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Teresa Pearce (Erith and Thamesmead) (Lab)
It is very welcome to be serving under your chairmanship, Mrs Main. I think that this is the first time that I have done so. I thank everyone for attending what I believe is a timely debate.
The campaign for the introduction of a living wage unites many organisations, charities and people in pursuit of social justice. There is a clear moral case for a living wage: as a society, we should ensure that the minimum wage that workers are paid allows them to lead a decent life, a life with dignity, and does not require people to have, as some in my constituency do, two or three jobs to try to make ends meet, leaving them no time for their children or the rest of their family, or to contribute in any other way to society.
At the same time, there is increasing recognition of the business benefits that being a living wage employer can bring. Many living wage employers see it as almost a fair trade mark: it marks them out as separate from other employers and indicates that they are employers of choice. I think that that is very welcome. A living wage employer also attracts better-quality staff and gains a reputation for good corporate social responsibility. Paying the living wage also reduces absenteeism and staff turnover. It is about giving workers the respect and the pay that they deserve for the work that they do.
I am pleased to say that many people are now paying the living wage, including some councils, such as Lewisham council and Birmingham city council, and private sector employers, such as Aviva and my old employer, PricewaterhouseCoopers, as well as KPMG. They have already volunteered to adopt the living wage and, if the press reports from late last year are correct, three Departments are also now considering introducing it. Late last year, Labour said that it was looking at making public sector contracts conditional on workers being paid at least the living wage and possibly naming and shaming companies that pay their workers less. More MPs are also advertising internships that pay the living wage, which is a very welcome development, as we should be leading the way on fair employment practices. We should lead by example. I do not want to be part of an organisation that says, “Do as I say, not as I do.” For that reason, I do not use unpaid interns and always pay interns at least the living wage. I am very pleased that that is now becoming the practice in the House. Those have all been welcome steps towards making the living wage the norm in our labour market and they make the debate particularly timely.
However, there is one angle to the debate about introducing the living wage that I think needs to be given greater consideration and discussed. If one of the large and vastly profitable supermarket chains or fast food chains had their electricity bills paid by the taxpayer or their advertising costs greatly subsidised by the general public—the same general public who purchase goods in their stores and from whom they make their massive profits—we would expect tabloid headlines and a massive public outcry at the unfairness of it. However, week in, week out, such companies get an enormous subsidy to help with one of their major overheads—staffing costs. That is because many employees—often the majority—in these large and successful companies are paid only the minimum wage, and because the current minimum wage is not a living wage, nearly everyone on it has to claim tax credits to be able to make ends meet.
The number of working families receiving tax credits to top up their meagre incomes has risen by 50% since 2003. A Joseph Rowntree Foundation report estimates that 3.3 million people now have to claim tax credits to top up their wages because they are on the minimum wage. Those tax credits are funded by the Government—by the taxpayer. That means that the public purse has to subsidise the low-paid employees of many of our household names so that they make their high profits rather than pay their workers a decent wage.
Mr David Lammy (Tottenham) (Lab)
My hon. Friend is making a fantastic point. She will recognise also that there are some supermarkets where the CEO is on 500 times more than the individual on the shop floor. That must be unacceptable if they are not paying a living wage and are expecting the state in effect to pick up the bill.
Teresa Pearce
I thank my right hon. Friend for his intervention; I totally agree. When we compare the top and the bottom level of pay, there is often a massive difference. We need to look at getting that balance right. If a company is making that sort of profit, it is inexcusable for it not to pay a decent wage and for the taxpayer to have to subsidise its wage bill.
I am not against tax credits, but I think that more people need to understand that in many sectors the taxpayer is subsidising the wage bill of some of the biggest employers. We need a national living wage to put an end to the deeply unfair situation in which we are all subsidising poverty pay and the profits of large—often global—companies. The Secretary of State for Work and Pensions recently wrote an article about in-work benefits in The Daily Telegraph. He was blaming Labour’s payments to supplement working families’ incomes for the fact that the public finances are at “breaking point”. Although I agree that the Government should not have to subsidise low wages and in effect subsidise the profits of large companies, I disagree that the solution is to cut the only payment standing between many low-paid workers and destitution. There have been many debates in the House, and I am sure that there will be many more, about why the public finances are the way they are. Is it because we have had to bail out the banks? Is it the Government’s politics of austerity? Is it the lack of growth? Whatever side of the argument we are on, I think that we would all agree that it is not the fault of the worker in my local supermarket or the waitress in the pizza restaurant. We are not in this situation because the Government intervened to prop up poverty wages. It is not the fault of tax credits.
Nevertheless, there is some agreement across the parties that the situation needs to change, even if very different solutions are proposed. We could do as the Government plan to do and place a cap of 1% on uprating benefits such as working tax credits, far below predicted inflation, which will tip thousands more families and children into grinding poverty; or we could consider raising the national minimum wage to a level at which the extensive use of working tax credits would not be necessary.
A recent report by the Resolution Foundation and the Institute for Public Policy Research estimated that widespread use of a living wage could save the Government £2 billion a year. About £3.6 billion of the extra money paid out in higher wages under a universal living wage would go straight to the Government, in the form of extra income tax and national insurance payments, along with reduced spending on benefits and tax credits for the lowest-paid. As some of those workers would be in the public sector, their wages would cost the Government an extra £1.3 billion. However, that would still leave the Treasury with an extra net income of £2 billion.
The living wage should be adopted sooner rather than later as the national minimum wage. I do not think that it is too much to ask that workers at the bottom of the income ladder should at least be able to make ends meet. A legal minimum living wage is necessary, because although campaigners have been successful in increasing voluntary take-up, the numbers of people affected by what we are discussing are so high that they warrant more drastic action. About 5 million people are paid less than the suggested living wage and 3 million households contain at least one adult who is paid below that level. The Institute for Fiscal Studies predicts that a further 1 million children will fall into relative poverty by 2020, and that prediction was made before last night’s vote. With a living wage, we could at least try to undo some of the damage.
I realise that many people will object to what I am saying. They will say that I am anti-business. I am not, but I am anti-exploitation. If a business depends on cheap labour while making massive profits for its shareholders, there should be a mechanism—I do not think that it is beyond the wit of man to come up with one—whereby the numbers of minimum wage jobs at a profit-making company are reported to Her Majesty’s Revenue and Customs and a levy can be charged via the tax system to refund some of the subsidy. There is an argument for helping small firms or those that provide a necessary public service, but I do not believe that supermarkets and giant retail companies, which are making billions of pounds each year in profits, deserve or warrant state subsidy, because that is what this is.
People will say that I am anti-jobs, but that is nonsense. I ask them to consider the proposition that the next time one of these firms issues a press release saying that it is creating 5,000 jobs, what it really means is that it is creating increased profits while the rest of us pay part of the staffing cost for those 5,000 jobs. If a business is being operated in a modern European democracy, the people working for it and helping it to make that profit should surely earn enough to be able to live in that modern European democracy without relying on state benefits.
People will say that I am anti-free market on the basis that if employers are forced to pay decent wages, they will go out of business, but if we are realistic, we will admit that we do not really have a free market economy when companies need to be subsidised by the benefits system, when institutions such as banks are not allowed to fail because of the effect on the UK economy and when private companies contracted by Departments to provide services fail and have to be propped up financially to ensure that essential services are protected. Companies are taking the profit without bearing the risk. That is hardly a free or fair market.
