Labour Research November 2014


Bare minimum is not enough

As millions struggle with low pay and insecure work, and the taxpayer subsidises poverty wages, calls for a decent living wage grow louder.

That work is “the best route out of poverty” is a mantra often chanted by politicians. This refrain was, for example, enthusiastically embraced by work and pensions secretary Iain Duncan Smith when he launched the government’s child poverty strategy in June this year.

He declared: “Work remains the best route out of poverty and with the economy now growing again we have more people in work than ever before”, adding that there are also “fewer children in workless households than at any time since records began”.

However, Duncan Smith failed to refer to another record. This is that, for the first time, the majority of the 13 million people classed as living in poverty — in other words, living on less than 60% of national median income — are actually in work. The national median income currently stands at £27,000.

The 2013 annual Monitoring poverty and social exclusion report by the Joseph Rowntree Foundation found that more people in working families (6.7 million) were living in poverty — at current rates, less than £16,200 a year — than in workless and retired families in poverty combined (6.3 million). And it found that more than half of children living in poverty belong to working families.

Meanwhile, the TUC last month pointed out that despite optimistic government talk of a growing economy, average wages have fallen by £50 a week in real terms since 2008 and UK workers are “suffering the longest and most severe decline in real earnings since records began in Victorian times”.

It’s small wonder then, that unions have been pointing out that the National Minimum Wage (NMW), with an adult rate that last month rose to £6.50 an hour from £6.31, is simply not enough for people to live on, and have stepped up campaigning around the Living Wage.

Workers paid below the Living Wage

The Living Wage (LW) is promoted by the Living Wage Foundation and, unlike the NMW, is not legally enforceable but is an informal benchmark rate. It is calculated by the Centre for Research in Social Policy at Loughborough University for everywhere outside London, while the London LW is calculated by the Greater London Authority. These rates are intended to reflect the minimum workers need to cover the basic costs of living. The 2014 LW rates of £7.65 an hour and £8.80 an hour for London and are due to rise this month.

The Living Wage Commission (LWC), an independent inquiry set up for a year to look into the future of the LW, estimates that 5.24 million people in Britain are paid below Living Wage rates. The commission’s February 2014 interim report, Working for poverty: the scale of low pay and working poverty in the UK , pointed out that this was an increase of 420,000 over the previous 12 months. The commission, which included representatives from the TUC, British Chambers of Commerce and the voluntary sector, said this means that more than one in five workers is paid below a socially acceptable standard of living.

In April this year, the TUC produced a breakdown of official figures which revealed that while on average, as the Living Wage Commission calculated, around 20% of workers earn less than the LW, this rises to almost 50% in some parliamentary constituencies.

And, as the UNISON public services union has noted, the taxpayer is subsidising these poverty wages “to the tune of £3.6 billion a year, including £1.1 billion in means-tested benefits”.

Sub-Living Wage rates of pay can be found across both public and private sectors. In its June 2014 final report, Work that pays , the LWC says that the wholesale and retail industry accounts for 28% of employees paid less than a living wage, while hotels and restaurants account for 17%. Health and social work meanwhile, account for 13%.

TUC general secretary Frances O’Grady has emphasised that extending the LW is therefore “a vital way of tackling the growing problem of in-work poverty across Britain”.

Local government pay

Fiona Farmer, national officer for local authorities for the Unite general union, pointed to the situation for many who work in local government which has a “lowest pay scale point equalling the National Minimum Wage”.

“Over one million of the 1.5 million workforce earn less than £21,000 a year and 400,000 earn below the Living Wage,” she told Labour Research . “At these levels of pay, members are reliant on benefit and tax credits just to survive, with many turning to food banks and charities for heating and eating.”

UNISON’s head of local government, Heather Wakefield, said: “We’re talking about people who do really important jobs — including teaching assistants, catering and cleaning staff, school meals workers, day care assistants, and some low-grade admin staff.”

She said many of these workers “are absolutely at rock bottom”, having to cut back on food spending and on items for their children.

Wakefield cited a recent UNISON survey of 1,700 local government and school support workers which found 75% of respondents spending less on their food shopping and over half (59%) cutting back on energy costs by turning the heating down or off.

