Almost everyone, it seems, thinks that paying people a
living wage is a good idea.
The latest to say so are the brothers Miliband who have
joined forces publicly for the first time today since that awkward leadership
election to present the living wage as a key Labour party strategy: an economic
necessity that saves the Treasury money in benefits and should be adopted by
the public sector in its dealings with private contractors. Dave Prentice, the
head of Unison, has thrown his weight behind the idea. It’s not just an idea
beloved of the left, either. David Cameron has also previously said the living
wage is an “idea whose time has come”. Back in August 2010 Boris Johnson said: “paying
the (London) living wage is not only morally right, but makes good business
sense too.”
Ta-dah! Agreement that the living wage is a sensible
strategy: a fair idea that makes fiscal sense and appeals to politicians across
the spectrum.
So why are so few people actually doing it?
Because nobody is asking the question: what actually happens
when you do pay people the living wage?
Tower Hamlets Council has been a living wage employer since
2008: one of only five councils in London to implement it. Tower Hamlet’s
experience can answer some of the issues at the heart of the idea: what are the
costs and the policy implications and what are the legal barriers to making it
work?
The first stage to becoming a living wage employer is fairly
basic: thinking about who will be affected. There are three categories of
worker: direct employees, agency workers and staff working for third party contractors.
For the first two categories of worker it’s a simple matter of cost – though,
in Tower Hamlets that has been marginal at 0.067% of our total payroll bill for
directly employed staff and 0.16% for agency staff, which we then absorbed
through a simultaneous re-negotiation of agency contract margins. I’ll leave it
for others to judge whether this has been affordable additional burden.
Implementing and enforcing the living wage for staff employed
by third parties has, however, proved challenging. Not least amongst these
challenges are the legal complications relating to non-commercial considerations
(Section17 LG Act 1988) and best value obligations (Section 3 of the LG act
1999) which mean that organisations are constrained in specifying terms of
employment to contractors. Now, there are two aspects to best value
obligations: cost and quality. We’ve circumnavigated the former problem – what
it means for cost – by pursuing the latter and implementing a quality-seeking
strategy that seeks in each tender to demonstrate to contractors that staff
will be more capable and motivated if paid the living wage. See here for more
details. We’ve not taken a blanket approach – we believe it would
be unlawful – but by adopting this policy tender by tender we’ve had a 100%
success rate in achieving living wage commitments in contracts. More than 150 million
pounds of our spending on third party contracts ensures their staff are paid
the living wage.
Determining which contracted workers fall within our policy
to implement a living wage is further complicated by the ambiguity of whom the
policy will actually affect. While it might be reasonable to expect people
providing a direct service (e.g. cleaners, repairs contractors etc.) to be
easily identifiable, it is less clear for those contracts providing supplies
such as energy, stationary and building materials. It is for this reason that
the Living Wage Foundation defines contractor’s staff as qualifying, or being “in-scope”,
if the worker in question is on the employer’s premises for two or more hours
per week, for eight or more consecutive weeks in a year. In Tower
Hamlets we have adopted a slightly broader definition: “Contracts…which are to
be performed either on Tower Hamlets premises, or in the Greater London area will ensure payment of the living wage”.
With the exception of a small number of contracts due for re-tender this coming
year, we think the vast majority of workers who would qualify to receive the
living wage are now being paid it.
For reasons of commercial confidentiality I cannot comment
specifically on the cost implications of specifying the living wage in third
party contracts. But I can make the following general observations. First –
costs have been absorbed in existing budgets and contract savings have been delivered. It is possible that
higher savings could have been achieved without stipulating the living wage,
but we have no substantive benchmarking evidence to test one way or another.
Second - the pattern of prevailing living wage payment by third party
contractors was not as we might have first have imagined. Within the same
categories of expenditure (think, for example, domiciliary care) we found
private sector suppliers paying well above the living wage and local Third
Sector organisations paying substantially below. Nor did we find an obvious
correlation between payment of the living wage and substantially higher or
lower profit margins or surpluses. My conclusion: the commercial impact of
paying the living wage isn’t as straightforward as you might think. Nor does it
follow that the private sector is always the lowest payer. In our experience the
opposite was often the case.
Over the last six years the experience of Tower Hamlets has
demonstrated that a sustained commitment coupled with innovative policies can
deliver substantially more employees and contracted workers being paid the living
wage. The costs to date have been marginal.
One of the big questions for the future is of course whether
we can continue to commit to this policy if our spending power continues to
fall. Ultimately this will be a political judgement, but what is clear from our
experience to date is that we’re unlikely to make substantial savings on our
pay bill if we revoke our living wage policy. (It may contribute a bit – but
wont be the answer.) Another key issue is that the living wage won’t just be a
question for large employers for much longer. As more users of adult social
care services choose to take their personal budget - rather than leaving the
council to procure services on their behalf - decisions about whether to pay
the living wage will filter down to individuals. Ultimately this campaign, moral, economic and political, will also become a matter for personal
conscience and action and will need to evolve accordingly.