Profitable employers who say that they cannot afford to pay a living wage or who depend on cheap labour do not have the business model on which we can build a recovery. We need proper, clear, informed, rational discussion. The public need to understand the extent to which such companies are helped by public funds. We need to stop calling them wealth creators and start calling them state-subsidised industries, because that is what they are. If we are serious about making work pay, the first step is to get those making and taking the profits to pay the wage bill of their own workers, who are often the true, unsung wealth creators.
Mr Christopher Chope (Christchurch) (Con)
It is a pleasure to participate in this debate. I congratulate the hon. Member for Erith and Thamesmead (Teresa Pearce) on securing it. I am delighted that the Minister of State, Department for Business, Innovation and Skills, my right hon. Friend the Member for Sevenoaks (Michael Fallon), is responding, because he and I belong—or belonged—to the school that believes that it is much better to leave such issues to the market than allow Government intervention, let alone legislation or regulation.
The starting point is that, if people want to prescribe a living wage and some employers wish to pay what they describe as a living wage, they should be free to do so in a free market. There is no issue. The agenda that underlies the hon. Lady bringing forward the debate is that she would like the Government to specify and introduce what has been set out as a living wage.
Mr Chope
I have consistently articulated the same arguments on the minimum wage. I had the pleasure of introducing the Employment Opportunities Bill, fundamental to which was the principle that people should be able to opt out of the minimum wage, thereby increasing the number of employment opportunities. I have been consistent. In fact, I argue that I have probably been more consistent than my party in saying that in this area we should allow individuals and the marketplace to do what they wish to do and we should not intervene.
I make only one concession. The argument about the living wage in a sense embraces one of my criticisms of the minimum wage. The living wage is supposedly £1 or £1.50 higher in London than it is outside London, and yet people, and the party of the right hon. Member for Tottenham (Mr Lammy) in particular, espouse the idea that a national minimum wage needs to be the same across the country. It is recognised that the living wage is different in London. The costs of living in London are higher, so the living wage in London is higher than the living wage outside London. In a sense, the argument opens up the debate about whether to have national regulation or, if there is to be regulation at all, allow regional variation. I am pleased to see some recognition on the part of the Labour party that regional variations are important.
Whether a wage is a living wage depends on who receives the wage. I would like to draw Members’ attention to Donald Hirsch’s “Working paper: uprating the out of London Living Wage in 2012”, which updates the Centre for Research in Social Policy calculations on the living wage outside London. It uses the basis first set out in 2011, produced at the request of the Living Wage Foundation, and draws on the minimum income standard for the United Kingdom. It explains the basis for the outside London living wage level announced by the Living Wage Foundation on 5 November 2012, coinciding with the updating of the London living wage as calculated by GLA Economics.
I will not take Members through all the calculations, which start by calculating minimum living costs in 2012, translate that into a wage requirement, and consider the application of a cap limiting the increase in an applied living wage in any one year. When one looks in detail at the calculations, one sees the fallacy in the hon. Lady’s argument. After carrying out all the calculations for the different types of family, living in different types of accommodation, with differing child care needs, it concludes:
“The following summarises the composition of the costs as set out above, and how this translates into wage requirements”—
in other words, what the hon. Lady would describe as a “living wage”. The hourly wage requirement is £8.38 for a single person and £6 for a couple without children or dependants—significantly below the national minimum wage.
Mrs Anne Main (in the Chair)
Order. Will the right hon. Gentleman sit down?
Mr Chope
As soon as we look at the figures, we can extrapolate that an individual needs a wage at a particular level in order to live. That may be so, but a wage is determined in the marketplace, which is why single parents in this country have very low—relatively speaking —labour market participation. It is not worth their while to go out to work, because their wages will not be greater than their living costs or the benefits they receive. One good thing that the Government have done is adopt a policy designed to ensure that work pays and is worth while. If we take two equivalent families—one in work and the other not—the one in work will receive more than the family not in work.
Mr Chope
I will not give way to the right hon. Gentleman again, because lots of people want to participate in the debate.
Even the figures produced by supporters of the concept of a London living wage demonstrate the variation in living wage—£6 an hour each for members of a couple with no dependants, rising to £18.57 for a single parent with three dependant children. That is an annual wage requirement of £36,319 a year—pretty close to the level at which they would have to pay higher rate tax and lose their child benefit under the wholly misguided benefit arrangements the Government have introduced. That is a side story to what we are discussing.
If an individual wishes to employ someone, they offer a wage for the job and it is up to individuals applying for the job to decide whether it is worth while to undertake it at the wage offered. I hope the Minister will endorse that in his summing up. If employers just offer wages in line with the national minimum wage, they cannot differentiate between the person one might describe as the “honest plodder” and the person with a little more enterprise, flair and, potentially, loyalty to the organisation. That is why it is often in the best interests of a company to offer higher wages, and indeed why I offer gap-year students in my office significantly more than the minimum wage. I recognise that in that way I am more likely to get gap-year students who will stay the course, be conscientious and turn up for work on time than if I offer either zero wages or an internship rate.
I operate in a marketplace myself, and all I am suggesting is that other employers should be encouraged to operate in the marketplace. We should not sleepwalk into having a system of nationally set minimum wages that supposedly amount to a living wage.
Ian Lavery
The hon. Gentleman peddled a lot of information about the national minimum wage that was completely unfounded, and he appears to be doing exactly the same now. Does he not agree that the living wage is good for business, society and people in the workplace?
Mr Chope
The living wage may, in certain circumstances, be good for employers—I have just conceded that—and for employees, because they will receive more money than from another employer. I am much less certain about the overall benefits for society as a whole. Dramatic statements have been made about how, if everybody had the living wage, it would increase the amount paid to the Exchequer and therefore increase the amount of money available to fund public expenditure, but that analysis does not bear detailed scrutiny.
My point is that wages should be left to the marketplace. It is for an individual to present himself, and if he wishes to take a job for £4 an hour—[Interruption.] The hon. Member for Wansbeck (Ian Lavery) shows his scepticism, but a large number of graduates, who are out in the marketplace, are being presented with a stark choice: they either work for nothing—as an intern, basically—or do not receive the minimum wage because that is regarded by employers as unaffordable. Therefore, if an individual said to a potential employer, “I’m prepared to work for £4 an hour,” it would create an illegal situation. The purpose of my Employment Opportunities Bill was to enable people voluntarily to opt out of the requirements of the minimum wage should they so wish. I would have thought that that was pretty fundamental in an open, democratic society, but obviously the control freaks in the socialist party do not like giving people the freedom to do that. [Interruption.]
Mrs Anne Main (in the Chair)
Order. There is too much chatter on the Back Benches.
Ian Lavery
I thank the hon. Gentleman for giving way a second time. Is he really suggesting that the marketplace should determine wages? Would he accept people working for £1 an hour?
Mr Chope
In countries overseas, many people work for less than £1 an hour, and some of them have taken jobs that would have been available to people in this country, because those jobs have been outsourced overseas. Some of the work done shows that companies based in, say, London may want to pay all their staff high salaries, which is fine, but often outsource more menial jobs to overseas locations where people are paid much less than the minimum wage operating in this country. That is an area where the market should operate.
The market for labour in Cornwall or north-east England is different from that operating in London. The market for a young single person is different from that for someone with a lot of dependants. I have constituents, as I am sure does the hon. Gentleman, who have recently been made redundant but have so many commitments that they cannot afford to take a job at a significantly reduced salary, because they would be unable to meet all those commitments. That is part of what I describe as the operation of the marketplace.
