Memorandum submitted by the Scottish Low
Pay Unit
SUMMARY
1. Introduction
A submission from the Scottish Low Pay Unit
demonstrating the links between low pay and poverty.
2. Low Pay as a Contributing Factor
The extent of low pay in Scotland and evidence
of its contribution to poverty levels.
3. The Impact of Government Policy
The failure of policies such as the National
Minimum Wage and Tax Credits to eradicate poverty; the penalties
resulting from means testing.
4. Conclusion
The Scottish Low Pay Unit's recommendations
for change.
1. INTRODUCTION
1.1 The Scottish Low Pay Unit (SLPU) welcomes
this opportunity to present evidence to the Scottish Affairs Committee
on poverty in Scotland. The scope of our work means that we are
keen to address the Committee's request for information with regards
to the contributing factors and impact of Government policy on
poverty, and so in the interests of brevity our submission will
concentrate on the most relevant factors within these two categories.
We hope that our knowledge of issues around low pay, poverty and
social inclusion, built up over the past 17 years, will be of
use in this important enquiry.
2. LOW PAY
AS A
CONTRIBUTING FACTOR
2.1 The poverty and injustice experienced
by low paid workers continues to be the driving force behind the
Scottish Low Pay Unit's work. The latest available statistics,
detailed in our 2006 report "Low Pay in Scotland: An Analysis
of the 2005 Annual Survey of Hours and Earnings", suggest
that at least 358,974 Scottish full-time employees are low paid.[13]
This represents almost a quarter of the Scottish full-time workforce.
2.2 Evidence of a direct link between low
pay and poverty is often viewed as being largely qualitative or
anecdotal. In recent years, however, organisations with expertise
in poverty research such as the New Policy Institute have consistently
highlighted the fact that statistically it appears to be a major
contributor; one that is often neglected, despite its growing
influence on poverty levels (for example Howarth and Kenway 2004).
2.3 It can be difficult to assess the impact
of low incomes for those in work in comparison to those who are
out of work, as in-work poverty is exacerbated by a number of
"hidden costs" such as travel, clothing and childcare.
Government policy around benefit cut-off points and means testing
also has a major effect, further discussion of which is featured
in the following section.
3. THE IMPACT
OF GOVERNMENT
POLICY
3.1 The concept of "making work pay"
is one of the major foundations of Government policy on poverty
reduction (Department for Work and Pensions 2005). The introduction
of the National Minimum Wage (NMW) was an important step towards
this goal, however the conservative level at which it was set
and the various exemptions and age-related rates have resulted
in it becoming more a tool to prevent the worst kinds of wage
exploitation than a true safety net to prevent poverty. Although
successive examinations of the impact of the NMW have shown that,
contrary to the predictions of the business community, the economy
has not been adversely affected by successive rises (Trade Union
Congress 2006), the rate remains low and the Low Pay Commission
has hinted that it may slow the pace of uprating (Low Pay Commission
2006).
3.2 The impact that this would have on low
paid workers cannot be underestimated. Year on year, the cost
of living is outstripping wages for the lowest paid, a fact that
is obscured by the reliance on percentages when examining inflation
and wages. The "above inflation" rises in NMW rates
over previous years have been widely lauded for their generosity,
yet when looked at in monetary terms are insufficient.
3.3 Relative poverty levels are guaranteed
to worsen if pay rises are based around any particular percentage
mark. For example, the public sector pay rise suggested for 2006
in Gordon Brown's budget was pegged at 2.5% (Smith and Tran 2006)—this
represents around £880 per year to someone earning the median
rate for Professional workers in the UK, £452 per year to
someone earning the median rate for Skilled workers and just £261
per year for someone on the Minimum Wage.[14]
3.4 The "low-pay, no-pay" cycle
of lack of job security within low paying occupations is well
documented (for example Howarth and Kenway 2004). Although the
innate instability of many low paid jobs is partly to blame for
this, the disincentive and difficulties caused by moving into
a job where the pay level is so low that being unemployed leaves
workers better (or at least no worse) off is also likely to be
a factor. The extra income generated by work is quickly negated
by the aforementioned "hidden costs" and drop-off in
benefit entitlement that results in the extra expense of council
tax, rent, prescription charges and school meals. This effect
is often worsened by the impact on income of the erratic or short
working hours commonly found in the many businesses where "flexibility"
is utilised to the extent that the welfare of employees is endangered.
