More large companies can afford to pay a living wage | Matthew Pennycook

Key sectors of the economy should be in a position to provide an adequate standard of living for low-paid employees

Last week, 64 low-paid cleaners working at the Department for Work and Pensions and the Foreign Office left a letter on the desk of the work and pensions secretary, Iain Duncan Smith. They asked only that they be paid a living wage. The incident is testament to the fact that for the six million workers in Britain currently earning below a living wage (£8.30 in London and £7.20 elsewhere), pay is not doing enough to guarantee an adequate standard of living.

Over the past decade, the social consequences of Britain’s endemic levels of low-wage work have been masked to a large extent by the lifeline which tax credits have offered to low- to middle-income households. Without them, many struggling families would have seen their living standards tumble sharply. Yet few, if any, believe that the growth in tax credit support that occurred over the past decade can be repeated. The current government has gone further and cut deeply in tax credit support, a choice that will hit many particularly hard at a time when the national minimum wage is, in real terms, at its lowest since 2004.

In the absence of state support, it is clear that in the coming years wages will have to do far more of the heavy lifting if we are to avoid the living standards of the working poor declining rapidly. And while there is clearly an enormous distance to travel before higher wages on their own will bridge this growing shortfall, voluntary living wage agreements – which have already delivered tangible improvements in pay for thousands of low-paid workers – have an important role to play in delivering wage growth that will help to maintain adequate living standards.

Yet despite some high-profile successes, the number of accredited living wage employers remains small. Those that invest in their employees are confined largely to high-profile financial and legal firms (including prominent names such as KPMG and Barclays) and public sector bodies. Aside from a handful of notable exceptions (such as cosmetic retailer Lush), relatively few companies in the major low-wage retail sectors have become living wage employers.

Given the increasing traction the concept has achieved across the political spectrum in recent years, we must assume that a lack of awareness on the part of employers about the living wage is not the main obstacle to further progress. One obvious barrier is a concern on the part of many employers that implementing a living wage entails prohibitive costs.

Yet as we at the Resolution Foundation report today in What Price a Living Wage? the potential costs of a living wage for large companies across key sectors of the economy are surprisingly low – an average increase on the wage bill of about 1% or less for large businesses in sectors such as banking, construction, communication and food production. Of course, different companies will be better able to absorb these costs than others and the introduction of a living wage will be more challenging for companies in the major low-wage retail sectors (increases of between 4.7 and 6.2 percentage points) but progress can still be made, perhaps by looking at the phasing in of wage increases over time. A phased approach would reduce “up-front” wage costs and provide time to modify business models.

A living wage is not about obliging employers to pay higher wages through legislation, that is what the minimum wage is for. But even in today’s economy, there are opportunities for leadership. The apparent affordability of a living wage in key sectors presents a challenge to large companies: be clear about why you cannot pay a living wage or take concrete steps to do so and thereby ensure that the wages you pay are enough to secure an adequate standard of living for your low-paid employees.

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