I do not feel that I am out on my own on the living wage, but we should not lose sight of the importance of allowing the market to operate in this area. Whether we call it a moral case or whatever, I do not think that someone employed at £6 an hour—taking the figures I gave earlier—should be prevented from being employed because somebody comes along and says that there shall be a national living wage in excess of £6 an hour, with employers shedding employment as a result.
Hundreds of thousands of people are self-employed. They work for far less than the minimum wage or what people might describe as a living wage, but they work hard and for long hours as self-employed people. Why should we condemn what they do, if they are operating in their own marketplace? Why should we base a living wage on a week of 37 and a half hours when, to increase their wages and standard of living, many people choose to work more hours than that? Why arbitrarily choose that number of hours as the basis for assessing a living wage, because a living income may be based on people working a lot more than 37 and a half hours?
This debate has the potential to be quite interesting. I am grateful to the hon. Member for Erith and Thamesmead for introducing it. I hope that, in summing up, my right hon. Friend the Minister will leave no room for doubt that the coalition Government are absolutely opposed to the living wage and more regulation.
Jack Dromey (Birmingham, Erdington) (Lab)
It is a pleasure to serve under your chairmanship, Mrs Main. I congratulate my hon. Friend the Member for Erith and Thamesmead (Teresa Pearce) on initiating this very welcome debate.
I have always believed in the dignity of labour and of work, but for millions in work and living on low pay, life can be a precarious existence that involves counting every penny. Under Labour, great progress was made. The national minimum wage transformed the lives of millions. In my former being as deputy general secretary of the Transport and General Workers Union and then of Unite, I heard heartbreaking examples of people who, having gone to work for 40, 50 or 60 hours a week, were given their wages slip and saw that they had been paid £1.50 or £2 an hour.
If it is true that the national minimum wage transformed the lives of millions, it is also true that life on the national minimum wage could be very tough, which is why the notion of the living wage was born. It was born in the east end of London, initially by TELCO—the East London Communities Organisation—which was formed by faiths and community groups, as well as by a parents’ movement, about which I shall say more later.
When I was elected deputy general secretary in 2003, one of the first things that I did was to sit down with those excellent people, and together we mounted a highly effective campaign to end poverty pay, initially in Canary Wharf and the City of London. It was nothing short of obscene that good men and women from all over the world cleaned boardrooms and toilets in those giant tower blocks—in which average wages were frequently £150,000, £200,000, £500,000 or £1 million a year—on the national minimum wage, with statutory sick pay, no pension and the basic minimum entitlement to holidays. That powerful movement changed the lives of 4,000 cleaners in Canary Wharf and the City of London.
Interestingly, an alliance of organised labour and faiths initially drove the process, but as we broke through, first one and then the other, we had more and more employers coming out and saying, “This is right, and we should have done it earlier.”
Gloria De Piero (Ashfield) (Lab)
I just want to put it on the record that it is right to praise people and organisations such as Barclays, KPMG and the many Labour councils across the country, including my own Ashfield district council, for introducing a living wage.
Jack Dromey
More and more employers are embracing the living wage. The next landmark in our campaign was the organisation of the first strike in the history of the House of Commons—it was of the cleaners. I have the manifesto that was produced by those cleaners. Let me remind Members of where we were just four years ago. We were talking about wages of £4.85 to £5 an hour, 12 days holidays plus statutory days, statutory sick pay only and no pension. I am pleased to say that, with the support of MPs from all parties, we broke through and now those cleaners earn the living wage.
More than 130 employers in London have embraced the living wage, and that is increasingly happening elsewhere in the country—in areas such as Ashfield. In London, all three parties in the Greater London assembly have supported the living wage, and as a result, tens of millions of pounds have gone to the low-paid.
Let me put the case for the living wage. First, it is good for business. There is no question but that it has a substantial impact on productivity. Indeed, in surveys of employers that have introduced the living wage, some 80% have said that there was a discernible improvement in the quality of work and that absenteeism fell by 25%. Two thirds of the employers said that they had seen dramatic improvements in recruitment and retention, with far less churn in their work force than previously, and 70% said that it had been good for the standing and the reputation of their company. Frequently, employers seek to sell themselves as being reputable and ethical, and the fact that they are living wage employers contributes to that. As for the business case, job quality, productivity, service delivery and reputation have all been improved, with a relatively minor increase in costs on the part of those companies.
A living wage is good for the individual, because dignity in work is enhanced by a living wage. Interestingly, in the surveys that have been done of employees in living wage companies, 50% have said that they have been much more willing to embrace change within their companies as a consequence of the fact that, at last, their labour is being recognised by way of the living wage.
The living wage is good for society. Returning to the origins of the living wage campaign in east London in 2001, 2002 and 2003, the parents’ groups were a powerful driver. They argued that having to take on two or three jobs to be able to pay their bills was an enemy of family life. The evidence is that, in London alone, 15,000 families have been lifted out of poverty by the introduction of a living wage. If we look at the principal beneficiaries, we see that 88% are women. A living wage is also good for the taxpayer. By definition, if people are getting a living wage, they are less likely to need to depend on benefits and tax credits.
I am proud to say that Birmingham, like Ashfield and many other local authorities, is now driving forward with the living wage. It was the first pledge to be honoured by the incoming Labour administration last May. There were three stages. The first stage took in the 3,000 directly employed employees in Birmingham, such as the wonderful Elaine Hook. They were previously paid just a penny above the national minimum wage of £6.19. They then received a £1 an hour increase, putting up the wage to £7.45 an hour. Time and again, Elaine Hook has said that she cannot describe the difference it has made to the quality of her life.
The second stage, which is under way right now, relates to the council’s procurement power. I have a strong view that taxpayers and council tax payers are entitled to feel confident that contracts are let to decent and reputable employers—employers who pay the living wage. Such a policy is now being rolled out in Birmingham, but not just by way of insisting that any contract let includes the living wage for goods or services. The council is also building Birmingham’s business base by maximising the letting of contracts in the area and following other noble objectives, such as more employment opportunities for disabled workers.
The third stage is the leadership that we give in the city as a whole and the power of advocacy, working with a wide coalition of interests. Put simply, the argument is that Brummies are worth more than the minimum wage; every one of them is entitled to the living wage.
We are also talking about the sort of society that we are. It is wrong simply to see this as a moral issue. From my own experience in the world of work, I know that there is a powerful business case for the living wage. There is also a powerful economic case, because low-paid workers who move on to a living wage do not salt away their money in tax havens; they spend it in local shops and local businesses.
None the less, there is, unashamedly, a moral case. As part of the great drive for the living wage in Canary Wharf and the City of London, we had, for four consecutive years, multi-denominational faith events in Westminster cathedral. Hosted by the Catholic Church, the events had all the churches, mosques and synagogues coming together. Some 4,000 people would turn up on the feast of St Joseph the Worker, or May day. On one occasion, Cardinal Cormac Murphy-O’Connor and Canon John Armitage, the chair of London Citizens, gave two magnificent sermons. They summed up the history of the drive of the faiths and organised labour for the dignity of labour, going back to the 1889 dock strike for the dockers’ tanner. They said that there is a powerful moral case for the living wage. As John Armitage said, markets without morality contain the seeds of their own destruction. The time for the living wage has come.
Mrs Anne Main (in the Chair)
There is just over 30 minutes before the start of wind-ups, and six Members wish to catch my eye.
Kwasi Kwarteng (Spelthorne) (Con)
I am pleased to serve under your chairmanship, Mrs Main.
