that around 650,000 employees are paid less than the London living wage (£8.30 per hour) yet only around 10,000 have gained an accredited living wage since 2005. Look at the national picture, where a total of six million employees are being paid less than a living wage, and the scale of the low pay challenge becomes clear.

None of which is to say that progress has not been made - thousands of low-paid workers will attest to the difference a living wage has made to their lives – just that the living wage faces a difficult set of challenges as it comes of age.

First, there is the need for the living wage to reach out beyond the public sector and the select parts of the private sector (relatively small numbers of high-profile financial and legal firms) where it currently resides into more mainstream employers. So it is timely that a new report  from the Resolution Foundation and IPPR estimates the impact on the wage bill of large firms across different sectors and challenges some prevailing assumptions. In key sectors like banking, construction, food production and communications - where roughly a million people in total work below the living wage – the typical impact of paying a living wage on the wage bill of large employers is pretty modest at around 1% (and that assumes a knock-on effect on wage differentials for those earning above the living wage).

Average firm-level wage bill increase in different sectors

Source: Resolution Foundation

Of course, the precise cost of a living wage will vary from employer to employer but figures of this size should be absorbable.

Second, is the need to make real progress beyond London where the campaign has traditionally been anchored. The US experience shows how campaigns can move quickly from one city to another, as was the case when the living wage movement first succeeded in securing a higher wage floor in Baltimore in the early 1990s and then quickly spread elsewhere. In the UK we’ve seen the emergence of many new city initiatives over the last year or so - Sheffield, York, and Newcastle have all set up Fairness Commissions following on from the experience in Islington - with the aim of promoting fairer pay across local public and private sectors. It remains to be seen what these processes will achieve but so far it appears that a healthy degree of civic competition is proving a useful spur – and the newly expanded base of Labour-led authorities is only likely to generate more interest.

Third, is the need to ensure that being ambitious about the potential of the living wage doesn’t mean being unrealistic about tax credits. Contrary to what many think (though not the main campaign groups) the living wage is nowhere near high enough to ensure a typical household with children can live independently of state support: indeed the level of the living wage has always been premised on full take-up of in-work tax credits. If it didn’t then the London living wage, for example, would rise from £8.30 an hour to an eye-popping £10.40.  

Finally, there is an unresolved conundrum, both for campaigners and sympathetic politicians, as to the role government should play in expanding coverage of the living wage. This is about philosophy as much as policy. Pure voluntarism, which has been the essence of the campaign to date, may well mean relatively slow progress. Too much statism, for instance through calls for legislation – effectively replacing the minimum wage with a living wage – or expensive tax incentives for employers, would, however, contravene the character of the living wage campaign which has been rooted in a civic process to get employers to take responsibility themselves for paying a decent wage on ethical grounds.  The chasm that exists between relying on moral suasion on the one hand, and top down legislation on the other, needs to be better explored.

While these challenges are real, they all arise from rare success. The living wage is an idea that chimes with the times, allied to a label that works, rooted in a progressive argument that doesn’t rely primarily on more state spending. And that puts it in a very small category indeed.

Many working in key sectors like construction are working below the living wage. Photograph: Getty Images

Gavin Kelly is a former Downing Street adviser to Gordon Brown and Tony Blair. He tweets @GavinJKelly1.

Photo: Getty Images
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Cameron needs to decide what he thinks about Russia

David Cameron's words suggest one thing, his actions quite another.

David Cameron needs to decide whether he takes Russia seriously.

He certainly talks a good game, calling Vladimir Putin to account for crimes against Ukrainian sovereignty and for supporting the wrong side in Syria, claiming credit for bolstering the post-Crimea sanctions regime, and demanding that Moscow’s behaviour change. And the new Strategic Defence & Security Review, published last week, puts Russia front and centre among the threats Britain faces.

The problem is, his government’s foreign policy seems calculated to make no one happier than Putin himself.

At fault is not a failure of analysis. It has taken Whitehall 19 months since Moscow annexed Crimea to develop a new Russia policy, replacing the old aspirations of “strategic partnership based on common values”, but the conviction that Russia be treated as a significant threat to the U.K.’s security and prosperity is solid.

