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Home » Dr Shibley Rahman viewpoint » One Nation: there is a strong rationale for "the living wage" and for it to be enshrined in law in some form

One Nation: there is a strong rationale for "the living wage" and for it to be enshrined in law in some form



It’s actually very bold, and fits in completely with the “One Nation” philosophy of Ed Miliband and Labour. It could even be one of the first Acts to be proposed by a Labour government in 2015/6, and has profound implications.


The “living wage” has a focus on the wage rate that is necessary to provide workers and their families with a basic but acceptable standard of living. It is an hourly rate set independently and updated annually, and calculated according to the basic cost of living in the UK. Employers currently can choose to pay the Living Wage on a voluntary basis; the UK Living Wage is calculated by the Centre for Research in Social Policy, but the London Living Wage is calculated by the Greater London Authority. This minimum standard of living is socially defined (and therefore varies by place and time) and is often explicitly linked to other social goals such as the fulfilment of caring responsibilities.


Uniquely for opposition policies, the Living Wage enjoys cross-party support, with public backing from the Prime Minister and the Leader of the Opposition. That said, the main beneficiary of the living wage is the Treasury, and this is obviously critical for it to be implemented at a time of austerity (but so was the £2bn NHS reorganisation). Financial gains from the living wage will arise from higher income tax payments, higher national insurance contributions and reduced spending on in-work benefits. This has a number of important implications.


On a visit to Islington in north London last year to discuss how Labour councils across Britain have succeeded in implementing the living wage, Ed Miliband described the living wage as an idea “whose time has come”. “The next step is to help more people, including workers in the private sector, have the dignity of earning a living wage. This is one way we can begin building a One Nation economy where prosperity is fairly shared, because it is only by coming together that we can succeed as a country.”



The concept of the “living wage” has roots in various cultural, religious and philiosophical traditions. The modern UK Living Wage Campaign was launched by members of London Citizens in 2001. The founders were parents in the East End of London, who wanted to remain in work, but found that despite working two minimum wage jobs they were struggling to make ends meet and were left with no time for family and community life. In 2005, following a series of successful Living Wage campaigns and growing interest from employers, the Greater London Authority established the Living Wage Unit to calculate the London Living Wage. The Living Wage campaign has since grown into a “national movement”, and Ed Miliband has often talked about how he wishes Labour to be seen as a movement and not just a political party. Local campaigns began emerging across the UK offering the opportunity to involve many more employers and lift many more thousands of families out of working poverty. In 2008 the Centre for Research in Social Policy funded by the Joseph Rowntree Foundation began calculating a UK wide Minimum Income Standard (MIS) figure. In 2011 Citizens UK brought together grass roots campaigners and leading employers from across the UK, working closely with colleagues on the Scottish Living Wage Campaign inparticular, to agree a standard model, for setting the UK Living Wage outside of London. At the same time, following consultation with campaigners, employers who support the Living Wage and HR specialists, Citizens UK launched the Living Wage Foundation and Living Wage Employer mark. Since 2001 the campaign has impacted over 45,000 employees and put over £210 million into the pockets of some of the lowest paid workers in the UK.


The rationale for the living wage clearly merits scrutiny. It has much popular support, and thus, as far as Labour and the Unions are concerned, consitute a clear “vote winner”. In a recent article in the Telegraph, a newspaper not known for its significant Labour sympathies, Jeremy Warner described that, “the potential negatives from such a policy are almost too numerous to list – surging inflation, higher immigration, rising unemployment, a growing black economy, and so on. These alone might appear to kill the idea stone dead. Yet all these adverse consequences could quite easily be countered, and it is a fact that the great bulk of internationally competitive business in Britain already pays living wages. It is in the low-skilled, service areas of the economy that the problem largely lies.” Interestingly, Heller Clain (2007) (J Labor Res (2008) 29:205–218) had previously argued that living wage legislation produces statistically significant differences in poverty outcomes (but that minimum wage legislation does not), with empirical evidence, and provided a clear argument concerning costs and demand how this is most likely to have arisen.


“Beyond the bottom line: the challenges and opportunities of a living wage” (IPPR)

A critical development has been the publication of “Beyond the bottom line: The challenges and opportunities of a living wage” by the IPPR, authors Matthew Pennycook and Kate Lawton (20 January 2013). This provided much detail, with The Living Wage Foundation having already established three critical functions of theirs. It offers accreditation to employers that pay the living wage, or those committed to an agreed timetable of implementation, by awarding the ‘Living Wage Employer’ mark. It also provides advice and support to employers implementing the Living Wage including best practice guides; case studies from leading employers; model procurement frameworks; access to specialist legal and HR advice. Finally, it provides a forum for leading employers to publicly back the Living Wage. We work with Principal Partners who bring financial and strategic support to the work.


Does it need an Act of parliament?