I agree with many of the remarks made by my hon. Friend the Member for Christchurch (Mr Chope), who put his case trenchantly. We are having a very simple argument: it boils down to whether we want free enterprise and a free market system or whether we think that state intervention is the way to achieve better economic outcomes for the people of this country. It seems to me that this debate has been taking place for years in Britain. Until recently, there had been a general presumption in favour of the markets.
I am pleased that the hon. Member for Birmingham, Erdington (Jack Dromey) referred to May day as a great rallying point, because of course it was a great socialist parade. Those of us who remember the cold war will recall that May day was the Soviet Union’s big day, when tanks drove through Red square; it was very much something that the Soviet Union celebrated. I am sure that the hon. Gentleman would love to go back to those days, but many of us have moved on. I make the point perhaps a little flippantly, but there is a serious argument about whether one feels that better outcomes can be achieved through state diktat.
Meg Hillier (Hackney South and Shoreditch) (Lab/Co-op)
The hon. Gentleman is talking about state intervention. Many people in my constituency and across London must effectively be subsidised through in-work benefits because of their low wages. There is therefore state subsidy and a cost to the state with the current regime.
Kwasi Kwarteng
We could have a separate argument about the efficacy of—[Interruption.] Let us stick with this theoretical idea.
Kwasi Kwarteng
No, I have given way once, and I need to proceed. The notion that one can improve outcomes simply by passing laws about the level of pay is false. The one way—
Mrs Anne Main (in the Chair)
Order. The hon. Gentleman is not giving way. I would appreciate it if he were not barracked.
Kwasi Kwarteng
The reason wages have gone up over the past 50 years is economic growth; that is what has driven the rise in real wages, not laws passed by Governments, the minimum wage or anything like that. The one way to secure economic growth is to create a situation in which businesses can thrive. I would like to see lower taxes and more people taken out of taxation—the Government have successfully done that—so that they can spend more of their own money. I would also like the burdens placed on employers through national insurance to be reduced. Such measures will be far more effective in driving up our workers’ standards of living than Westminster or Whitehall imposing a living wage right through the country.
I am pleased that my hon. Friend the Member for Christchurch mentioned that there was some regional variation between London and the rest of the country. In the debates about the minimum wage, it was seen as a national minimum wage that did not recognise any variation in the cost of living between London and rural Scotland.
Anas Sarwar
Just to clarify, the hon. Gentleman’s argument is exactly the same argument that was made against the minimum wage in 1997. Does he support the minimum wage?
Kwasi Kwarteng
I support it now, because it is a fact of life. To address the hon. Gentleman’s comment directly, the minimum wage is not set at a level that is damaging to business. It is set at a reasonable level, although I am not saying that it is the best level. I want people to earn more—of course I want them to be more affluent—but the way to achieve greater prosperity is to allow businesses to do well, to flourish and to employ people, and that will not happen as a result of the state demanding a certain level of wages. We have been there: in the ’70s, we had national incomes policy and price policy, but that all failed—it was a complete disaster. It is baffling, in 2013, that we are hearing the same old socialist arguments for Government intervention and control.
I appreciate that many others want to speak, so I will finish on this point.
Ian Lavery
Is it a socialist ideal or policy to support having a decent living wage so that people can put bread on the table for their kids?
Kwasi Kwarteng
I have said this about three times in my speech: everybody wants people to have higher wages—[Interruption.]
Kwasi Kwarteng
No one is arguing against higher wages. We are arguing about the most effective way of raising living standards and economic prosperity for the whole country. I am suggesting, as a matter of theory, history and experience, that the socialist approach of using Government diktat is not the most effective way of dealing with this issue.
We can argue about this specific issue. Parties in London are suggesting that we have a living wage, but that is something for companies and councils. I object to the idea that Whitehall and Westminster should set a national living wage that applies right through the country.
Let me finish where I started—with the theoretical debate. There is a big debate about whether a free market system will produce better outcomes than an essentially state-controlled system. All through the world, the most successful economies are free market systems.
Kwasi Kwarteng
In China, the state contributes only 20% of spending. In terms of state spending as a proportion of GDP, China is a far more private sector-driven economy than the UK or other western European countries.
Mrs Anne Main (in the Chair)
Order. May I ask the hon. Gentleman to bring his remarks to a close?
Kwasi Kwarteng
The notion that we can go back to socialism and that that will somehow increase living standards is false, but I fear that that is what this living wage proposal is about. It is simply trying to impose more regulation, more rules and more of a straitjacket on business, thereby inevitably impeding and impairing our ability to grow the economy and create genuine prosperity.
Lisa Nandy (Wigan) (Lab)
I will try not to be distracted by some of the more bizarre arguments I have just heard. Needless to say, I am unashamed to say that I am a proud socialist, like my hon. Friend the Member for Erith and Thamesmead (Teresa Pearce), and to stand up for the people I represent, who work—
Lisa Nandy
I will give way in a moment. Let me finish my sentence. I am unashamed to stand up for the people I represent, who, after a long week at work, do not earn enough to pay for basic necessities.
Kwasi Kwarteng
It is rare that we have such candour on this estate, so I am glad to hear what the hon. Lady says. I congratulate her on putting her hand up and saying that she is actually a socialist. That is what this debate is about.
Lisa Nandy
Forgive me, but I thought it was about the living wage and the conditions of the lowest paid in this country.
I congratulate my hon. Friend on helping to put some momentum behind an incredibly important issue. Last year, the council in my area, Wigan council, became one of many around the country to pledge to pay the living wage. That will have profound and important consequences for the 565 people who work for it, but who do not currently earn the living wage. For those who were previously on the minimum wage, the change will put an extra £40 a week in their pockets. The significance of that for the lowest paid cannot be overestimated.
I say to Conservative Members that there is no political fissure on this issue, although they seem to be trying to create one. Although the majority of councils across Greater Manchester that have agreed to pay the living wage are Labour run, Trafford council has done the same, and it is run by the Conservatives. In London, of course, the Mayor, Boris Johnson, has also spoken on this issue.
Lisa Nandy
No, I will not give way, because several people want to speak, and the hon. Gentleman has had his turn.
We know the difference the living wage will make for the 4.4 million people across the country who earn less than £7 an hour, and so do the hon. Gentleman’s colleagues on Conservative-run councils. We also know the difference it will make for their families. The Child Poverty Action Group has calculated that two parents on the minimum wage can meet only 82% of the basic costs of bringing up their children. Essentially, we are telling those parents, “Go to work, work hard and work long hours. When you come home, your children will still go without the basic essentials they need to have decent childhoods.” The Institute for Fiscal Studies calculates that one in four children will grow up in poverty by 2020, which is a disgrace and a scandal. In Greater Manchester, part of which I represent, 40% of children already grow up in poverty.
The failure to pay the living wage strikes at many of the Government’s objectives. Their strategy to tackle child poverty is based on trying to get parents into employment, but 58% of children growing up in poverty have a parent who works. The point is this: if work does not pay, we will not be able to tackle child poverty. As my hon. Friend the Member for Birmingham, Erdington (Jack Dromey) said so eloquently, on behalf of his constituent, Elaine, the living wage means that parents and children get to spend time together. That is why Save the Children and so many other children’s charities support it. There is also a clear economic case. The costs of child poverty have been estimated at some £25 billion a year. Taking action on this issue is an urgent economic necessity, not just a moral one.
