We should have the courage to legislate for a Living Wage, not just campaign for it

by Prem Goyal

It has become a bit of an easy game for cynical journalists to say that Labour’s leadership talks about abstract ideas like pre-distribution and responsible capitalism that are somehow too hard for people to follow. What nonsense. I don’t much like either of the phrases, but I think the ideas themselves are both simple and compelling.

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

The most effective form of prevention against the most extreme forms of inequality is full employment – and the best vaccination against in-work poverty is the living wage. That’s why Ed Miliband made it such a feature of his leadership bid and did significant follow up on the details late last year.

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

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

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

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

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

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

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

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

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

Prem Goyal is a City entrepreneur, Vice Chair of Bermondsey and Old Southwark Labour Party and Chair of the Southwark Co-operative Party

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11 Responses to “We should have the courage to legislate for a Living Wage, not just campaign for it”

  1. Danny says:

    One of the most sensible articles I have read on Labour Uncut. Tip of the cap to you.

    A legislated Living Wage would be manna from heaven for Labour campaigners on the doorstep and the research suggests it would have very little negative consequences. Exemptions could be built in for new companies employing their first few employees, and it could be rolled out for large employers first.

    Companies like G4S and the monsters of the finance and insurance sectors would have no trouble, and if they did, they could find the additional funds by kerbing the excessive and disproportionate rises afforded for the millionaire executives, whose salaries have continued to rocket obscenely and unethically since the 1980s and continue to do so even during a period of austerity.

    Pinning executive pay to the median or mean workers wage would also prevent the disgusting practices of some companies to award large salary increases for executives whilst claiming they can only afford below inflation payrises for their low-income employees, but that’s for another debate.

    The Living Wage is an easy sell to the electorate and the only people whose nose it would put out of joint are die-in-the-wool Tories who would sooner ingest anthrax than vote Labour.

    The 2015 manifesto is going to need to be bold and present a real alternative to the failed neo-liberal agenda that dominated the Thatcher and Blair premierships. While it would need to be accompanied by other similarly bold policies, a legislated Living Wage would be a fantastic start. It will certainly encourage me to knock on doors more than the prospect of trying to explain One Nation to the majority of my politically antipathetic residents of my constituency.

    Last time I checked, the union movement was doing some commendable campaigning on behalf of the minimum wage. At least I thought that was the case. From a lot of the comments on Labour Uncut, the unions are useless and only around to serve the interest of those at the top. If that was the case, their work for the Living Wage must be a figment of my imagination.

  2. Peter Kenyon says:

    Dear Prem

    Could you lobby your Corporation of London Alderman and Common Councillors to vote for the City of London to apply for accredited London Living Wage Employer status?

    A question was asked at its Establishment Committee by one of my Common Councillors and their officers are clearly not up to speed with the good practice in your borough and others like Islington.

    Peter Kenyon
    secretary, City of London Labour Party

  3. Robin Thorpe says:

    Well argued Prem: totally agree

  4. swatantra says:

    Great proposal! Labour has to be much much much bolder if it is to get anywhere.
    But we would have to get the business community on board with this, and show them the benefits. Its only taken 150 years but it would have made Beatrice Webb very happy.

  5. Robert says:

    I agree in principle but is it realistic? My inclination would be to gradually increase the Minimum Wage by more than inflation, while encouraging employers to pay the Living Wage.

  6. bob says:

    Contrary view, look at France for a lesson of what would happen, a stagnated economy with companies afraid to attempt investment due to legislation.

  7. Robin Thorpe says:

    @ bob – could the stagnation in France just be due to une generale malaise? Other European countries also have a stagnated economy with companies afraid to invest.

  8. bob says:

    Europe’s problems stem from a currency for the euro zone is not reflecting the fact a single interest rate is good enough, The disparity of economies from Finland to Greece, is killing the continent and its ability to grow. Whilst those under the cosh from the Troika they will not be able to sort out their countries fortunes. If countries went back to their pre-euro currencies, they could devalue and open up their ability to grow. Unfortunately the only country who would be against this is Germany, who need low interest rates so therefore will not allow it to happen.

    if Greece and Cyprus went back to the Drakma and Cypriot Pound respectively they couls expand to their strengths. If the French had a large dose of pure Thatcherism, got rid of the 35 hr week, massive benefits and state ownership, they might improve. Look at Spain Portugal and Eire they are becoming social and economic wastelands with up to 50% youth unemployment.

    No company will invest in mainland Europe with the amount of legislation related to employing individuals, union intransigence, red tape and overall costs, in particular when you can go to China India or the Third World countries.

    This unfortunately will happen if Miliband and Balls ever get their hands on the economy, Len McClusky and Unite plus Serwotka and the PCS will run the country not those elected to do so. back to the 70s and 80s, History repeats itself.

  9. swatantra says:

    Experience shows that whenever a Labour Govt is elected they don’t pay any attention to what the Unions say anyway; the Unions are a thorn in the flesh of whatever Govt is in power. So bob’s concerns are unfounded.

  10. Renie Anjeh says:

    I think increasing the minimum wage to the living wage – whilst ringfencing the savings and extra revenue gained for tax cuts for businesses – could be a very good idea. We do have to be careful that wages are not too high that they cause real wage unemployment, which would push some people into poverty and unemployment leaving the state to pick up the tab. By having a living wage through the minimum wage and cutting tax for business, it allows us to be economically realistic and socially just.

  11. SEAN Mac says:

    Labour went into the 1997 election with Minimum Wage as a firm policy.

    That was 16 years ago….

    Time to go into the 2015 election with Living Wage as a firm policy.

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