Press Story

The government should help small and medium firms to pay their workers a living wage by committing public savings to cities which take the lead in tackling low pay, according to a major new study published today.

The report, from the Resolution Foundation and IPPR think tanks, calls for a series of "living wage city deals" where some of the dividend to the exchequer from cities paying a living wage in the public sector would be recycled back to the local area to support small and medium size businesses in moving away from low pay.

The report provides the most detailed analysis yet of the living wage and the policies that can help extend it into the private sector. It estimates a £2.2 billion annual saving for the Treasury if everyone received a living wage, as a result of higher tax revenue and lower benefit payments. The living wage city deals would release some of this cash to cities or regions where local authorities take a lead on low pay and commit to partnerships with businesses to help them become living wage employers.

Companies could use the money to cushion the transition to a living wage, the level of pay deemed the minimum for a basic but acceptable standard of living and currently set at £7.45 outside London. The money could fund training to help employers to boost productivity and move to higher skilled enterprises.

Almost four million workers in the private sector are paid less than the living wage work, 84 per cent of all workers earning less than the living wage across the UK. The report says that people working in SMEs outside of London are the hardest to reach but that the 'City Deals' that the Government has signed with eight city-regions should be boosted to include the living wage. Those cities are:

? Greater Birmingham and Solihull
? Bristol and the West of England
? Greater Manchester
? Leeds City Region
? Liverpool City Region
? Nottingham
? Newcastle
? Sheffield City Region

The report says cities or regions would have to draw up a plan showing how the money from government would be used to encourage more small and medium enterprises to become living wage employers. This could include both straightforward financial support, the costs of staff training and expert advice on how to open up more profitable markets in higher-skill, higher-value industries.

Living wage cities could apply to renew their deal if they could show that a target number of companies had begun paying a living wage.

The proposal is just one of a series of policy recommendations in the new study, Beyond the Bottom Line, which also represents the most thorough analysis conducted of the economics of the living wage.

Nick Pearce, IPPR Director, said:

"The risk is that the living wage gets trapped in public sector ghettoes, when the vast majority of those who would benefit from it work in the private sector. The Treasury should support SMEs to improve productivity and pay higher wages by committing future tax dividends from a living wage to skills training and business support. Including SMEs in City Deals is the best way to do this, creating 'living wage cities' across the country. Political parties in Westminster and in town halls across Britain should take this opportunity to tackle low pay."

Gavin Kelly, chief executive of the Resolution Foundation, said:

"We need to encourage employers in every city, in the private as well as public sector, and large and small to adopt a living wage. Using some of the dividend received by the exchequer is an innovative way of supporting this - sharing the proceeds of fairness to help cities take the initiative in securing decent pay for more people. Given plummeting wages and escalating levels of working poverty it is crucial that across the political spectrum there is a will to tackle this issue."

Notes to Editors

The new report - Beyond the Bottom Line - by Kayte Lawton and Matthew Pennycook is available in advance from IPPR and the Resolution Foundation press offices and will be available to download from: http://bit.ly/IPPR-10162

The report calls for the public sector to show leadership on the living wage, with all Whitehall departments and London boroughs paying the London rate of £8.55 to directly-employed staff by April 2015 and local authorities outside London to review their pay policy at the same time. It also calls on all public sector organisations to be completely transparent about how many staff are paid below the living wage. Within five years, all central government departments and agencies awarding public contracts should move to a system of calculating the extra cost of including a living wage requirement in its tender and publish the results of this alongside a decision on whether or not to proceed with a living wage requirement.

However the report concludes that action in the private sector is also essential to make progress. It says that many larger firms could afford to pay a living wage immediately but recognises that this will be more difficult for small and medium-sized businesses which would need the money and organisational backing of a living wage city to take action.
The study also calls on the government to require listed companies to publish a figure for the proportion of their staff paid below the living wage and to make it a legal duty if firms do not comply.

The report concludes that the living wage movement has seized the public imagination as a successful independent and bottom-up campaign but warns that the next phase, including persuading major private sector employers to adopt it, will be much more difficult. It draws six lessons for advancing the living wage: progress will be incremental, it need not affect employment levels, the Treasury will benefit most, it cannot be only a public sector measure, living wages complement rather than replace in-work benefits and that the campaign is ultimately about more than just wages but also about building new social partnerships.

A further 20 city-regions are currently being negotiated and will be completed by November 2013. The report says these cities should be next in line after the eight listed above. Those 20 cities are:

? The Black Country
? Bournemouth
? Brighton and Hove
? Greater Cambridge
? Coventry and Warwickshire
? Hull and Humber
? Ipswich
? Leicester and Leicestershire
? Milton Keynes
? Greater Norwich
? Oxford
? Reading
? Plymouth
? Preston and Lancashire
? Southampton and Portsmouth
? Southend
? Stoke and Staffordshire
? Sunderland and the North East
? Swindon and Wiltshire
? Tees Valley

For more see: http://www.dpm.cabinetoffice.gov.uk/news/bold-deals-set-more-cities-free-growth

Contacts

Richard Darlington 07525 481 602, r.darlington@ippr.org