Should All London Businesses Pay The London Living Wage?

Kyra Hanson
By Kyra Hanson Last edited 31 months ago
Should All London Businesses Pay The London Living Wage?
Last summer M&S came under pressure to pay the London Living Wage from 'Craftivists' who held 'stitch ins' outside stores in London and the UK. This was taken outside M&S in Islington. Photo: Polly Braden (2015)

Housing, transport, food, bills: it all adds up. Since 2005 the living wage has had to rise by 40% to keep up with the rapidly increasing cost of living in the capital. It's currently set at £8.25 in the UK — with the exception of London, which has its own living wage rate (LLW) of £9.40 an hour.

Labour leader Jeremy Corbyn is a fan, as is current mayor Boris Johnson, but what would London look like if this voluntary measure was rolled out across the city?

We looked at businesses large and small, staff, prices, benefits and the overall impact on the economy to find out.

Earlier this year Jeremy Corbyn proposed banning companies from paying out dividends to shareholders unless they pay all their workers the living wage. Photo: Andy Worthington (2015)

The story often recited begins at the centre of London's financial district, Canary Wharf. It's late, the pounding of keyboards and phone chatter is replaced with the roar of a Henry vacuum. When the suits have folded away their laptops and descended into the night the cleaners arrive. Essential yet invisible.

Fed up with cleaning the office of the Chair of HSBC for a pittance, one cleaner decided to make a stand by speaking out at the HSBC AGM. The result? In 2014 HSBC became the largest living wage employer from the financial services industry.  

Now there are now over 2,000 organisations who pay the living wage, 718 of which are based in London.

The national living wage

The LLW is not to be confused with the government's new 'national living wage', currently being touted as a 'step up for Britain'. Announced by George Osborne in July, it is an increased minimum wage due to come come into effect in April. It's set at £7.20 for over 25s, rising to £9 by 2020.

The government says the new minimum wage will see nearly 3million people in the UK get a pay rise, with 6million better off by 2020.

However, only 14% of employees in London are projected to benefit from a pay rise as a result of the national living wage by 2020, compared to 28% in Sheffield and 24% in Manchester. This is because there are more highly paid workers in London relative to other cities — but of course the cost of living is much higher here.

Furthermore, a quarter of those paid below the living wage are under 25 and therefore wouldn't immediately benefit from an increased minimum wage.

The BBC's You and Yours also reported negative changes to care workers' contracts, including reductions in company benefits like food, extra pay at weekends and bank holidays and having to pay for criminal checks and training.

Why the need for the LLW?

Traditionally work is seen as the route out of poverty. But since 2008 the proportion of jobs in the capital paying less than the living wage has increased by 54%. One in five jobs now pays less than the LLW of £9.40, according to recent report The Hourglass Economy.

Unsurprisingly, the highest rates of low pay are seen among women part-timers (32%) and those with disabilities (34%) while variations can be seen across ethnic groups.

Source: London Poverty Profile 2015

Another reason, offered by Centre for London, for a separate rate is that London differs from the rest of the UK in terms of the type of industry. A high proportion of jobs are in financial services, real estate, professional scientific and technical jobs, and the creative industries. So there's a sense that these sectors can afford to pay higher wages.  

How will the LLW affect big business?

Hospitality and retail make up 49% of all low-paid jobs in London. They are among the most prolific users of casual, part-time and temporary contracts, with over 55% of retail employees in Britain working part-time in 2015. So what do businesses in those sectors have to say about implementing the LLW?

The Living Wage Foundation has a tough time trying to get big retailers like John Lewis and Tesco on board. However M&S is currently considering the living wage after pressure from the Craftivist Collective and Share Action UK.

Hankies handed out to Marks and Spencer shareholders at the AGM last summer. Photo: Polly Braden (2015)

A common concern about the LLW is that prices will be passed on to the consumer.

Not so, says Lisa Nathan from Share Action UK, a charity which promotes responsible investment. She points to the example of Lidl, which has maintained competitive prices while raising wages.

For Nathan the new national living wage just doesn't cut it. "Complying with what’s legally required isn't quite the same as going above and beyond what it is to be a responsible business," she says.

Emily Kenway, campaign manager for the Living Wage Foundation, responded to the most common corporate protestations in an article for The Independent. Raising prices is one way to absorb the extra wage bill, but others include reducing the salaries and bonuses of better paid staff or the profit going to shareholders, she said.

The first UK retailer to implement the LLW was Lush back in May 2011. The handmade cosmetics company employs 500 staff in London.

Finance director Kim Coles told Londonist that based on its experience other retailers who can afford to pay the living wage should. "For us it felt right from every angle, but it could be a really tough decision for smaller retailers.

"The cost of being on the UK high street with onerous business rates and high rents makes the UK retail model a hard one to make work, especially in London."

How have smaller retailers made the LLW work for them?

Housmans radical booksellers in King's Cross is an accredited living wage employer. Photo: Mark Walton1 (2015)

Housmans is a small independent bookshop in King's Cross which has been selling radical literature since 1945. It employs five part-time staff and since 2015 it has paid those staff a living wage.