The low level of entitlement to earnings replacement under Statutory
Sick Pay, Statutory Maternity Pay and Statutory Paternity Pay
is also an important factor, particularly for low paid workers
who are not generally afforded the enhanced terms and conditions
enjoyed by other workers.
3.5 Where employees are eligible for Tax
Credits, Working Tax Credit often goes some way towards making
these expenses more affordable and most low-income parents are
eligible for some assistance with childcare expenses through Child
Tax Credit. There are doubts as to the efficiency of this method
of poverty reduction, which actively provides a subsidy to employers
regardless of their ability to pay workers adequately, but in
terms of its impact on recipients the outcome seems to be mixed
(Evans and Scarborough 2006). Although there is evidence that
some families have benefited greatly from Tax Credits, the effects
of "claw back", late payments and other features of
the system have forced others into poverty rather than helping
them out of it (Lane and Wheatley 2005).
4. CONCLUSIONS
4.1 In order to comply with the request
that written evidence be kept as brief as possible, the points
made have been of a general nature. In some of the areas mentioned,
there are issues of particular importance to disadvantaged groups
such as workers from ethnic minority backgrounds, those living
with a disability or long term ill-health and women. Further information
on these issues can be found in the Scottish Low Pay Unit's recent
submission to the Low Pay Commission (Young 2006), copies of which
are available on request.
4.2 The Government's goal of "making
work pay" in order to prevent poverty is a worthy proposition,
but far more effort is needed to raise the incomes of the lowest
paid workers if this is to become a reality.
4.3 The Scottish Low Pay Unit recommends
the following steps to combat poverty in Scotland:
— Raise the National Minimum Wage to
a level that more closely reflects the cost of living; an immediate
move towards this would be increasing it to our current Minimum
Wage Target of half of male median earnings (£5.72 per hour,
based on figures from the Office for National Statistics' Annual
Survey of Hours and Earnings 2005).
— Reliance on Tax Credits would be
eliminated by a Minimum Wage that represents a living wage. When
the NMW reaches this point, we suggest that Tax Credits be replaced
with a clear and effective system of financial support for businesses
who find it difficult to provide adequate wages.
— Encourage investment by companies
willing to provide quality employment opportunities.
— Improve the effectiveness of National
Minimum Wage enforcement to prevent exploitation.
— Overhaul the benefits system to ensure
that both in-work poverty and out-of-work poverty are avoidable.
Carol Young
Scottish Low Pay Unit
October 2006
REFERENCES
Department for Work and Pensions (2005). Opportunity
for All: Seventh Annual Report 2005. Norwich: The Stationery
Office.
Evans, M and Scarborough, J (2006). Can Current
Policy End Child Poverty in Britain by 2020? York: Joseph
Rowntree Foundation.
Howarth, C and Kenway, P (2004). Why Worry Any
More About the Low Paid? London: New Policy Institute.
Lane, K and Wheatley, J (2005). Money With Your
Name On It? CAB Clients' Experience of Tax Credits. London:
Citizens Advice.
Low Pay Commission (2006). National Minimum Wage:
Low Pay Commission Report 2006. Norwich: The Stationery Office.
Smith, L and Tran, M (2006). Special Reports:
Budget 2006: Main Points. Originally printed in the Guardian,
22 March 22 2006; accessed 2 October 2006 at Guardian Unlimited:
http://money.guardian.co.uk/thebudget/story/0,,1736973,00.html
Trade Union Congress (2006). Low Pay Commission
Review 2006: The TUC Evidence. London: Trade Union Congress.
Young, C L (2006) Consultation on the National
Minimum Wage: A Response to the Low Pay Commission Consultation.
Glasgow: Scottish Low Pay Unit.
13 Employees earning less than the Low Pay Threshold
of two-thirds of male median earnings, currently £285.71
per week. Data on the hourly Low Pay Threshold are currently unavailable,
but would almost certainly include a far higher number and proportion
of Scottish workers. Back
14
SLPU calculations based on figures from the ONS Annual Survey
of Hours and Earnings 2005, NMW rate as of 1 October 2006. Back
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