Five years ago, when the coalition government published the last Strategic Defence & Security Review, Russia was mentioned once, in the context of rising global powers with whom London could partner to help solve planetary problems, from nuclear proliferation to climate change. The new SDSR tells a very different story. Russia gets 28 mentions this time around, characterised as a “state threat” that “may feel tempted to act aggressively against NATO allies.” Russia’s annexation of Crimea and instigation of a separatist civil war in eastern Ukraine are mentioned in the same sentence with Assad’s chemical weapons attacks on Syrian civilians and the rise of the Islamic State as key examples of how the world is becoming a more dangerous place.

How that threat will be countered, however, is not a question Whitehall can answer: it is a question for Westminster, and it gets to the heart of where this government sees its place in the world, and in Europe in particular. What Whitehall cannot say – but what the politicians must recognise – is this: the best bulwark against the Kremlin is a strengthened European Union, with more integrated markets and the force to push a concerted foreign policy in the Eastern Neighbourhood. And that recognition requires Cameron to decide whether Putin poses a greater challenge than Nigel Farage.

The SDSR is right to note that the danger of a military confrontation with Russia is remote. Just in case, the Government has committed to bolstering aerial defences, contributing to NATO’s rapid reaction capabilities and maintaining the sanctions regime until a full settlement is reached that restores Ukrainian sovereignty. These are all reasonable measures, which will go some distance to ensuring that Moscow understands the risks of further escalation in the near term. But they do nothing to address the longer term problem.

From a hard-security perspective, Russia is a nuisance. The real danger is in the threat Moscow poses to what the SDSR calls the “rules-based order” – that system of institutions, agreements and understandings that underpin stability and prosperity on the European continent. That order is about more than respecting national borders, important as that is. It is also about accepting that markets are impartially regulated, that monopolies are disallowed and political and economic power reside in institutions, rather than in individuals. It is, in other words, about accepting rules that are almost the polar opposite of the system that Russia has built over the past 25 years, an order based on rents, clientelism and protected competitive positions.

Russia, after all, went to war over a trade treaty. It invaded Ukraine and annexed part of its territory to prevent the full implementation of a Deep and Comprehensive Free Trade Agreement that was designed to make Ukraine function more like Europe and less like Russia. From Moscow’s point of view, the European project is a very real geopolitical threat, one that promises to reduce the territory in which Russia can compete and, eventually, to increase the pressure on Russia itself to change. In somewhat less pernicious ways Moscow is seeking similarly to derail Moldova’s and Georgia’s European integration, while working hard to keep Belarus and Armenia from straying.

This is not a problem of vision or diplomacy, a failure to convince Putin of the value of the European way of doing things. For Putin and those on whose behalf he governs, the European way of doing things carries negative value. And unless the basic structure of politics and economics in Russia shifts, that calculation won’t change when Putin himself leaves the Kremlin. For the foreseeable future, Russia’s rulers will be willing to go to extraordinary lengths to prevent the widening of Europe, at the cost of instability and dysfunction in the region.

European willingness is another question. A chorus of euro=sceptics both left and right have demanded that Europe stop provoking the Russian bear, leaving the Eastern Neighbourhood countries to fend for themselves – sacrificing Kiev’s sovereignty to Moscow in order to bolster their own sovereignty from Brussels. Cracks, too, are emerging in the centre of the political spectrum: as French President Francois Hollande pledged to work with Moscow to fight ISIS in Syria, Prime Minister Manuel Valls declared that such an alliance would necessitate the lifting of sanctions on Russia, thus trading stability in Syria for instability in Ukraine.

As a member of the EU, London has a role to play. Together with Berlin, London could exert pressure on Paris and keep the margins of the political spectrum marginal. London could through its weight behind a common energy market, forcing Gazprom to play by EU competition rules. London could bolster anti-corruption systems and ensure that ill-gotten gains have no safe haven in Europe. London could insist on the legitimacy of the European project from one end of the continent to the other.

Instead, London is threatening Brexit, relinquishing any leverage over its European allies, and seeking EU reforms that would eviscerate the common energy market, common financial regulation, the common foreign and security policy and other key tools in the relationship with Russia.

In their February 2015 report on EU-Russian relations, the House of Lords raised the question of “whether Europe can be secure and prosperous if Russia continues to be governed as it is today.” To be sure, Europe can’t change Russia’s government and shouldn’t try. But by insisting on its own rules – both in how it governs its internal markets and in how it pursues its foreign policy – Europe can change the incentives Russia’s government faces.

The question, then, to Cameron is this: Whose rules would Westminster rather see prevail in the Eastern Neighbourhood, Europe’s or Russia’s?

Samuel A. Greene is Director of the King’s Russia Institute, King’s College London.