By Glen Jenkins
The New Year has brought with it a renewed focus on poverty in the UK with the Church of England and others criticising the coalition government on its moral support for the less well off. Their criticism highlighted “poverty wages” as a contributing factor to increased income inequality with 6.1 million working households in poverty. Moreover, child poverty in working homes is double that in workless homes.
Some employers have responded to such moral concerns with the promotion of the Living Wage. The Living Wage is a wage rate set to ensure a basic but acceptable standard of living. The rate is £9.15 per hour in London and £7.85 across the rest of the UK. However, if the Living Wage provides an acceptable standard of living then what does the National Minimum Wage (NMW) provide?
In its report on The Future Path of the Minimum Wage the Low Pay Commission states that the NMW aims to provide a wage floor which is affordable for business. In principle, it has become the National going rate below which wages must not fall but in reality, 1 in 5 workers are on less than the NMW. They added that: “It may need to be supplemented by other policy measures, principally in the tax and benefits fields, to produce enough for a family or household to live on.” At present the NWM is £6.50 and it’s the kind of wages that the Church leaders are talking about because, despite its acceptance, it is a poverty wage where the cost to the taxpayer of the supplements was estimated in 2013 at £3.23 billion i.e. where the employer chooses the NMW over the Living Wage. Then, if every low paid worker was paid the Living Wage rate the government would have saved on average £677 per worker.
Most employers comply with the NMW legislation but in 2013 Vince Cable, the Business Secretary, warned of abuse of the NMW stating "Sections of the community who are desperate for work, having lost benefit entitlement, are particularly vulnerable." Another New Year report from the TUC informed us of the loopholes that employers have developed not to pay the NMW including misuse of zero-hours contracts, unfair accommodation off-set rules, under-recording working hours so that the paperwork appears correct, falsely denying the worker’s employment status by labelling them self-employed, interns or volunteers, the use of piece rates that set unobtainable targets, and forcing workers to pay for uniforms, tools, training or travel.
It seems for some employers avoidance of NMW has become the moral imperative even if they break the law. Business Minister Jo Swinson opened her New Year with naming and shaming a new list 37 employers throughout the UK who had become offenders. However, you do not have to break the law to avoid the minimum wage. You can just take on workers who are self-employed and subcontract them on much less.
How then can poverty wages be eradicated? The main argument against raising the NMW to the Living Wage is that it would raise unemployment but the Low Pay Commission’s own research on the NWM found no evidence of significant adverse impacts on employment and only little evidence of a negative impact on hours worked during a period when the NWM rose faster that wages generally. Should we also name and shame employers who pay poverty wages?
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