Living Wage

Iain Wright Excerpts

Wednesday 9th January 2013 Westminster Hall

[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.

[Mr Iain Wright (Hartlepool) (Lab)]

China.

[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.

--- Later in debate ---

[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.

[Mr Iain Wright]

Where are the Liberal Democrats?

[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.