I want to take on one of the points that Government Members have made, which is about helping businesses. My hon. Friend the Member for Erith and Thamesmead also alluded to that. In my constituency, the public and private sectors are completely interdependent. Some two thirds of my constituents are employed by small and medium-sized businesses. The other third—until the Government were elected—were employed by the public sector. Small and medium-sized businesses rely on the public sector; they rely on people being in work in it, in decently paid jobs, so that they can spend in their businesses and flourish. The fact that my council has taken a lead and said, “We will ensure that all the people in our employ are able to have enough money to go out and spend it in the local economy,” will be a tremendous boost to the small and medium-sized businesses that I am keen to support.
There is a growing army of people in my constituency who work part-time hours, despite desperately wanting to work for longer, or have zero-hour contracts or are in agency work. As the Joseph Rowntree Foundation’s recent report so compellingly illustrated, the divide between those in work earning poverty pay and those out of work getting poverty benefits is completely false, because those two groups are one and the same, and they are moving in and out of employment at an alarming rate. Trying to create a divide between the private and public sectors and between people in work and out of work is simply false.
Many of the solutions that have appeared with the growth in poverty in the past few years are from charities. One aspect of that rise has been the alarming and distressing growth of food banks around the Greater Manchester area. Many of those food banks are supported by supermarkets and I pay tribute to them for stepping up and doing that, but those very same supermarkets must ensure that they are not part of the problem, and that they do not refuse to take people on for anything other than part-time work or to pay a living wage. That would help stimulate the economy and meet their employees’ basic needs.
Finally, to set this in the context of what has happened largely over the course of my lifetime, we have seen the earnings of people at the bottom of society stagnate while the earnings of those at the very top have increased significantly. Between 1986 and 2012, incomes in the top 10% increased by 81%, while the bottom 10% increased by only 47%. Research has shown that if the national minimum wage had kept pace with the salaries of CEOs in FTSE 100 companies since 1999, it would now stand at £18.89 an hour.
We know that inequality is bad for society—that has been compellingly demonstrated by “The Spirit Level”—and we see it all the time in our own constituencies. Several Members of Parliament, including my right hon. Friend the Member for Tottenham (Mr Lammy) and I, have been trying to advance the case that, as in America, the pay ratios of the top two average earners in FTSE 100 companies should be published on the front page of their annual reports, so that we can see whether companies are fairly distributing reward. The trouble with that proposal is that, although it may compress and restrain wages at the top, it does not do very much for the lowest paid.
The living wage is becoming an urgent priority in Wigan, in Erith and Thamesmead and up and down the country. The living wage would be an effective and simple way of helping tackle the lengthening queues at food banks, the growing numbers of children growing up in poverty and the families that lack the means to make ends meet. My hon. Friend the Member for Erith and Thamesmead talked about ironing out some of the difficulties that have been raised by the living wage. The situation should not be allowed to continue; it is immoral and bad economics. I would like the Minister to begin by committing to at least ensuring that the living wage is extended to the Government’s employees across the board and to working with companies contracted by Government so that they also pay the living wage to their staff.
Steve Reed (Croydon North) (Lab)
I thank my hon. Friend the Member for Erith and Thamesmead (Teresa Pearce) for introducing the debate. It is important, not least because life is becoming increasingly stressful for many low-paid workers.
The Equality and Human Rights Commission’s 2011 review of home care for older people highlighted cases of physical abuse, theft, neglect and disregard for privacy and dignity. Last April, the Low Pay Commission reported that 10% of home care workers are paid below the minimum wage, let alone the living wage, with some workers paid per visit rather than per hour, with no reimbursement of travel costs.
There is a link between the findings of those two high-profile studies. Too many home care workers, encouraged to complete each visit as quickly as possible and therefore with their pay as low as possible, are unable to form relationships with the older people they care for and feel pressured to complete the visit too quickly. That dehumanises the service being provided and makes instances of neglect more likely. The worker has little or no job satisfaction, little incentive to do a better job, little spare cash at the end of a tough working week and increasing levels of stress. Unsurprisingly, levels of sickness absence are high and so is employee turnover. When the stress gets too much and illness follows, some workers move on to long-term sickness benefit. It is not only care workers; similar examples exist in almost any low-paid, high-stress employment. We are, in effect, pathologising poverty.
There is another way. Organisations such as Care and Share Associates and Sunderland Home Care Associates have found that they can cut both sick leave and staff turnover by giving their staff better terms and conditions, including liveable incomes. The quality of care provided improves; sickness, including long-term sickness and incapacity, reduces, and the cost to the rest of society is lowered, while the individual worker’s quality of life improves. Many Labour councils in London, including Lewisham, Hackney and Lambeth, have recognised the value of paying the London living wage and have been accredited as living wage employers. Despite support from the Conservative Mayor of London, it is disappointing that no Conservative-controlled councils in London have yet been accredited. I support the campaign by London Citizens, which is part of Citizens UK, alongside The East London Communities Organisation, to persuade Croydon council, which covers my constituency, to sign up to the living wage, both for its own directly employed staff and for staff employed by contractors and sub-contractors.
Employers who implement the living wage have reported improved recruitment and retention of staff, higher work morale and increased productivity. Those all represent increased value for money for the services provided, which is important in these straitened times. Lambeth council found—I was leading it at the time—that when it tendered its facilities management contract on a living wage basis, the market responded positively and came up with innovative ways to meet the requirement within the funds available and without loss of jobs. Many public services are procured through consortia, and we can encourage the market to innovate in ways that allow workers the decency of a living wage by harnessing the purchasing power of those groupings. It is important that the Government recognise their role in encouraging that to happen, because leaving it to the market alone will not result in all those benefits.
There is immense value in ensuring that work pays. People in work should never be forced to live in poverty. That is not just a moral argument; it is about value for money and improving the quality of public services. There are costs to society as a whole, including financial ones, as well as to the individual workers affected, if we force hard-working people into poverty and illness by paying them less than is necessary to meet the basic needs of their lives.
John McDonnell (Hayes and Harlington) (Lab)
My concern before Christmas, when the welfare Bill debate started, was the absolute gulf between the views of Members and some of the constituents whom we represent. I organised a group of cleaners to come into the House of Commons before Christmas. They were represented by the National Union of Rail, Maritime and Transport Workers, the Industrial Workers of Great Britain, the Public and Commercial Services Union and others. I asked the cleaners to explain what was happening to them at the time, because for them, the market is not working.
I went on the picket lines outside Schroders bank in the City and outside John Lewis as well, whose cleaners are also paid the minimum wage or, in some instances, just above. I found that all of them were doing extra shifts—on average two extra a week. Their working hours were then 50 to 60 hours a week, at a minimum. Some 50% of them had second jobs and some had three jobs. The cleaners were getting up at 3 or 4 o’clock in the morning and travelling to work by bus because the tube was too expensive for them. Some of them worked until 7, 8, 9 or 10 o’clock at night, which was absolutely staggering.
One group was employed by a company called trainpeople. They brought their contracts along with them. They were not on zero-hours contracts but on eight-hour contracts, so they were guaranteed only eight hours of work a week. They were on a minimum wage; they had to sign up to travel to anywhere in the country to work; they were on a probation period of 12 weeks; and if they left during that 12-week period they themselves had to pay £200 back to the company. Again, the experiences of these people are just absolutely staggering.
I was then involved with some of the other London living wage campaigns. For example, we won at the London School of Economics, securing the London living wage there. However, what then happened was that the company involved cut the hours of the other workers by 20%. In other words, they were trying to consolidate their profits by cutting jobs and cutting work themselves.
Also, we are consistently finding that, when the living wage goes up—Boris Johnson announced the figure of £8.55 and I am grateful to him for the support that he has given throughout this campaign—the companies involved delay payment of the increase of the wage, too. That is another way of keeping wages suppressed, while at the same time maximising their profits.
