Living Wage

Siobhain McDonagh Excerpts

Thursday 3rd November 2016 Commons Chamber

[Siobhain McDonagh (Mitcham and Morden) (Lab)]

I beg to move,

That this House recognises Living Wage Week which began on 31 October; believes that the use of the introduction of the national living wage to drive down conditions and take-home pay is against the spirit of the law; calls on the Government to close down those loopholes which make this possible; and further believes that any move to reduce the value of the national living wage to a level below the promised £9 per hour in 2020 is unacceptable.

I thank the Backbench Business Committee for granting time for this debate. Living Wage Week is about celebrating the real living wage—£9.75 in London and £8.45 outside London—which provides an income that meets a minimum cost of living.

I called the debate to highlight the inadequacies of the so-called national living wage, the new statutory minimum rate of pay. Initially, the main criticism of the wage was its name, because, at £7.20 an hour, it is far lower than the actual living wage. However, since April a growing number of high-profile companies have used its introduction to cut total pay for long-standing employees, despite the former Chancellor’s promise that

“Britain is getting a pay rise.”—[Official Report, 8 July 2015; Vol. 598, c. 337.]

Back in February, I was approached by a constituent who worked at B&Q and had been told that his contract would change. His contractual entitlement to double-time pay and seasonable bonuses meant that he would be losing £2,600 a year, after the increase in his basic pay. He is a man with two children, living in London and earning around £15,500 a year. B&Q is one of the main employers that have offset the basic pay increase with a total pay cut for employees on old contracts. It has cut the majority of its discretionary payments to staff on older contracts, stripping their pay and removing almost all their employee benefits. Although B&Q’s chief executive has promised me that all affected employees will continue to receive transitional payments to top up their pay, I know that thousands still believe that they will be significantly worse off.

It is a similarly sad story at Marks & Spencer. As one of Britain’s premier retailers, Marks & Spencer employs tens of thousands of workers across the country. It forced a consultation a few months ago to cut the terms and conditions for its employees on pre-2002 contracts. Like those at B&Q, these employees have been penalised for their long and loyal service. Their double time has been cut, as has their unsocial hours entitlement. In fact, M&S went even further than B&Q and scrapped its employees’ pension scheme at the same time.

[Carolyn Harris (Swansea East) (Lab)]

As my hon. Friend is aware, my mother was a long-time member of staff in Marks & Spencer—45 years. Such was the affection for the company that it was known by the staff, and indeed in our house, as “our shop.” Does my hon. Friend agree that this betrayal of loyalty of long-time members of staff is nothing short of, in the words of one staff member, a “kick in the teeth”?

[Siobhain McDonagh]

Absolutely, and I thank my hon. Friend for her involvement in the campaign. She will know that 11,000 employees were adversely impacted by the changes. Of those, 2,700 have lost at least £1,000 a year, 700 have lost at least £2,000 a year, and a significant proportion will lose up to £6,000 a year.

The human cost of those actions is huge. Literally hundreds of employees from across the country have contacted me in desperation. Let us consider just two examples. There is a gentleman—we will call him Connor to keep his identity secret—who has worked for M&S for more than 20 years, mainly on night shifts. He told me:

“I have enjoyed those years... getting satisfaction from delivering our goals and feeling like I was contributing greatly to achieving our targets. But as you are aware, M&S are cutting my night premium, Sunday premium and bank holiday, totalling several thousand pounds worth of shortfall in my wages per annum. On top of that, they suggest I also start to contribute into a pension. How am I going to be able to do that? I am sick but have a wonderful, large family to support, as well as a mortgage. I stand to lose everything... I have nothing to fall back on. I have given my best years to M&S... I feel cheated and betrayed.”

Let us consider Ms Smith from Yorkshire, a hard-working, low-paid mum. As a result of B&Q’s contractual changes, she is going to receive a staggering 30% pay cut and will lose £2,000 a year from 2018. She told me:

“How exactly am I going to make up this wage deficit? I have a young son to support, and next year is looking very bleak for us…I am worried about how I will support my family...I am heartbroken that the company I have worked so hard for, done 16-hour shifts for, come in on days off for, and valued greatly, has treated me like this.”

Two companies, one sad pattern of hard work and loyalty being punished. Thousands of employees at these two companies will never earn again what they earned in April. Indeed, the general public have been shocked by these actions, with a quarter of a million people signing Change.org petitions against these practices.