Farmer and Wakefield pointed to three years of pay freezes from 2010, a 1% pay cap in 2013 and below-inflation pay settlements in eight out of the last 16 years. This has seen local government workers’ take home pay “reduced in real terms by 20%, or an average of £2,800,” said Farmer who added that, at a local level, overtime and annual leave as well as allowances such as mileage are also being reduced.

She said that while there were around 120 mainly Labour councils “who pay the Living Wage in some form”, increasing the minimum wage to £8 an hour “would ensure a living wage for all local government workers”.

And while Labour leader Ed Miliband has vowed to raise the minimum wage to £8 an hour by 2020 if Labour wins the next election, Farmer said this raise should happen “before 2020”.

Local authorities could “absolutely” afford this, she said, as “many councils have huge reserves which are increasing year on year”.

Her words were echoed by Wakefield who said councils have chosen to put huge amounts of money in reserves. “In the last two years alone they have banked £2 billion,” she added.

£8 National Minimum Wage affordable in 2015

Research for the Unite general union reveals that, across the economy, the minimum wage could easily be increased almost immediately to £8 an hour, not only benefiting low-income households, but also providing a modest boost to employment.

Impact of NMW increase to £8 an hour in 2015

The National Minimum Wage could safely be increased to £8 an hour in 2015, boosting employment and helping the public finances as well as benefiting low-income households, according to a September 2014 report for the Unite general union by Howard Reed of the Landman Economics research organisation.

Reed’s report, published days after Labour leader Ed Miliband’s pledge to raise the minimum wage to £8.00 an hour by 2020 if Labour won the next general election, argues that such an increase is affordable now.

The research shows that an increase to £8.00 would:

• help 4.6 million low-paid workers, 60% of whom are women;

• provide an average gain in net income of £813 a year per worker for these workers;

• help the poorest households the most, with the biggest gainers in the bottom 60% of the income distribution. The impact would be “particularly beneficial” for low-income households containing people who work in the retail sector (an estimated 900,000 workers), hospitality industry (750,000) and cleaning (190,000);

• have progressive distributional impacts across all ethnicities, “with particularly large net gains per hour worked for Asian workers”. Migrant workers would also make “particularly large net gains per hour worked”;

• see average net gains which are “largest for younger and older workers, especially those aged under 25 and those aged over 65”;

• boost employment with a potential increase of 30,000 new jobs; and

• benefit the public finances to the tune of around £2.1 billion through increased income tax and National Insurance Contributions receipts, increased receipts from expenditure tax (due to higher consumer spending by workers with higher net wages) and lower in-work benefit and tax credit spending.

Hotel workers

The union’s campaign for hotel workers, which focuses on London hotels and demands the London Living Wage, points to the fact that not one London hotel pays the London LW, despite the city being home to some of the most expensive hotels in the world and the industry in London raking in £10.5 million a day.

Unite regional officer Dave Turnbull said: “Our members working in hotels and restaurants will be paid anywhere between the minimum wage to around £7.80 an hour and live hand to mouth. They might be working seven days a week and often have more than one job. Some will work through their holidays because they can’t afford to go on holiday. Or they will take holiday leave from one job in order to work at another.”

The situation was particularly galling, he said, given that the same hotel chains pay the lowest-paid staff working in their New York hotels over $27 — around £16 — an hour. New York has a city-wide agreement between hotel employers and the New York hotel workers’ union, the Hotel Trades Council, and Unite wants a similar deal for London.

The union’s London and Eastern Hotel Workers’ Branch recently stepped up its campaign for the London LW with a day of action (see box below).

Hotel campaign

The Unite union’s London and Eastern Hotel Workers’ Branch organised a Living Wage Action Day on 8 August which included:

• distributing postcards to workers in restaurants and coffee shops together with the Unite Restaurant and Bar Staff Branch;

• distributing postcards to tourists with “Welcome to London (Capital of Low Pay)”, with a tear-off slip calling on employers to pay staff the London Living Wage;

• a lunchtime protest and street petition at the Crowne Plaza hotel; and

• a “picnic against poverty” outside the Greater London Assembly building.