The general expression that was used by the cleaners in these cases was, “We are treated like dirt.” They also said, “We are managed in a brutal way, often harassed and have no alternatives.”
There is now a new alliance being put together, in terms of trade unions supporting the London living wage campaign, because people cannot take it any more. Yes, people are seeking to organise and to negotiate, but they are also taking direct action now. The PCS, the IWGB, the RMT and others closed Oxford street before Christmas, because they could not get into negotiations with a company to increase the wages that its employees were on; the employees were arguing for an increase in their wages as they could not survive on their existing wages.
We now have direct action campaigns, such as the UK Uncut campaign, whereby firms are being occupied by workers because those workers are not getting any response from the companies themselves to their requests to increase their wages and improve their conditions. There are other things going on. One union is now planning to set up soup kitchens outside the homes of directors of companies that are making vast profits but paying poverty wages to their workers.
All that activity confirms that the market is not working and that there is a need for state intervention at times—not always, but at times—at least to secure people’s ability to survive in a civilised society with some decency. That is why I welcome this debate today, which will further that campaign.
Meg Hillier (Hackney South and Shoreditch) (Lab/Co-op)
Thank you very much, Mrs Main, for calling me to speak. It is a pleasure to serve under your chairmanship.
I congratulate my hon. Friend the Member for Erith and Thamesmead (Teresa Pearce) on securing this debate on a very important issue. I represent a constituency in the part of London—east London—that was the birthplace of the living wage campaign. I think that we would all agree—Labour Members would certainly agree and perhaps even some Government Members would agree— that a fair wage for a fair day’s work is something that we support. I was slightly disturbed by the hon. Member for Christchurch (Mr Chope) seemingly comparing people abroad working for £1 an hour or less with people here in Britain, as though that was an option for people here. I hope that he did not mean it quite that way, but that is how it came across.
Let us remember that it was the Conservative Government of the ’80s who abolished the mechanism for setting fair pay, the wages council. I am very proud that I am a Labour MP and that it was a Labour Government who introduced the minimum wage because of the abysmal failure of having a complete free rein on wages.
Kwasi Kwarteng
Is the hon. Lady suggesting that we go back to the ’70s and the kinds of industrial relations that we had then?
Meg Hillier
I cannot understand how the hon. Gentleman makes a jump to reach that conclusion from my suggesting that we do not want to go back to a complete free rein on pay. That is not what I am saying at all, as he well knows. It is mischievous of him to suggest that I am saying that.
John McDonnell
Can I suggest that what the hon. Gentleman is saying is that he wants a free market but he does not want free trade unions?
Meg Hillier
I think that we can certainly infer that from the hon. Gentleman’s comments.
Meg Hillier
I will just make a little progress before I take interventions.
I am also delighted that it is my party that is seeking to ensure that, in constituencies such as my own, a living wage will enable people to work. Let us be clear about something, before we run away with the idea that a living wage will be very damaging to lots of small businesses. A living wage is not something that a Labour Government would force upon business, or certainly not upon small businesses. There are businesses such as Moo.com in Tech city, which employs people in its warehouse in EC2, providing good, valuable jobs locally. Those people are on the minimum wage for the first part of their contract, until they have been there for a while, and then the company increases their wage. Flexibility is built into the Labour policy to ensure that the system will work.
I will offer one word of caution. We need to look at the hourly gross rate of pay. That is obviously important, because it reflects the day-to-day money that people take home to live on, but we also need to consider pensions and other work benefits. When we assess what is fair pay, those benefits need to be brought into the round. My point is that, if a company pays a little lower than the living wage but pays a pension, we need to be watchful. As a Labour Government, we will need to be clear that the pressure, or indeed the kudos, of paying the living wage does not lead to the erosion of other benefits that are a type of payment in kind. My hon. Friend the Member for Hayes and Harlington (John McDonnell) made some very good points about that.
Kwasi Kwarteng
I am very grateful to the hon. Lady for giving way; she is being very generous in allowing interventions. What would she think about a Member of Parliament, for example, or someone else advertising for an apprentice at £3 an hour, which I understand one of her colleagues on the Labour Benches has done?
Meg Hillier
I would be appalled, and indeed I am appalled. I am part of the campaign in Parliament to ensure that all of us—from whatever party—pay people in our offices a fair rate. I like to think that I lead by example on that; in fact, I know I lead by example on the issue, alongside a number of my other colleagues. I think that we can all agree that what the hon. Gentleman just referred to is not something that we would want to see in the mother of Parliaments.
Let me relate this debate to real life, because we could have a theoretical discussion in Parliament about the economics of the issue. A kitchen porter came to my surgery and he was very upset. Being a kitchen porter is low-wage employment, but he was seeking work because he was out of work. However, his jobcentre was asking him to travel further afield in order to take a job as a kitchen porter. One could say that that was quite reasonable. However, because of the low wages for that type of job, the extra costs to travel out of the borough and the extra child care needed because of the longer hours spent travelling, it was not a viable option.
Let us be clear—that man is no shirker. However, the hon. Member for Christchurch suggests that the market would solve that problem, perhaps by single people taking that work. However, my constituent has a family to support; he wants to support them but is unable to do so under the current regime, except that the state will subsidise matters to a degree by providing benefits. So we are talking in the round here. There is always a cost to the state, whichever way we do things, and actually giving people the dignity of earning a living wage with which they can support their family and make choices for their family on their own is very much at the heart of Labour’s policy in this area.
I could add to that kitchen porter many other of my constituents, even some on higher salaries. The tube price hikes and the bus fare hikes by the Mayor of London, and the cost-capping—we had the vote yesterday in Parliament on in-work benefits—all put pressures on people’s ability to pay their costs of living. That is why a living wage gives people the dignity of being able to make their own choices.
We also need to look at national insurance contributions. That is something that we will need to work through as a party, as we flesh out the policy on the living wage. NICs are now more than 13% of total gross pay for small employers, which is more than employees contribute. The on-costs for a small employer are significant and we need to think about how we might want to encourage and support small employers, to get people into work, yes, but also to increase their pay gradually so that they are on a living wage. There is a real interest for business, but some of those start-ups in my constituency will be worried if they foresee a suggestion that overnight they will have to increase wages. We need to handle that issue carefully, because the jobs that are being created in my constituency and elsewhere are important.
I am proud that my local council, Hackney council, is one of those councils that are accredited as paying the living wage, because we in Hackney see the impact on people’s lives of that policy. We are living what is happening. However, it was interesting that when I asked the Deputy Prime Minister at Prime Minister’s questions in November how many Liberal Democrat councils were paying the living wage, answer came there none.
Meg Hillier
Indeed. Today, not a single Liberal Democrat MP is here in Westminster Hall, even though the Deputy Prime Minister has pledged his support for the policy of a living wage; he has pledged his support, but words can be very empty.
As I say, there is not a single Liberal Democrat MP here in Westminster Hall today, but since November I have discovered that there is actually one small Liberal Democrat-run district council that pays the living wage. In a show of cross-party support, we should congratulate that council on that and hope that it has some influence on the party leader in ensuring that a living wage system is rolled out more widely.
We also need to look at the most profitable companies, which in London are being subsidised—as I mentioned earlier—by taxpayers through tax credits and benefits. There is not a nil cost to lower pay. In fact, it was the current Chief Whip of the Government, the right hon. Member for North West Hampshire (Sir George Young), who talked about housing benefit “taking the strain” back in the ’90s. Housing benefit has still been “taking the strain” despite attempts by both the last Labour Government and this Government to change the approach. It is housing benefit that subsidised so many people in their lifestyle, because wages are not high enough.
