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A Living Wage Decade

Posted by: , Posted on: - Categories: Child Poverty, Social Mobility

Living Wage Week 2014 brings mixed news about efforts to tackle low pay. While the number of accredited Living Wage employers has increased to over 1,000 this has not been enough to stop the number of people on low pay increasing. Some 5.3 million people – more than one in five workers - earn less than the Living Wage, 150,000 more than last year. It’s time for the voluntary approach celebrated by Living Wage Week to be matched by stronger commitment from the top

The persistence of low pay goes a long way towards explaining the growing policy challenge of in-work poverty. The risk of poverty for a child in a working household is the same now as a decade ago, despite sharp falls in poverty among workless families. As a result around two thirds of poor children now live in working households.

Low pay is at the heart of this - last year we highlighted evidence that hourly pay has become a bigger predicator of poverty than the number of hours worked. Pay is no longer rewarding parents’ efforts. Instead, the Exchequer has become increasingly responsible for maintaining living standards through in-work benefits, with £21 billion spent on tax credits for over 3 million working families with children in 2012-13 and the cost of in-work Housing Benefit claims doubling in real terms between 2009-10 and 2013-14 to reach £5 billion.

This is why we have called on the UK Government to drive action across the whole of society to make Britain a Living Wage nation by 2025 at the latest. The Living Wage Foundation has succeeded in getting individual employers to engage with the Living Wage. But so far progress has stopped short of the systemic change needed to tackle low pay.

While the National Minimum Wage has succeeded in virtually eliminating extreme low pay, the proportion of low paid employees has changed little in two decades and the minimum wage has too often become the going rate of pay at the lower end of the labour market. Increasing the minimum wage will go some way to helping these people and their families but will not address the broader problem of low pay.

Ambitions to raise pay must look beyond the minimum wage and seek to restore the link between economic growth and earnings growth. This is not a call to make the Living Wage the statutory minimum today. That must remain as a wage floor which is set with regard to protecting jobs. But, with a decade to prepare, we expect all employers to get themselves into a position where they can afford to voluntarily pay the Living Wage to all employees.

The current ambivalence of the Government towards the Living Wage – asking employers to consider paying it while strongly hinting they think it is probably unaffordable for most employers, rarely paying the Living Wage themselves and doing nothing to publicly challenge employers who could afford to pay it but do not - is no longer tenable. This approach required the tacit understanding that the Government could continue to subsidise low pay in the form of in-work benefits, but fiscal consolidation means that the era of maintaining living standards via income transfers alone is over. Those who push for continued reductions in in-work benefits must either set out a pay strategy to shift the burden of raising incomes to employers, or be transparent about the prospects for falling living standards and rising poverty.

Our report sketched out what such a strategy to tackle low pay and improve pay progression would look like. As a first step the Government should expand the role of the Low Pay Commission. At the moment, it is effectively a “Minimum Wage Commission” with only a short-term remit to advise every year on “levels for the minimum wage rates that will help as many low-paid workers as possible without any significant adverse impact on employment or the economy”. Supplementing this with a new medium-term role in advising on steps that could be taken by government and employers to facilitate future increases in the statutory minimum would allow it to become a true low pay commission while maintaining the benefits of the current settlement.

The Commission recognises that adopting the Living Wage will be more challenging for some industries, such as retail and hospitality, than others. Raising wages across these industries will require remodelling of business practices to bring about increases in productivity. This will be challenging, which is why the ten year timeframe is realistic.

The Living Wage is not a silver bullet to eliminate poverty. But it is the best tool we currently have to raise expectations around pay. Accepting the ambition of making Britain a Living Wage nation by 2025 will pave the way for the conversations needed on how to respond to challenges such as the hollowing out of the labour market and the UK’s problem with low skills and poor productivity. The focus on the Living Wage cannot stop at the end of this week; the Government must work with employers and trade unions to begin a decade focused on eradicating low pay.

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