What is so shocking is the ease and speed with which these companies have legally cut staff pay. Both companies launched 90-day consultations, which is the statutory minimum. Neither recognises a trade union. Both targeted those workers on older contracts, and both conducted consultations that ended with these pay cuts being pushed through, regardless of the employees’ heartache and the reputational damage the companies have faced.

The consultations are a foregone conclusion. In fact, M&S’s head of retail told me that the company had been planning these changes for 18 months. M&S’s board will meet tomorrow to finalise these contractual changes, and it will be issuing notices a few weeks before Christmas to staff members who refuse to sign their new contracts. I ask the Minister to address that point in summing up.

[Joan Ryan (Enfield North) (Lab)]

I commend my hon. Friend for her tireless campaign on this issue. Given that a Resolution Foundation survey of employers found that there was no evidence for the claim that the national living wage leads to job losses, does she agree with John Hannett, the general secretary of the Union of Shop, Distributive and Allied Workers, that

“employers must not be allowed to blame higher wages for every job loss, every cut in hours and every change to terms and conditions”?

[Siobhain McDonagh]

I completely agree with my right hon. Friend, and I will go on to say how cuts in pay never seem to apply to those at the top of an organisation or to impact on its profits.

Steve Rowe, the chief executive of Marks & Spencer, still refuses to meet MPs to discuss these changes, and he has not accepted that he should have a pay cut in solidarity with his shop-floor staff. I hope Members will bear all this in mind when they are doing their Christmas shopping at M&S next month.

The fact that this happens at the same time as low-paid workers have been promised a pay rise by the Government is incredible. In many ways, B&Q and Marks & Spencer have just been unlucky in being singled out, because there are many more doing the same thing.

[Liz Kendall (Leicester West) (Lab)]

My hon. Friend has secured a really important debate. Is she aware of very similar problems at Samworth Brothers in my constituency? Long-serving workers are seeing their night shift and weekend work pay cut; there is no recognition of a trade union; and the bosses are refusing to provide information and are not taking a pay cut themselves. Does my hon. Friend agree that that is unacceptable and that they should commit to the spirit and the law of the legislation?

[Siobhain McDonagh]

My hon. Friend has anticipated my next paragraph, which was to congratulate her on the work she has been doing at local employer Bradgate Bakery, which is part of Samworth Brothers. Somebody doing the Saturday night shift at Bradgate this week will earn 30% less in three years’ time than they will this Saturday. How can that happen in the 21st century? Over the way in Grimsby, the Seachill fish factory, which works for The Saucy Fish Co, has cut overtime payments, despite the fact that overtime work is written into the employees’ contract.

Smaller benefits are also being ruthlessly got rid of. I hope Members will excuse the way I pronounce the name of the next company, but Le Pain Quotidien, where a cup of tea will set you back £3, cut paid breaks this year, while Zizzi has cut the range of free food options available to staff. Caffè Nero baristas are no longer eligible for free food on their lunch breaks, which saves the company about £3.60 per staff member. It seems that all retailers are racing to the bottom and cutting everything they possibly can to save a few pennies here and there.

It looks like the John Lewis Partnership—the top retailer on our high streets—will be the next big employer to cut staff pay, potentially going the same way as M&S and B&Q. Having already got rid of Sunday and bank holiday premiums for new starters, its chairman has outlined plans to “review historic pay structures”. In other words, it, too, will potentially cut the terms and conditions of the oldest and most loyal employees.

Each of those cases demonstrates that we desperately need to tackle in-work poverty and the unscrupulous pay practices and governmental inaction that lead to its entrenchment. Years ago, a typical family in poverty would be out of work, but now they are far more likely to be in work on low pay. According to the Resolution Foundation, almost a quarter of UK workers earn less than the real living wage—the equivalent of £16,500 a year for a full-time week outside of London, and £19,000 in London. A staggering 1.5 million workers earn only the statutory minimum wage of £7.20 an hour—that is just £15,000 a year for a 40-hour week.

[Bob Stewart (Beckenham) (Con)]

I thank the hon. Lady for allowing me to butt in. Her theme has been the cutting of wages in a number of companies. Is there a macro-reason for why that is happening right now, particularly in companies such as M&S and John Lewis?