In London, we cannot raise wages enough to cover all housing costs; I recognise that, before Government Members leap up and suggest that that is what I am saying. I am not saying that, but we must recognise that people need to be paid a rate that they can actually afford to live on and that there is no nil cost to the Exchequer.
Labour’s voluntary model is a moderate one. It says to companies, “Publish. Be transparent about who you’re paying and what you’re paying them.” People can then make judgments for themselves. We have already seen some companies, such as KPMG, lead by example, and if some can do it why not all of them?
Mr Iain Wright (Hartlepool) (Lab)
It is a pleasure to serve under your chairmanship, Mrs Main, and I wish you and all Members who have contributed to the debate a happy new year, particularly my hon. Friend the Member for Erith and Thamesmead (Teresa Pearce). I congratulate her on securing such an important and passionate debate.
As my hon. Friend mentioned, the living wage is an important means by which greater dignity and fairness can be offered to people, by lifting them and their families out of poverty while at the same time helping them to become less reliant on state benefits. She talked, as did my hon. Friends the Members for Wigan (Lisa Nandy) and for Hackney South and Shoreditch (Meg Hillier), about decent, hard-working people doing the right thing and going out to work to provide for themselves and their families. People having aspirations, and striving for a better future for themselves, their families, their communities and their country, should be rewarded. Hard work and effort should be appropriately remunerated in the form of a decent and dignified rate of pay, to avoid the misery and desperation of in-work poverty.
As Labour Members have mentioned several times, the national minimum wage, introduced by a Labour Government, has done a huge amount by providing the protection of a legal pay floor for more than 1 million people. However, although the minimum wage is an important achievement, it should not, as my right hon. Friend the Leader of the Opposition has said, be the summit of our ambitions. Indeed, he has been at the forefront of discussions about the living wage.
The living wage complements and reinforces the vision of a one-nation economy, in which everyone in society plays a part and has a stake, and where prosperity is fairly shared. I would like to think that this country, and the manner in which its economy is organised, has the ability to move on from an old-fashioned and outdated form of capitalism, which is what we have heard from the hon. Members for Christchurch (Mr Chope) and for Spelthorne (Kwasi Kwarteng) today. That form of capitalism sees a confrontational, divisive and somewhat inefficient “them and us” attitude between employee and employer, which prioritises the erosion of employment rights. A race to the bottom in relation to workers’ rights or wage rates will not help this country to improve our competitive position in the 21st-century global economy, or achieve greater fairness and social justice. I do not understand why people on the highest possible rate of pay are motivated by being paid more, while people on the lowest possible rate, who are struggling barely to make a living and feed their families, are motivated by being paid less. That seems fundamentally wrong.
Kwasi Kwarteng
Is the hon. Gentleman suggesting that state legislation will make Britain more competitive in the global economy?
Mr Wright
As I said, the national minimum wage has helped to lift people out of poverty, and as my hon. Friend the Member for Birmingham, Erdington (Jack Dromey) said, people on the lowest levels of pay tend to spend their money in the economy. The multiplier effect will, therefore, probably help benefits, jobs, prospects and economic positions—it certainly has a beneficial role to play in the economy.
Several hon. Friends have mentioned that local authorities, such as Islington, Lambeth—which was very well led by my hon. Friend the Member for Croydon North (Steve Reed)—Wigan, Camden, Oxford, Preston, Southwark and Hackney have introduced a living wage, and others are set to follow, including Newcastle city council in my own north-east region. In difficult financial times for local government, those local authorities should be applauded for doing the right thing for their employees. I hope that, despite the appalling financial settlement it received from the Government last month—the 2.2% cut being the highest in the region—my own local authority, Hartlepool borough council, will be able to follow suit.
This should not, however, be about local government, or even about the public sector—such an approach is entirely wrong. Wherever possible, a living wage should be adopted in the private sector. It might be more difficult for small businesses, as my hon. Friend the Member for Hackney South and Shoreditch mentioned, but it should be considered almost automatically by larger enterprises. Credit should be given to the likes of Barclays, Deutsche bank, PricewaterhouseCoopers and KPMG, which have become living wage employers. The nature of those firms’ business models and the sectors in which they operate, as well as the size of the companies, might mean that they have relatively fewer low-paid workers than other companies, particularly in sectors such as retail. Therefore, all credit must be given to Westfield shopping centre, Lush and the InterContinental Hotels Group, whose business models, on adopting a living wage, will rely more heavily on low-paid workers.
Hon. Members, particularly my hon. Friend who introduced the debate, have rightly mentioned the net savings to the Exchequer as a result of the implementation of a living wage. My hon. Friend mentioned that research by the Resolution Foundation and the Institute for Public Policy Research found that the Treasury would benefit by about £3.6 billion each year in the form of higher income tax payments and national insurance contributions, and lower benefits spending.
As my hon. Friend the Member for Croydon North and other Members have said, there is also anecdotal evidence that businesses will benefit from the introduction of a living wage, and will become more productive. There will be improved staff recruitment and retention and associated cost savings, higher worker morale and therefore improved productivity, and an enhanced corporate reputation in the marketplace. Wendy Cuthbert, head of UK corporate real estate services for Barclays, has said that since the company adopted the living wage in 2007 catering staff retention rates have increased to 77%, compared to an industry norm of 54%, and the rates for cleaning staff have increased to 92%, compared to the industry average of just 35%. She has commented:
“Now when we train our staff we know that the money isn’t being wasted. They don’t want to leave and they no longer have to do two jobs just to survive...Employers need to look at the whole cost of employment not just the cost-per-hour. We don’t understand why more companies don’t do this.”
Guy Stallard, head of facilities at KPMG, has stated:
“We’ve found that paying the Living Wage is a smart business move as increasing wages has reduced staff turnover and absenteeism, whilst productivity and professionalism have subsequently increased.”
I have a number of questions for the Minister. On Government policy, the Minister in the other place, the one who did not resign yesterday, the noble Lord Gardiner of Kimble, has confirmed that the
“Government back the idea of a living wage and we encourage businesses, where possible, to take it up.”—[Official Report, House of Lords, 8 November 2012; Vol. 740, c. 1092.]
Can the Minister confirm that that is still the case and that it is Government policy, despite the comments from his Back Benchers this afternoon?
Kwasi Kwarteng
No one has an issue with individual companies deciding to pay the living wage. That is entirely how a market should work.
Mr Wright
Let me come on to that in my questions to the Minister.
How is that encouragement that was mentioned by the Government in the other place manifesting itself in tangible and practical action? What are the Government actually doing to encourage businesses to consider becoming living wage employers? What meetings has the Minister had with businesses and business organisations to discuss the matter? Has he met with colleagues across Government, such as the Secretary of State for Communities and Local Government, to ascertain how organisations in other sectors have successfully implemented a living wage? Has he, or have his officials, met with Citizens UK, for example, to discuss what practical steps can be taken? Citizens UK is an organisation that is doing an awful lot of work in relation to the living wage campaign. Has the Minister considered a promotional campaign, sponsored by his Department, to raise awareness about the issue with businesses? Has he considered amending corporate governance rules, to ensure that large listed companies can report specifically on whether they have paid the living wage, as a means of encouraging take-up by larger companies?
