Supplementary memorandum submitted by
The Poverty Alliance
1. The role of paid employment is central
to lifting many people out of poverty in Scotland and elsewhere.
However, in evidence to the Scottish Affairs Committee it was
noted by a number of participants that low pay remained a significant
problem. This was a problem both in terms of low pay preventing
people moving out of poverty when they entered the labour market
and acting as a disincentive for people to move off benefits and
into work.
2. In the session on 7 February 2007 there
was discussion with Ian Davidson regarding the actions that can
be taken to tackle low pay beyond the minimum wage. There were
also questions from Danny Alexander regarding the impact that
changes in the National Minimum Wage (NMW) have had on poverty
in Scotland. This note attempts to address the first of these
two issues. On the specific issue of the impact of the NMW on
household poverty we would refer the Committee to the work of
the Scottish Low Pay Unit.
3. It is clear that the introduction of
the NMW in 1999 has helped in addressing problems of low pay in
Scotland and the rest of the UK. The Low Pay Commission's latest
report[26]
suggests that the proportion of workers that will be covered by
the NMW in the UK following the increase in October 2007 will
be between 4.5% to 6%. However, the problems of low pay go beyond
the coverage of the NMW. Although the minimum wage is almost universally
regarded as a useful tool in the fight against poverty, there
are few people who regard it as being sufficient to lift people
out of poverty.
4. The New Policy Institute estimate that
more than 70% of workers in hotels and restaurants earn less £6.50
an hour.[27]
The sector with the largest number of low paid workers (less than
£6.50 an hour) is the retail and distribution sector, where
more than 30% of workers were low paid. The second largest is
the public sector—public administration, health and education—where
22% of workers earn less than £6.50 an hour. These are workers
employed directly by the public sector as opposed to those who
work for companies or organisations contracted by the public sector.
5. Given the breakdown of low pay in these
different sectors of the economy there are a number of ways that
could potentially be used to begin addressing the problem of low
pay. One of the issues that must be addressed at the outset is
how we begin to assess what would be regarded as an "adequate"
wage. Whilst many organisations and campaigning bodies apply thresholds
below which people are regarded as low paid, few attempts are
made at identifying what would be an adequate or "living
wage". The Low Pay Commission, despite recommending the level
of the NMW, has not sought to define the adequacy of the minimum
wage. Rather, the NMW at the moment is a compromise between employers
and trade unions—it is an acceptable wage rather than an
adequate one. At best it helps to deal with exploitative rates
of pay rather than tackle "poverty pay". Attempting
to define what would constitute a living wage may well be difficult
and at times controversial, but it is an essential first step
to making work a genuine route out of poverty. The experience
of the Greater London Authority (GLA) and the Living Wage Unit
that has been set up within the GLA suggests that practical steps
can be taken towards establishing a wage rate that would help
lift people out of poverty. The Living Wage Unit[28]
at the GLA has set out in some detail the thinking that allowed
it to come to the figure of £7.05 an hour as its recommended
living wage in London. We would therefore recommend that the
Scottish Affairs Committee encourage the UK Government to extend
the terms of reference for the Low Pay Commission in order that
its next report sets out what would constitute an adequate wage
("living wage"), that would help lift people out of
poverty.
6. An adequate living wage is an essential
precondition for making work a viable route out of poverty. However
this recommended wage would then have to be implemented by employers.
Local, devolved and national Government all have a key role in
ensuring that an adequate wage is paid to people living in their
jurisdiction. As mentioned above, some 22% of workers directly
employed by public sector organisations are classed as low paid.
Having more than one fifth of public sector employees on low pay
does little to reduce staff turnover, improve morale, or contribute
to the Government goals of reducing poverty and improving public
service delivery. We would recommend that public sector employers
work with trade unions to ensure that all staff receive hourly
wage rates that meet an independently agreed "living wage".
7. The public sector now contracts out many
services to outside agencies. The experience of the 1980s and
1990s was that the process of Compulsory Competitive Tendering
(CCT) often led to the reduction in the terms and conditions of
the "contracted out" jobs. The removal of CCT and the
introduction of the system of Best Value have mitigated the worst
effects of contracted out services. However, too many contracted
out jobs still attract poor levels of pay and conditions. We believe
that contract compliance conditions, which are often currently
used to promote social policy objectives such as workplace diversity
and equality, could be used to improve wage levels. We recommend
that the Committee encourages all public agencies in Scotland
to ensure that all companies tending for contracts are required
to demonstrate that they will pay their staff a living wage.
