Time for a Universal Living Wage

Prem Blog

Some cynical journalists suggest that abstract ideas like pre-distribution and responsible capitalism are somehow too hard for people to follow. What nonsense. I don’t much like either of the phrases, but I think the ideas themselves are both simple and compelling.

The solution is rooted in common sense: instead of taking action ‘after the fact’ to try to fix inequality, let’s build social justice into the economy at every level. It might be easy to caricature as the language of the seminar room, but it is basically just another way of saying that prevention is better than cure.

The most effective form of prevention against the most extreme forms of inequality is full employment – and the best vaccination against in-work poverty is the living wage.

Right-wing ideologues, of course, claim that any intervention in the market distorts it and, in the end, hurts the economy. This argument, that the market finds its own perfect equilibrium between pay, the number of jobs and the demand for goods, ignores today’s reality: low pay employers are effectively getting a public subsidy for bad practice, in the form of tax-payer top ups to their workers’ wages through the benefit system.

The IPPR and the Resolution Foundation have estimated that a universal living wage would save the Treasury £3.6 billon from the bill it currently foots to help those on poverty pay to make ends meet. Over fifteen years in business I’ve worked in New York, Tokyo, London and Zurich for some of the biggest companies in the world and I can honestly say I’ve never met a business person who would think, when looked at like that, that they could reasonably ask the public to subsidise their profit margins while their staff struggle to survive.

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The truth is, the living wage works for everybody: employee, tax-payer and employer alike. Independent research for the Living Wage Foundation has found that 80% of employers giving the wage and 75% of the staff receiving it feel it improves their work. As the Tories continually fail to understand when they attack ‘lazy Britain’ and endorse erosions of employee rights, is that better pay and conditions improve morale and productivity. Further, plenty of living wage employers felt it strengthens their brand by encouraging consumers to see them as an ethical firm.

My own company, GMC, pays all its staff a living wage and is on the official list of Living Wage firms. Financial companies, retail outlets and legal firms are joining a long list of councils and a growing number of universities.

The difficult issue with the living wage, however, continues to be implementation – how we make the dream a reality. While many private firms have adopted it, they have tended to be in sectors (like law and banking) where large numbers of employees are already on relatively high incomes and uptake has undeniably been slow compared to the public and voluntary sectors. According to KPMG, there are nearly 5 million workers who still lack a living wage level of income and we know that they are concentrated in sectors, like bar work, where wages are generally low across the board.

Living Wage Money

There are also discrepancies between different regions of the UK. Part of the problem may be lack of understanding of how the wage is calculated, but the lack of a clear government strategy is also an issue. One idea put forward in the IPPR-Resolution Foundation report was the establishment of “living wage zones”, in which the Treasury will reimburse living wage councils using some of the aforementioned savings the Treasury would make, allowing the councils to in turn increase support for local business.

The government could also use its clout as a contractor to demand that all private sector firms seeking contracts introduce the wage, and could also legally require listed companies to make public whether they are living wage employers, in order to inform the public and make the brand impact stronger.

However, while gradual measures such as these will be wise in the short to medium term, as they will allow some measure of coalition-building with friends in the SME sector, eventually there will come a time when we will need to conclude that the National Minimum Wage Act 1998 is outmoded and should be replaced by a fresh National Living Wage Act, enshrining the new consensus in the law of the land.

This position will strike a contrast, especially as the current coalition makes clear its skin-deep commitment to fairer wages by openly speculating about freezing even the existing statutory minimum wage. The issue is now; we can and we must be bold.

Written by Prem Goyal

Prem is a City entrepreneur, political activist and community organiser. He is a Magistrate, charity Trustee and active Patron to a number of community organisations in Southwark.