The Prime Minister has said:
“Where government leads, others will follow”,
and business will legitimately look to the Government to see whether their actions match their rhetoric. As I understand it, and as has been said, the Department for Work and Pensions is the only Department that has announced that it will pay the London living wage, although two others, the Cabinet Office and the Ministry of Justice, might follow suit. Could the Minister inform the House how many Departments plan to pay the living wage, and when? Given that the Minister is in the Department for Business, Innovation and Skills, and another Minister has said that the Government will encourage businesses to take up the living wage, does the Minister’s own Department have any plans to ensure that all its employees and contracted workers are paid the living wage? What work is he doing with non-departmental public bodies sponsored by his Department to look into the possibility of their becoming living wage employers too?
I raised earlier the issue of research and the collection of evidence on the savings to the public purse and the positive impact on business. Has the Minister commissioned any research into the effect of the living wage, including the possible social, economic and business impacts?
One of the most powerful levers at the Government’s disposal is not regulation or legislation but procurement, and that has been mentioned a number of times in the debate today. My right hon. Friend the Leader of the Opposition has suggested that Departments could give preferential treatment to contractors who pay the living wage. My understanding is that No. 10 quickly dismissed my right hon. Friend’s suggestion, stating that such a move would breach EU procurement rules. The European Commission, however, has explicitly stated:
“Living-wage conditions may be included in the contract performance clauses of a public procurement contract ‘provided they are not directly or indirectly discriminatory and are indicated in the contract notice or in the contract documents’.”
There is no problem or obstacle in European law, so will the Minister confirm that what the European Commission said is already the case? In that light, will he outline the actions he will take to ensure that employers who pay the living wage are considered favourably in public procurement?
The living wage is an important social and economic lever in which everyone has a stake, people in work have a more dignified and higher standard of living than would otherwise be the case and prosperity is better and more fairly shared. I hope that the Minister will outline how he will advance the introduction of a living wage across businesses and across society more generally.
The Minister of State, Department for Business, Innovation and Skills (Michael Fallon)
I congratulate the hon. Member for Erith and Thamesmead (Teresa Pearce) on securing this debate. She has long championed the living wage, and it is a tribute to her work that she has been able to attract such a large participation in today’s debate and, as the hon. Member for Hartlepool (Mr Wright) said, such a passionate exchange of views. The living wage is a subject that arouses great passions.
The hon. Member for Hackney South and Shoreditch (Meg Hillier) asked about the absence of Liberal Democrat Members. I cannot speak for the Liberal Democrats—I am not very good at that—but the Under-Secretary of State for Business, Innovation and Skills, my hon. Friend the Member for East Dunbartonshire (Jo Swinson), is responsible for this portfolio in the Department for Business, Innovation and Skills, and she is answering the debate in the main Chamber at this very moment, which is why, Mrs Main, you and the others in attendance have to put up with a stand-in.
We would all like people to be paid more, but obviously there is concern that requiring all businesses, large and small, to pay a living wage as proposed would price people out of work, particularly young people. Encouragement is a better approach than compulsion, because the alternative would reduce the flexibility of businesses and could ultimately be bad for jobs.
We already have a national minimum wage that we require all businesses to pay, and the Government fully support that. The minimum wage is the national rate that the Government of the day—including the previous Labour Government—judge, based on the independent Low Pay Commission’s recommendations, as striking the appropriate statutory balance, trying to increase workers’ take-home pay without damaging employment or other elements such as prices. The adult national minimum wage that we inherited, £5.80 an hour, has now reached £6.19 an hour. That is a 6.7% increase, which is faster than the growth in average earnings over the same period.
The Government have targeted further help at the take-home pay of the low-paid by cutting their taxes. When the coalition Government came into power, the personal tax allowance stood at just £6,475. The Government are committed to making the first £10,000 of income free from income tax by the end of the Parliament. April 2013 will see the next step of that commitment: the personal allowance will increase by £1,335, the largest ever increase, to £9,440 to support hard-working individuals. Those tax cuts for the low-paid have taken 2 million people out of income tax altogether. Those still paying tax will be taking home £57 more each week in April and more than £67 more each week by the end of the Parliament. Under this Government, people working full time on the minimum wage will have seen their income tax bill cut in half.
In difficult times, the Government have, therefore, clearly given priority to the lowest-paid by providing strong support for the national minimum wage, which aims to maximise the pay of low-paid workers without damaging employment, and tax cuts focused directly on the low-paid through raising the tax allowance to £10,000 a year by the end of the Parliament.
That is not all. The Government are continuing to take steps to support households with the cost of living. We have frozen council tax for the third year running. We have cancelled the 3p fuel duty increase planned for this month—average pump prices are 10p a litre lower than under Labour’s fuel duty plans—and we have capped rail fare increases, which will benefit 250,000 annual season ticket holders. That is in marked contrast to Labour, which doubled council tax, doubled gas prices and increased fuel duty 12 times.
Raising the minimum hourly rate to the proposed living wage rate would have consequences. If those consequences make things worse rather than better, it would make no sense to introduce the living wage. The biggest danger is pricing people out of work because the business concerned cannot sustain the higher labour costs of the living wage. In that case, the individuals who lose out are socially excluded from the world of work; the business will be less able to compete and earn profits; and the Government will lose out because growth is lower, tax receipts are less and benefit payments are higher.
The national minimum wage raises awkward questions about the proposed living wage. In particular, the remit that Parliament, under the previous Labour Government, gave to the Low Pay Commission has the primary aim of setting the maximum hourly national rate possible without any adverse effect on employment. The current adult national minimum wage of £6.19 an hour is substantially below the suggested 2011 living wage rate outside London of £7.45 and even further below the £8.55 London rate. Requiring all businesses to pay the living wage would increase wage costs by approximately 20% outside London and by approximately 38% in London. That is without taking into account other increases in labour costs, such as national insurance.
The picture becomes much starker when we look at the position of those under the age of 21. There are separate, lower, minimum wage rates for younger workers because of the previous Government’s concern that a higher rate would damage their employment prospects; there is no such distinction in the proposed living wage. That means that the difference between the minimum wage and the proposed living wage for someone working in London aged between 18 and 20 would be some £3.57, an increase of 72%. For someone aged between 16 and 17, the difference would be £4.87, an increase of 130%.
The Low Pay Commission is concerned to ensure that minimum wage increases do not have adverse effects on employment. The commission’s most recent recommendations have been for a 1.8% increase in the adult rate and a freeze in the youth rates. It stated that
“we concluded that in the current difficult economic circumstances caution is essential.”
These differences imply that if the proposed living wage rates were imposed universally, they would inevitably price some people out of work. Those who keep their jobs will receive at least the increased living wage, of course, but they might prefer to keep more of their colleagues working alongside them. The Government, like the previous Government, believe there is no case for imposing a higher minimum wage across the country by statute.
Some argue that it would be easier to implement the living wage in the public sector than in the private sector. That is only true, however, if the effect of implementing the living wage does not lead to higher procurement costs. Otherwise, implementing the deficit-reduction plan will be more difficult, with either greater public sector job losses elsewhere or higher taxes, which would make it more difficult to reduce the taxes of the lower-paid.
Opposition Members have claimed the living wage is an issue of fairness, but last night we saw that the Labour party wants benefits to rise faster than workers’ wages, which is not fair. Labour’s plan would inevitably mean more borrowing and more debt.
In contrast, our priority is to increase the take-home pay of low-paid people. The key elements of that are the national minimum wage and raising the tax allowance to £10,000 by the end of the Parliament. We believe that workers and businesses are best placed to determine the pay and working conditions that both suit the workers and deliver success for the business. The level of unemployment among young people that we inherited is already too high.