The National Minimum Wage Act 1998 created a minimum wage across the United Kingdom. It was a flagship policy of the Labour Party in the UK during its 1997 election campaign, and is still pronounced today in Labour Party circulars as an outstanding gain for ‘at least 1.5 million people’.  The policy was opposed by the Conservative party at the time of implementation, who argued that it would create extra costs for businesses and would cause unemployment. The Conservative party’s current leader (and Prime Minister), David Cameron, said at the time that the minimum wage “would send unemployment straight back up”. However, in 2005, Cameron stated that “I think the minimum wage has been a success, yes. It turned out much better than many people expected, including the CBI.” It is now Conservative Party policy to support the minimum wage.

Indeed, “the living wage” has some prominent supporters.

The IPPR indeed argue that are clear reasons not to legislate for a statutory living wage including the fact that the living wage should not be seen as a replacement for the minimum wage. It there is argued that the minimum wage is based on an empirical judgment about employment effects and is agreed through a social partnership model, allowing a mandatory, statutory approach. However, the living wage reflects standards of living and prices and does not take account of employment effects. Advancing the living wage therefore requires an incremental approach, which can also bring wider benefits by mobilising low-paid workers who lack traditional forms of representation. The question for policymakers is the extent to which the state can support a campaign rooted in civil society.


The IPPR instead recommended that government amends the UK corporate governance code to require listed companies to publish the proportion and number of their staff paid below the living wage, and legislate for this if necessary. This indeed is a very sensible idea, if Ed Miliband and Labour include it as part of a raft of measures in corporate governance which could encourage ‘responsible capitalism’, which thus far has been lacking regulatory teeth. It’s possible that “the living wage” is in fact a practical mechanism of delivering “predistribution“, the thesis articulated elegantly by Professor Joseph Hacker but which people dare not mention in polite public. As part of Labour’s policy review, the party is considering ways to make the rate, which is more than £1 higher than the legal adult minimum wage, the new norm. Listed companies who do not pay the living wage could be “named and shamed” through new corporate governance proposals, and Whitehall contracts could be limited to firms that pay their workers at the new hourly rate. This would be entirely in keeping of the description of a “moral economy” advanced by Jon Cruddas discussing rebuilding Britain, a “new Jerusalem“: “Markets require reciprocity for efficiency and productivity. Together they establish trust, relationships and a sense of stewardship at the heart of transactions. It is a moral economy that can be expressed through co-operative and mutual forms of ownership, and internalised in the culture of business through employee involvement in the governance of firms. In return for their commitment to the company, employees can have a voice on salary levels, improving productivity and business strategy.”


There are though, some might say, good reasons why living wage legislation should enter the statute books in some form, corresponding to the passing of any laws in our jurisdiction. These are namely to protect an individual from harm including employment exploitation, to contribute towards a framework of the rules needed for a society to live and work together,  to ensure an enforceable mechanism through which justice can been served, to “punish” people as necessary, and to maintain social order (such as prevention of poverty). It is obviously important that any laws we introduce are not incompatible with European laws, and the current indications are that the “minimum wage is (not) always incompatible with EU procurement rules. There are however obligations to treat all bidders equally, fairly and transparently and in a non-discriminatory way in any procurement process.” Specifically, the European Commission has provided clarification on the issue in 2009, stating that living wage conditions “must concern only the employees involved in the execution of the relevant contract, and may not be extended to the other employees of the contractor”. However, this perspective is to treat law as an administrative process, free from social values and judgments, as discussed by LJ Laws for example in the context of human rights. By enacting a formal law on the living wage could be a strong signal that the law is not merely an error-corrective mechanism for market values, what Prof Michael Sandel at Harvard calls ‘markets mitigating governance’ as a technocratic process done through cost benefit analyses, but that the law is in fact designed ‘for the public good’, encouraging citizenship, civic values and solidarity. Sandel conceptualises this striving for the public good as a necessary reaction to the approaches of Thatcher, Reagan and indeed New Labour, which had generated a sense of ‘market triumphalism’, but points out readily that under such administrations this had had a destructive effect on rich and poor people living further apart in society. This indeed can be easily seen in the UK with the rich becoming even richer.


One Nation Economy


Trade unions are still a significant part of the culture of UK, not least because they serve to protect workers and employees against scrupulous employers. In the trade union movement, UNISON has had noteworthy success in offering practical advice about how citizens can “win the winning wage”. Ed Miliband has made it no secret that he does not wish to see a divide between ‘private sector’ and ‘public sector’, in that we all contribute to one unitary UK economy. This has been reflected in how Miliband has provided hints about trying to make trade unions also relevant to the public sector. Encouraging a ‘living wage’ could be a way of getting more people involved in the Union movement, which Miliband has openly warned should not be seen as the “evil uncle” of Labour.  The IPPR report indeed cites: “The greatest successes in securing the living wage have been made through bottom-up processes of organising and campaigning. These processes have sought to involve low-paid workers directly in the struggle to improve their own wages, as well as building broader alliances with a diverse mix of unions, faith organisations and community groups.”


