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 chief executive of the Resolution Foundation 

Getty Images.
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Labour tensions boil over at fractious MPs' meeting

Corbyn supporters and critics clash over fiscal charter U-turn and new group Momentum. 

"A total fucking shambles". That was the verdict of the usually emollient Ben Bradshaw as he left tonight's Parliamentary Labour Party meeting. His words were echoed by MPs from all wings of the party. "I've never seen anything like it," one shadow minister told me. In commitee room 14 of the House of Commons, tensions within the party - over the U-turn on George Osborne's fiscal charter and new Corbynite group Momentum - erupted. 

After a short speech by Jeremy Corbyn, shadow chancellor John McDonnell sought to explain his decision to oppose Osborne's fiscal charter (having supported it just two weeks ago). He cited the change in global economic conditions and the refusal to allow Labour to table an amendment. McDonnell also vowed to assist colleagues in Scotland in challenging the SNP anti-austerity claims. But MPs were left unimpressed. "I don't think I've ever heard a weaker round of applause at the PLP than the one John McDonnell just got," one told me. MPs believe that McDonnell's U-turn was due to his failure to realise that the fiscal charter mandated an absolute budget surplus (leaving no room to borrow to invest), rather than merely a current budget surplus. "A huge joke" was how a furious John Mann described it. He and others were outraged by the lack of consultation over the move. "At 1:45pm he [McDonnell] said he was considering our position and would consult with the PLP and the shadow cabinet," one MP told me. "Then he announces it before 6pm PLP and tomorow's shadow cabinet." 

When former shadow cabinet minister Mary Creagh asked Corbyn about the new group Momentum, which some fear could be used as a vehicle to deselect critical MPs (receiving what was described as a weak response), Richard Burgon, one of the body's directors, offered a lengthy defence and was, one MP said, "just humiliated". He added: "It looked at one point like they weren't even going to let him finish. As the fractious exchanges were overheard by journalists outside, Emily Thornberry appealed to colleagues to stop texting hacks and keep their voices down (within earshot of all). 

After a calmer conference than most expected, tonight's meeting was evidence of how great the tensions within Labour remain. Veteran MPs described it as the worst PLP gathering for 30 years. The fear for all MPs is that they have the potential to get even worse. 

George Eaton is political editor of the New Statesman.