8. It may be possible for Government, at
all levels, to take action to address low pay within their own
organisations or those they contract work to. However the real
problems of low pay remain in the private sector. The main statutory
instrument to tackle low pay in the private sector will remain
the national minimum wage. However the Low Pay Commission in its
latest report[29]
stated that "there is still no effective deterrent to non-compliance
and no real disincentive to firms contemplating evading the minimum
wage requirements." Whilst we welcome the increase in funding
to HM Revenue and Customs to improve compliance we share the Low
Pay Commissions concerns that the lack of any penalty for those
employers who flout the law or any compensation for workers who
are knowingly underpaid makes the job of compliance teams much
harder. We would urge the Scottish Affairs Committee to make
recommendations to the UK Government to introduce real penalties
for evasion of the NMW to ensure more comprehensive compliance.
9. Greater compliance would be welcomed,
but this measure alone will not lead to workers receiving a living
wage. It is important that non-legislative means are used to ensure
that private sector organisations ensure they pay living wages.
There are many ways in which this pressure could be brought to
bear on employers that would not require new legislation, where
employers could be encouraged to raise standards with regard to
pay levels within their organisations. The Investors in People
(IIP) standard is widely recognised as a mark of quality for organisations
working in the public, private and voluntary sectors. The principles
and indicators behind the IIP standard emphasise the importance
of the effective involvement of staff in the planning and evaluation
of an organisation's work. It also sets standards for the way
people are managed and how training contributes to the development
of staff. These are important steps organisations make to invest
in employees and are vital for developing and maintaining a good
working environment. However, it could be possible for the principles
behind the IIP standard to cover other areas of "investment"
in staff. We believe that the IIP standard should be revised
in order to cover pay within an organisation. There are potentially
two elements to this: achieving IIP standard would mean that no-one
in the company was earning below a recognised "living wage"
level; in addition, the IIP standard could demonstrate that the
ratio between the lowest and the highest paid employees was within
a justifiable range. Both of these elements would demonstrate
that companies are investing in their employees through training
and support, but also through the pay packet.
10. As mentioned above, the hospitality
industry in Scotland has a significant concentration of low paid
works. Much has been done to improve the image of the hospitality
industry in Scotland, but it would appear that relatively little
has been done to improve the pay and conditions of workers in
this sector. Although the NMW has had a significant impact in
this sector, it is clear that far more needs to be done. This
is another area where additional pressure could be brought to
bear on employers to ensure that they raised their standards.
Quality ratings for hotels and guesthouses are now commonplace.
They are a useful indicator to customers of the standard of service
that they can expect to receive. In recent years other quality
assurance schemes have been introduced in the hospitality sector.
The Scottish Tourist Board (better know now as "visit scotland")
runs the Green Tourism Business Scheme. This scheme rewards and
publicises companies which are taking their responsibility to
the environment seriously. We would encourage the Committee
to consider whether a similar quality kite mark can be developed
for employers in the hospitality industry and promoted to companies
in Scotland. The precise detail of the elements that would
contribute to this standard would need to be determined, but they
would crucially cover standards of pay that would allow customers
to know that staff were being paid a decent wage.
11. This note has attempted to identify
practical actions that can be taken to address problems of low
pay beyond the minimum wage. If the Committee requires any further
clarification please contact the Poverty Alliance.
Peter Kelly
The Poverty Alliance
March 2007
26 Low Pay Commission (2007) National Minimum Wage:
Low Pay Commission Report 2007, Cmd 7056. Back
27
Palmer G, et al (2006) Monitoring Poverty and Social
Exclusion in Scotland 2006, NPI/Joseph Rowntree Foundation:
York, p 41. Back
28
For more information about the work of the Living Wage Unit visit:
http://www.london.gov.uk/mayor/economic_unit/workstreams/living-wage.jsp Back
29
National Minimum Wage: Low Pay Commission Report 2007, Cmd 7056. Back
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