It's taken a number of years says co-manager Nik Górecki adding: "I think our customers appreciate knowing that the staff aren't being exploited and are being paid as much as is possible.

"I have seen first hand the scale of costs and outgoings a small business faces, and I am amazed small business can function at all — especially those exposed to full market rates on rent, which are nothing short of extortionate in London," he adds.

Housmans, a not-for-profit enterprise, managed to introduce the LLW by increasing trade, probably helped by the regular lively in-store events. It also operates pay parity, meaning all workers receive the same wage.

KMPG research [PDF] suggests money saved by the government as a result of the universal voluntary adoption of the living wage should be used to ease the burden on those smaller companies who face the biggest increase in their wage bills.

Kenway, from the Living Wage Foundation, thinks the living wage isn't just a cost, it's an investment. "By investing in their people — the lifeblood of any business — [companies] reap rewards in higher productivity, lower absenteeism, lower turnover and of course, they demonstrate their leadership on responsible business practices."

But what about smaller businesses that need to make a profit?

Peter Cooke, managing director of CTS, a London-based family cleaning business which employs 12 staff on the LLW, admits it's been a challenge staying competitive.

Cooke says: "I had clients say to me: 'you're a third more expensive than the next cleaning company', and I'd have to explain I'm a living wage employer.

"At the end of the day I still need to make a profit, but I've been lucky the clients have understood the new quotes."

Cooke clearly takes care of his staff and it shows: "Retention of staff has been fantastic over the last 20 years — all the staff  have stayed with me. If I didn't pay a decent wage I wouldn't be able to live with my conscience," he adds.

At other cleaning companies staff are paid £6.50 an hour and have to cut corners to get to the next job in order to make a decent wage says Cooke, whereas his staff are incentivised to do a good job. For him it's about educating the clients: "In the service industry, you get what you pay for and clients are getting used to understanding that."

High business market rates are a major issue but some councils are offering financial help to companies who are willing to become accredited living wage employers — as we'll see later.

Which London boroughs pay the LLW?

Source: Beyond the Food Bank 2015. Four London boroughs, Barking and Dagenham, Hackney, Haringey and Waltham Forest, report that they pay the London Living Wage, but are not independently accredited by the Living Wage Foundation.

London boroughs can ensure that their employees and those contracted by the council do not experience in-work poverty by becoming living wage accredited. Currently 64% of London councils do not guarantee their employees a living wage.

However, some councils are promoting the living wage to local businesses by offering business rate discounts to offset the direct costs involved. In Brent the living wage bill is shared between the council (30%) central government (50%) and the Greater London Authority (20%).

In Greenwich there are now 125 businesses expressing commitment to becoming accredited. Cllr Denise Hyland, Leader of the Royal Borough of Greenwich, said: "After years of slow economic growth, during which time wages for many have stagnated and failed to keep pace with the rising costs of living, I and many of our local councillors have seen first-hand the effects the welfare reforms are having — impacting most on the poorest families in our society."

Research carried out by Share Action and Queen Mary University show increases in productivity and motivation, reduction in turnover costs (less people leaving) and absenteeism and an increase in consumer loyalty.

How does the LLW affect benefits?

Working tax credits costs the government £11bn per year. Research carried out by Queen Mary University in 2012 estimated that through the LLW the government could save £823m per year by increasing the revenue from tax and national insurance and reducing welfare benefit spending.

How will the LLW affect the economy?

KPMG research into the economic impact of the living wage has concluded that raising the minimum wage to the living wage would take 1.3% of the national wage bill, lifting 6million people out of poverty.  

Marianne Fallon, Head of Corporate Affairs at KPMG said: "We firmly believe that voluntary adoption of a living wage policy by employers, over time, is one of the tools that will help improve social mobility in the UK as well as directly addressing in-work poverty."

Table from The Living Wage: an economic impact assessment (2015)

The number of employers now paying their staff the LLW, which includes City Hall, has grown from 493 to 752 in the last 12 months. This compares with just 27 employers who publicly backed the living wage in 2008.

A spokesman for the Mayor of London said: "The mayor believes as our economy continues to grow and employment in London increases, it is essential all hardworking Londoners receive a fair share of the proceeds of the capital’s success."

There are clear benefits for employers in increasing productivity and reducing staff turnover and, while it makes a real difference to the quality of life of employees, it has also become obvious that companies can absorb the extra wage bill in different ways.

Retailer Oliver Bonas admitted its "growth plans and investment in other parts of the business will be slower" as a result of the LLW. At the end of the day it's up to businesses whether they choose to make reductions at the bottom or reduce management overheads and cut the profits of those at the top.

Emily Kenway again: "Let’s not forget that these amorphous ‘workers’ who benefit from living wages are also consumers. Paying them properly supports the economy as a whole."

The more expendable income people have, the more they spend on goods and services, helping to drive the economy. And that's good for everyone.

Last Updated 28 February 2016