As the forerunner to a ‘one nation economy’, local and regional initiatives have consolidated a number of improvements in pay for nearly 45,000 low-paid workers. In addition to the nine local authorities that have been formally accredited as living wage employers, a growing number of private sector employers have introduced living wage agreements including Barclays, KPMG, Deloitte, Linklaters and Lloyd’s of London. More widely, living wage initiatives have reshaped social norms around wages and in-work poverty and have refocused attention on the role that decent pay above the national minimum can play in raising living standards, alongside remedial redistribution through tax credits and in-work benefits. This, alongside the fact that a national minimum wage has already been acted in the UK, is significant when noted with an observation from Heller Clain 2012 (Atl Econ J (2012) 40:315–327) about how experiences of implementation of the “living wage” in the US: “Ceteris paribus, the strength of the community sentiment in support of living wage legislation may be lessened, where the state government has already adopted policies aimed at raising the incomes of the working poor. For example, there may be less motivation to enact living wage legislation where the state has already enacted a statewide minimum wage higher than the federal level.”


There are clear benefits which have been experienced by adopters of “the living wage”. An independent study of the business benefits of implementing a Living Wage policy in London found that more than 80% of employers believe that the Living Wage had enhanced the quality of the work of their staff, while absenteeism had fallen by approximately 25%. A major economic rationale is that paying UK workers a “living wage” would save the Treasury more than £2bn a year by boosting income tax receipts and reducing welfare spending, according to a joint research by the Resolution Foundation and the Institute for Public Policy Research. They found gross earnings would rise by £6.5bn if employees were paid a living wage – an estimate, above the statutory minimum hourly rate, of what workers must earn to meet basic needs. There is, additionally, a much wider elegant narrative at play here. It has been recognised by anyone other than George Osborne and his colleagues that ‘underconsumption’ has been a major factor in why the UK economy has been failing latterly (parallel with decreased levels of tax receipts, even predating the current financial crash). Indeed, starting with Malthus and Ricardo in the nineteenth century, economists had long debated the viability of ‘underconsumption’ as a cause of cyclical depressions. This is now recognised in the economic press, for example “the increasing attention to consumer demand among businessmen merged with a related trend in economics: the rise of institutional economics …  A key element, though, was the conviction that economists needed detailed, quantitative, empirical studies of consumer behavior (sic) and existing markets, encompassing everything from focused psychological or sociological analyses to expansive, aggregative surveys of household income, prices, and family expenditures.” (Stapleford,  Labor History, Vol. 49, No. 1, February 2008, 1–22)


The IPPR are mindful that many small and medium-sized firms are likely to struggle with the costs of implementing the living wage if a significant proportion of their staff are low paid. They recommend the government should explore using the architecture of City Deals to create ‘living wage city deals’, drawing forward future tax and benefit savings from paying local government workers the living wage and devolving this money to support private sector businesses in transitioning to the living wage. So far, two thirds of employers reported a significant impact on recruitment and retention within their organisation. 70% of employers felt that the Living Wage had increased consumer awareness of their organisation’s commitment to be an ethical employer.


One Nation Society

It’s clear that the arguments for “the living wage” are not just economic, as discussed above, but also are profoundly relevant to a sense of soldiarity and “civic duty” inherent in a “one nation society”, Living wage initiatives grounded in forms of community organising seek to increase the bargaining power of workers who lack access to more traditional forms of representation such as through trade union structures. It furthermore can easily be argued that, beyond their ability to lift wages and living standards, living wage initiatives have the potential to empower low-paid workers, many of whom lack voice and power in the workplace and in wider society. Many living wage initiatives, both in the US and UK, have sought to mobilise low earners directly rather than campaigning on their behalf, by organising workers and communities through a process described as ‘community organising’ or ‘community unionism’. Indeed, here in the UK, the Living Wage campaign was launched in 2001 by parents in East London, who were frustrated that working two minimum wage jobs left no time for family life. The causes of poverty are complex and in order to improve lives there should be a package of solutions across policy areas. The Living Wage can be part of the solution. Over 45,000 families have been lifted out of working poverty as a direct result of the Living Wage.


This is fundamentally a point to do with “cohesion” of our society. It has been patently obvious that New Labour failed monumentally on “inequality”. in its quest for market triumphalism, described above. There is a sense of Ed Miliband ‘righting a wrong’ here, in addressing the societal problem of inequality, and if Miliband can achieve this he will have succeeded in a crucial area where Blair had failed.




Boris Johnson appears superficially laid the groundwork for “the living wage” in London, but credit that the overall Conservative-led admininstration has led the way on employment justice can only massively dampened for a number of diverse reasons. The cross-party support is described above, but it is conceded that, in the US, “a larger population and greater local support for Democratic presidential candidates are significantly linked to a greater likelihood of adopting living wage legislation and a greater speed in adopting living wage legislation.” (Heller Clain, 2012) And yet, the “living wage” may not be necessarily partisan, although one has no idea what the Liberal Democrats wish to advance following June 2015, and would nicely fit into the framework which Ed Miliband has already provided. I expect it will be a major, if not the, major campaigning issue for Labour in 2015, and could be one of the first things an incoming Labour government would legislate for in some form. The monumental research of IPPR, the Living Wage Foundation, numerous corporates and the trade unions will have contributed greatly to the success of this initiative, as will have Ed Miliband of course.


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