GMB calls for £10 an hour Living Wage

Meanwhile, the GMB general union is calling for a £10 an hour Living Wage . GMB national organiser Martin Smith told Labour Research : “Our argument is that our members know that you can’t live on the [current] ‘Living Wage’. We believe this is tacitly accepted even by the Living Wage Foundation who base their calculation on the assumption of full receipt of in-work benefits and a 37-hour week. We don’t support either of these assumptions as the basis of the calculation and think the Living Wage should be re-calculated on a more up-to-date basis and by a method acceptable to trade unions fighting every day for wage rises.

“GMB holds the view, for instance, that a ‘living wage’ that relies on in-work benefits is not a living wage at all.”

Smith continued that the union also believes that “the assumption of a 37-hour week is out of date for millions of workers in the new economy that has emerged since 2007 and continues to expand”. This means that “we need to fight for the right of many workers to increase their working day to eight hours”. He added: “We chose the £10 per hour figure on the same basis that it can’t stand in isolation from working hours — but that it assumes a 40-hour week. Fewer hours need a higher hourly rate to be enough to earn a living on.”

Smith said the £10 figure was “an aspiration which informs our industrial organising and bargaining around wages and hours”. The union was, for example, “working with major employers in retail, distribution and utilities” on the issue, “many of whom concede that they have become over-dependent on public subsidy of their wages in recent years and need to reduce their exposure in a climate of continued cuts in benefits”.

On this last point, the GMB’s call for a £10 Living Wage now has an even greater focus, thanks to chancellor George Osborne’s announcement to this year’s Tory party conference that a re-elected Tory government would impose a two-year freeze on benefits and tax credits.

Smith said that £10 an hour and enough hours of work to live on was, in part, “a way of protecting the working poor from the fear of these types of in-work benefits cuts — and the evictions that will follow for some”.

Union sets its sights on £10 an hour living wage

The GMB general union’s call for a living wage set at £10 an hour — together with “enough hours of work to be free of benefits” — is among its six demands to “make work pay”.

These are set out in its 2014 report, How unions can make work pay, produced in association with the Centre for Labour and Social Studies think tank. It says that “we need to be arguing for a rate of pay that provides enough to live on without the need for extra state support”.

The realities of the National Minimum Wage (NMW), argues the union, is that while it was an important first step in tackling the problem of low pay, “in many cases it has now become the maximum wage millions of workers can hope to earn”.

In many sectors, it “has become a ceiling on pay settlements, rather than a base level from which employees could secure better pay”.

The GMB bases its £10 an hour call on the fact that the minimum a single person needs to live on without benefits is “much, much higher” than the current Living Wage.

It cites the £9.08 an hour set out by the Joseph Rowntree Foundation in its Minimum Income Survey 2013 as the minimum a single person would need to earn to live reasonably without benefits. And it points to the £11.30 an hour rate set out in the report, A fairer London: the 2013 Living Wage in London by the Greater London Assembly’s Economics Unit as the hourly rate a Londoner would need to live on without benefits, working 37.5 hours a week.

The union emphasises that the “hourly rate of pay is only half the story”, and that making work pay also crucially depends on having enough hours of work.

In their foreword to the report, national organiser Martin Smith and regional secretary for Yorkshire and North Derbyshire Tim Roache state: “Jobs that were once 40 hours a week and permanent have been split into two or three through the use of zero hours contracts, agency work or bogus self-employment”.

Smith told Labour Research that, ironically, in the union’s 125th year, “we need to fight for the right of many workers to increase their working day to eight hours.

“So any hourly rate without reference to sufficient working hours is irrelevant to millions of workers.”

The Fast food rights campaign, initiated by the BFAWU food workers’ union, is also pressing demands for a £10 an hour Living Wage on companies like Burger King and McDonalds, and for an end to zero hours contracts (see pages 15-16).

The Conservative pledge on benefits and tax credits aside, the continued existence of low pay and insecure work for millions will ensure that the Living Wage remains high on union agendas for some time to come.


How unions can make work pay

Greater London Authority

A fairer London: the 2013 Living Wage in London

Joseph Rowntree Foundation

Monitoring poverty and social exclusion 2013

A minimum income standard for the UK in 2013

Living Wage Commission

Working for poverty: the scale of low pay and working poverty in the UK

Work that pays: the final report of the Living Wage Commission


“Local government and school support workers ‘locked out’ of recovery”


The economic impact of a £1.50/hour increase in the National Minimum Wage