Lesley Riddoch: When’s a living wage not a living wage?

People have been driven to foodbanks like this one despite the so-called living wage. Picture: John Devlin

Which government has the best claim to be supporting low-paid workers?

David Cameron infuriated eighty thousand protesters outside the Tory party conference in Manchester this weekend, with his assertion that the new national living wage (NLW) will offset cuts in tax credits to leave low-paid workers better off. Under plans announced by Chancellor George Osborne in July, the hourly minimum wage for over-25s will rise from £6.50 to £7.20 in April and to 60 per cent of median earnings by 2020, when it should be above £9.

The Prime Minister says the package will transform Britain into an economy with higher wages, lower income tax and less state support.

Critics have their doubts.

Firstly the UK living wage doesn’t come into effect until April but the tax credit cuts begin soon. With classic Scrooge timing, three million low-paid workers will be told just before Christmas how much they are set to lose. According to the Resolution think-tank – headed by former Tory Minister David Willetts – one million households will lose £1,350 a year.

According to the Institute for Fiscal Studies, it is “arithmetically impossible” for there to be no losers and Director Paul Johnson says the national living wage “will not be a big enough change to compensate most of those receiving tax credits”.

David Willetts has called on David Cameron to delay implementation of the tax credit cuts – so have Boris Johnson and former Labour Minister Frank Field. But these conscious-stricken grandees appear to be talking to the hand.

It seems the IFS were absolutely right predicting a fiscal black hole following Scottish independence but absolutely wrong predicting the poorest working Britons will be forced into debt and foodbanks as a result of Cameron’s rebalancing wheeze.

The second problem is there’s no guarantee the NLW will keep rising.

Already there’s been a shot across David Cameron’s bows from Sir Ian Cheshire, the former B&Q chief who’s become a “non-executive director” at Whitehall.

He supports the NLW but says it should be reviewed in two years before the rate accelerates towards £9 an hour in 2020. How long before other big employers join him and levels stagnate?

Thirdly, it doesn’t apply to workers under the age of 25 – kind of tough since they are also being hammered by the removal of housing benefit. Finally and crucially, the UK living wage is not actually a living wage because it isn’t based on the real cost of living, but on a proportion of the median wage. And earnings often lag behind prices.

Confused?

The Resolution Foundation CEO Gavin Kelly explains it like this: “A minimum wage and a [real] living wage are different things. I could call my cat Rover but he still wouldn’t be a dog.”

The Scottish Government, by contrast is promoting a Scottish Living Wage (SLW) of £7.85 an hour right now – already higher than the NLW. Some 81 per cent of Scottish employees are paid the SLW by 338 employers, including the Scottish Government itself. But unlike the minimum wage and the NLW, the Scottish scheme is voluntary and depends on persuasion and market pressure. Businesses in sectors like care, hospitality, retail and tourism have been slow to sign up. That’s why the Poverty Alliance organised an event in Edinburgh this week to showcase the positive experiences of firms who’ve volunteered to raise wages.

Hearts boss Ann Budge said it was the easiest business decision she had ever taken. Sandy MacDonald of Standard Life revealed the spur to act had been an awkward question about wage disparity at the company’s AGM. Craig Hume of Utopia computers said he didn’t want to lose an award-winning member of staff, raised his pay, then decided everyone deserved the SLW.

Staff at SLW member firms said the wage rise had allowed them to go on holiday for the first time in years, save for a deposit to buy a house, quit the relentless search for another better-paid job and feel properly valued as employees.

Managers reported a rise in staff morale and drop in turnover and absenteeism – the only complaint from some long-serving staff had been the erosion of differentials.

New recruits get the same SLW as old hands and in Scotland (unlike the UK) 18-year-olds get the same rate as 48-year-olds. Once the whole system is explained it seems to be popular with staff, very popular with customers and above all fair.

According to Rachel McEwen of SSE, tax avoidance and low pay are the biggest ethical issues for customers. Recognition of the living wage brand is apparently 90 per cent in Scotland, the relentlessly positive nature of the movement means good employers want to be part of it and within a month of its launch, Scotland became the fastest growing living wage area with 20 per cent of the UK total.

So how can the Scottish Government get its voluntary scheme to cover all workers? One step would be to require all contractors and suppliers to pay the Scottish Living Wage too. It seems Holyrood lawyers are nervous about that since it might be seen as restricting free competition and thus breaching EU directives.

But the same Scottish Government took a different, more courageous stand on minimum alcohol pricing - another tricky ethical issue that was bound to invite legal challenge. Does fair pay matter less than fair alcohol pricing?

Meanwhile, as the Scottish Government swithers about compelling contractors to join the living wage club, SSE the Perth-based energy giant has already taken that step without encountering any legal challenges.

The Edinburgh Festival Fringe could become a test case as union leaders demand a “Living Wage Festival” after talks with Scottish culture secretary Fiona Hyslop.

The Scottish Government is due to issue new guidance on procurement this week but it’s not thought to demand that contractors toe the line and pay the living wage.

Which is a shame.

For the first time the majority of Scots living in poverty are in work which means they cannot expect a dramatic improvement in life simply by finding a job. Unless Scotland is to become a pale tartan version of the “pile em high, sell em fast” outlook governing the British economy, we need bolder policy and clear leadership to set a different course.