[Siobhain McDonagh]

There seems to be an issue in retail and I completely understand that, but it appears—contradictorily and counterintuitively—that the living wage has precipitated companies looking at issues other than the hourly rate. The hourly rate has become king and everything else is being cut, but I am absolutely convinced that that was not the Government’s intention.

Not everybody’s pay is being cut or terms and conditions undermined. It is a completely different story for our country’s chief executives. The High Pay Centre has shown that the UK’s top bosses earned an average of £5.5 million each last year. That means that chief executive officers enjoyed a 10% pay rise last year, while wages for low-paid workers rose by just 2%, according to the Office for National Statistics. On average, FTSE 100 CEOs now earn 129 times more than their employees, when we take into account pensions and bonuses. The UK’s top bosses could take a page out of the book of Berkshire-Hathaway’s CEO, Warren Buffett, who paid himself a much more modest salary of $100,000 in 2015.

All of that demonstrates that the link between productivity and remuneration is breaking. It should be common sense that those who make a company’s profits possible should receive a decent day’s pay. They certainly should not be rewarded for their years of loyal service by a receiving a pay cut.

I share the Prime Minister’s sentiments when she said earlier this year that

“there is an irrational, unhealthy and growing gap between what these companies pay their workers and what they pay their bosses.”

I just hope that she will act on those words and encourage companies to think about a whole company pay policy and how much they pay their poorest employees.

[Tristram Hunt (Stoke-on-Trent Central) (Lab)]

I, too, pay tribute to the great leadership that my hon. Friend has shown. On the issue of raising wages, the average salary in my constituency is the fifth lowest of anywhere in the west midlands, with a median average salary of £22,000. Having a proper, real and decent living wage will make an extraordinary difference to some of the lowest paid in our communities.

[Siobhain McDonagh]

I completely agree with my hon. Friend. I ask the Government not to renege under any circumstances on their promise to ensure that the national statutory minimum wage will reach £9 by 2020. The British public were promised £9 an hour, so that should be the minimum they receive. The Government must also act to tackle the unscrupulous employment practices of employers who cut staff pay to offset the higher per-hour rate. In the words of the former Chancellor, the right hon. Member for Tatton (Mr Osborne), although such practices may be legal, they are not in the “spirit of the law.” Given the Prime Minister’s vocal desire to champion the situation of the poorest in the UK, I sincerely hope that she will review the ease with which employers can scrap long-standing and historical terms and conditions.

Companies have a responsibility to show a lot more respect to their loyal, long-standing staff. Company boards should count among their members not only lawyers and accountants but ordinary employees. Whether they are HR representatives or shop-floor workers, those who make a company’s profits possible deserve a place at the table.

I welcome the Prime Minister’s forthcoming employment review led by Matthew Taylor, a man who is known to many Labour MPs. I am pleased that the review will consider the issues I have raised over the past year. We need a public discussion that considers more than just pay per hour. We need to consider how the world of retail is changing, leaving many employees behind and offering less and less in the way of career progression. For instance, at B&Q and M&S, new members of staff with little or no professional experience will now receive the same per-hour pay as much more experienced members of staff. Where is the incentive to work hard if someone cannot work their way up? As the fourth industrial revolution beckons, what will happen to communities that have, until now, relied on retail work? What repercussions will that have for the way in which we educate and train citizens and the skills with which we equip them for the world of work?

We also need to consider the repercussions of the new gig economy. Over the last few months, we have seen how employers such as Hermes and Uber mistreat their self-employed workers to keep costs to a minimum. I was extremely pleased that the hard work of the GMB paid off with its win in a monumental employment case against Uber. But the Government need to be more proactive and champion the rights of the self-employed and the responsibilities of employers; the Government should not just pick up the pieces when things fall apart.

We have called out these actions, and our words in this place have been heard. They have been heard by top corporate executives who have flocked to me after debates to try and explain away their companies’ behaviour. Our words have been heard by thousands of staff nationwide whose pay has been cut unscrupulously and who have felt alone and ignored. Our words have been heard by countless employers who have been deterred from pursuing such changes for fear of the reputational damage that they would cause. Today, I hope these words will also be heard by the Prime Minister and the Government, and that we will all realise that a society in which the poorest flourish is one in which we all benefit.

