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Living wage debate heats up

The living wage is a contentious issue in business and parliament. But why are SMEs reluctant to join the crowd?

Marc Cowan has a very clear mantra when asked about the importance of paying the living wage to staff: “we’re alive so pay us a living wage”.

Cowan is one of the union reps for the Ritzy cinema in Brixton. He has helped to lead a campaign during 2014 to force the cinema’s owners Picturehouse (a subsidiary of Cineworld) to pay all staff the London living wage of £8.80. Media and entertainment union BECTU were involved in fighting for the agreement.

A deal was reached in September that will see employees’ pay rise from £7.24 an hour in 2012 to £8.80 by September 2015. The agreed rate of £8.20 is below the current living wage, but Cowan vows to fight on for a wage that matches inflation.

He believes that paying a living wage is a question of seeing employees as individuals – and appreciating their contributions.

“Even now that the staff have had this small pay rise you sense a feeling of being valued more,” he says. “And people do work harder. The evidence shows when people are paid a living wage, productivity increases as well as happiness.”

But he admits that the Ritzy staff have more freedom to protest than some, as they are likely to face less “backlash” from the public for disrupting services.

And for every example where people do win an increase in pay, there are plenty more where staff are still being paid below what some think is acceptable. 

Into the mainstream

Campaigns such as the Ritzy one mean “moving [the issue] from the sidelines to the mainstream” in 2014, according to Living Wage Foundation chair Michael Kelly.

Currently in the UK, 912 companies have a living wage accreditation, awarded to those who pay their entire workforce the living wage, or to those committed to implementing it in future.

It is also en vogue to support the living wage in Westminster. Opposition leader Ed Miliband pledged that Labour would raise the minimum wage to £8 per hour across the next parliament. However, with inflation this is likely to remain lower than the living wage.

Additionally secretary for business, innovation and skills Vince Cable said in the House of Commons that in 2014 we have entered a “new phase” on addressing low pay, with the living wage at the fore.

But what is it about today’s climate that means some of the best-known companies in the country and politicians from every party are falling over themselves to be involved in the living wage discussion?

Kelly, who is also head of living wage at accredited company KPMG, believes people are waking up to the problem of  “in-work poverty”, where employees on full-time hours still cannot make ends meet.

In June of this year Nestlé became the first UK manufacturer to agree to pay its 800 contractors living wage from 2017, meaning suppliers will earn the same as the 8,000 permanent staff who are already paid it.

The company’s UK and Ireland group HR director Matt Stripe says the decision “immediately felt right”. He adds that large corporates like Nestlé have a responsibility to lead from the front on issues like this.

“It’s important to set a standard and engage people,” he explains. “It’s fundamentally the right thing to do. It gives everyone a sense of pride in the company they work for, which is incredibly powerful.” 

The problem with SMEs

Despite the vocal support of big business, the economic recovery and a rise in employment, the number of employees on living wage hasn’t increased.

The latest Work That Pays report (released by the Living Wage Commission in June 2014) shows that the number of employees earning less than the living wage has jumped from 3.4 million in 2011 to 5.2 million in 2014.

So why is this number getting higher? One explanation can be found by drilling down into the nature of the companies that are creating new jobs.

According to the Federation of Small Businesses (FSB), SMEs currently employ 24.3 million of the 30.6 million British people in work today. The Confederation of British Industry (CBI) SME Trends Survey of August 2014 revealed that 35% of SMEs increased their headcount in the three months to July 2014, the fastest growth since 1998.

The Forum of Private Business is a body that looks after the interests of SMEs in the UK. Its chief executive Phil Orford believes that financial pressures put on small employers over the past 12 months – including auto enrolment – mean many smaller companies can’t afford to lift their salaries to living wage levels.

“There is pressure on businesses to raise wages, but we shouldn’t forget that the private sector is supporting record numbers of employment at present,” he says. “A rise in the national minimum wage to the living wage would cost a typical micro business more than £20,000. In the present climate, with the cost pressures already mentioned, that sum of money is simply unaffordable and undesirable for many companies.”

Alison Robb, group director for people, customer, communication and commercial at Nationwide, sympathises with SMEs that do not have the resources to put into increasing wages immediately, but urges all employers to look at the long-term picture.

“I appreciate not everyone is in a position to do this today,” she says. “But people should look at the business case, including the higher calibre of employee it is possible to attract with the living wage.”

But Cowan questions small employers that claim not to have the resources to pay their staff living wage when they are “continually expanding”. “It’s not that the money isn’t there, it’s that the money isn’t allocated to be there,” he says. “It’s an issue with business models rather than it being the case that they simply can’t pay the living wage.” 

Two camps

In the current climate there are two types of employer in the living wage debate. There are the large corporates who see it as a tool to aid attraction and engagement and the smaller companies who have a decision to make around their profits versus their staff’s happiness and financial wellbeing.

For the first group it is easy to see large numbers adopting the policy over the next year and encouraging others to do so. But for smaller employers it seems a case of taking each company individually.

For Picturehouse Cinemas it would appear that the money was there. But only time, and the results of further campaigns, will reveal whether this is true for all employers.