[Several hon. Members rose—]

--- Later in debate ---

[Paul Scully]

I will deal in a second with what the Government are doing and the manifesto commitments we made last year, but I agree that we can always do more to lift the low paid out of poverty and low pay. It is very important that we continue to move to a higher wage, lower tax and lower welfare society, building a more productive country, because we must give families the security of well-paid work. It is important for the Government to help businesses to offset the costs of the national living wage, including the ripple effect that I have mentioned. Corporation tax will therefore be cut and businesses will benefit from a 50% increase in the employment allowance.

[Siobhain McDonagh]

Does the hon. Gentleman accept that the problem is that businesses sometimes do not pay corporation tax? When I made such a point to Kingfisher, the owner of B&Q, it said that the cut was of no help because it did not pay any corporation tax last year.

[Paul Scully]

It is important to encourage businesses to pay their fair share of taxes. Despite what the hon. Lady says, many companies pay a significant amount in corporation tax, and I know that businesses value lower taxes and the employment allowance. I benefited from employment allowance in the company I ran before I was elected in that it allowed me to create another job.

The Low Pay Commission is charged by the Government with recommending the level of the national living wage premium each year, to increase the national living wage to 60% of median earnings by 2020. According to independent OBR forecasts, the Government expect it to reach £9 by 2020. I have heard nothing that implicitly or explicitly suggests that the Government are wavering in that commitment. I will be interested to hear the Minister reaffirm that, as I am sure she will, when she sums up.

Beyond supporting pay initiatives, the Government have sought to boost jobs and apprenticeships by involving businesses in the design of new apprenticeship standards and offering grants of £1,500 for businesses with up to 1,000 employees to take on new 16 to 24-year-olds as apprentices if they have not taken one on in the past year. That has been extended for another year. From this April, employers have not had to pay employer’s national insurance contributions for apprentices under the age of 25.

I know that the Government understand the ripple effect on companies, which I have mentioned, and that Ministers—including the Under-Secretary of State for Business, Energy and Industrial Strategy, my hon. Friend the Member for Stourbridge (Margot James), who is in her place—have pushed companies to implement the national living wage in the spirit in which it was introduced. For that reason, the examples raised by the hon. Member for Mitcham and Morden are very important. I am sure that the company that is having its board meeting tomorrow and the others she talked about will listen to what is said in this debate.

We should also hold up good examples of where the national living wage has worked well, because such companies are the beacons to which others can aspire. Such examples show the positive effect of valuing employees by paying that little bit extra and offering other benefits. That happens in higher-paid, graduate employment. We hear about companies such as Mars, KPMG and Aldi that are very good employers for graduates. We should look for great examples of employers who take on a significant number of lower-paid employees, to show how doing so can very much work for the company, as well as for the individual and their family. Let us get other companies to emulate fair pay, great conditions, excellent career prospects and very productive work. We should look to the two types of example, good and bad. The hon. Lady has started a very significant campaign that I hope employers will listen to.

--- Later in debate ---

[Siobhain McDonagh]

The Minister refers to the lowest-paid people gaining an increase of 8.2%, but that does not compare well with the top FTSE 100 chief executives, whose pay increase was 10%. My fear is not just for the lowest paid, but for the group of people just above them, who are finding that the introduction of the living wage is stripping out all the other benefits, leading to an overall reduction in their pay.

[Margot James]

I shall be dealing later with some of the points that the hon. Lady made in her speech about other benefits, and the overall impact on wages and take-home pay, but she should bear in mind that 8.2% is not very dissimilar to 10%. That does not mean that I am defending what many people have described as excessive pay rates at the top end. Indeed, the Prime Minister has asked my Department to produce a discussion paper on corporate governance. She has made it clear that she expects some of that top-end remuneration to come under the microscope, especially when it does not seem to reflect improved corporate performance.

I have listened carefully to representations about the level at which Governments should set the national living wage and the way in which overall pay should be managed. Higher pay needs to be affordable for employers, because if they cannot afford to pay it they will not hire workers and, worse still, may even lay workers off. The Low Pay Commission is led by an expert panel and is absolutely independent of the Government. We will continue to take its expert and independent advice, which will help us to set the national living wage. The commission will make its recommendations after careful consideration of the state of the economy to ensure that we can afford to make the living wage as high as possible without costing jobs. It will gather extensive evidence across the economy from workers, their representatives and employers, and will then reach an independent view.

--- Later in debate ---

[Margot James]

I do not see these matters as loopholes because there is no proof of a connection between the introduction of the national living wage and some of the cases we have heard about this afternoon.

I object to the automatic assumption that the changes that Marks & Spencer has made to its contracts and conditions are exploitative or a direct result of the national minimum wage. The hon. Member for Mitcham and Morden stated that Marks & Spencer had scrapped its pension scheme. It has not done so; like a host of other firms—the vast majority of private sector firms—it has moved from a defined benefit scheme to a defined contribution scheme. Indeed, the hon. Lady herself pointed out that the John Lewis Partnership had moved in such a direction several years ago, and it is not surprising when we consider what has happened to some of our large corporations’ defined benefit schemes in recent years. In August alone the deficit of those schemes increased by a massive £100 billion—and that was just in one month.

These pension schemes have to be sustainable; otherwise, we are going to see a calamity unfold over the next decade. Marks & Spencer has, along with the vast majority of other corporations, taken the entirely reasonable decision to move over, after consulting their employees at length and after putting in place a compensation programme to cover a three-year transitional period.

I took the precaution of talking to Marks & Spencer representatives to find out about the wider impact of some of these changes on employees of one of our most famous high street stores. I found that a rather different picture emerged from what we have heard from some Members in this debate. The company has put in place a Marks & Spencer living wage of £8.50 as a minimum for all store staff from April next year, and all those staff will receive a pay rise for every hour worked, and longer serving employees, who I agree have had to give up premium rates for Sunday and bank holiday working, will at least receive a lump sum in compensation. The conclusion is that approximately 90% of M&S employees will receive higher pay as a result of all the changes, which staff are free to accept or reject. M&S has also undertaken a very lengthy consultation covering all its store staff.

[Siobhain McDonagh]

Will the Minister give way?

[Margot James]

I will; I did say I would not give way again, but it is the hon. Lady’s debate.

[Siobhain McDonagh]

As I have always done, I am specifically referring to those long-standing loyal members of staff who have worked at Marks & Spencer since before 2002—they have worked for at least 14 years for the store. Thousands of those members of staff are going to lose thousands of pounds each year. There is a two-year lump sum to be had. They have no choice; the 90-day consultation has taken place. If they reject their new contract, they will be sacked for another substantial reason. Does the Minister, on behalf of the Government, believe that that is a fair way to treat thousands of long-standing loyal staff who have gone into work at weekends and on bank holidays to keep the company they love going?

[Margot James]

I do not accept that that is a fair representation of what Marks & Spencer is doing at the moment, for many reasons. I note that the hon. Lady said that if staff did not accept the terms, they would be sacked for another reason. That would be illegal and I do not believe that Marks & Spencer would go down that road. I think it has been much—

[Siobhain McDonagh]

On a point of order, Mr Deputy Speaker. What the Minister has just said is legally and factually incorrect. The law states that if a company has a 90-day consultation with its staff about changes to terms and conditions, it can then issue a new contract. If a member of staff refuses to sign that contract, they can be sacked for another substantial reason.

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

That is not a matter for the Chair, but the hon. Lady has put it on record for people to see.

--- Later in debate ---

[Siobhain McDonagh]

I thank the Backbench Business Committee and all the Members who have contributed to this great debate. This, in essence, is about fairness. If someone is promised a pay rise, they should receive a pay rise. There are employers—large, well known, respectable companies—that are simply not doing that. They can dress it up whichever way they like, but that is what is happening, and we as politicians of all parties need to call it out. The vote for Brexit was in part a cry from people that life is not being fair—that they are not having the opportunity to get on; that there is no connection between productivity and pay; and that a fair day’s work does not get a fair day’s pay. If we are to keep our country together and get everybody to act as one, we need to ensure that that happens, and it will happen only if we do what we say and take on all those companies, well known or otherwise.

Question put and agreed to.

Resolved,

That this House recognises Living Wage Week which began on 31 October; believes that the use of the introduction of the national living wage to drive down conditions and take-home pay is against the spirit of the law; calls on the Government to close down those loopholes which make this possible; and further believes that any move to reduce the value of the national living wage to a level below the promised £9 per hour in 2020 is unacceptable.