09/11/2018 11:30 GMT | Updated 09/11/2018 11:30 GMT

We Might Have A New 'Living Wage', But Low Pay Is Entrenched In UK

Working poverty cannot be simply solved by raising wages alone, when the welfare state and affordable public necessities are being eroded

The concept of a living wage in Britain first emerged in the late 19th century, when Fabians Sidney and Beatrice Webb observed trade unions and workers agitating for a subsistence wage to provide for basic life necessities. Pressure from the labour movement eventually resulted in Wages Councils after World War Two, regulating low wage sectors; but they were abolished by the Conservative government in 1993.

With Wages Council abolition and decline of unions and collective bargaining, interest in a living wage has re-emerged due to rising in-work poverty – people not earning enough to live on. The Labour government introduced a new compulsory legal national minimum wage for the first time in 1998, but it has not been set high enough to prevent working poverty. Therefore, in 2001, the London Citizens movement launched a higher living wage campaign. Since 2011, the campaign has been pursued countrywide by Citizens UK through the Living Wage Foundation. The LWF sets a voluntary ‘real living wage’ (RLW) independently, by annually calculating what workers need to afford basic living costs.

The LWF announced on November 5th 2018 that the ‘real living wage’ will increase by 2.9% to £9 an hour outside London, and 3.4% to £10.55 in London. Approximately 180,000 workers will benefit by May 2019, working for 4,700 employers voluntarily LWF accredited, many of whom see it as the right and ethical thing to do.

The RLW is higher than the legal ‘national living wage’ (NLW) introduced by then chancellor George Osborne in 2016 for workers 25 and older (£7.83 in 2018) - an opportunist and misleading political rebranding. From April 2019, the NLW will rise by 4.9% to £8.21. Adding to wage regulation complexity, tapered lower rates for the original ‘national minimum wage’ cover those aged under 25.

The government’s legal minimum rates are insufficient for many people to live on, given inflated costs for human essentials like housing, energy bills, transport – largely caused by privatizing public services and excessive profiteering. Working poverty cannot be simply solved by raising wages alone, when the welfare state and affordable public necessities are being eroded. The ‘national living wage’ is arguably no such thing for ‘strivers’ among the working poor. There are worrying echoes of Victorian destitution (and similar language of individual self-reliance), and political spin cannot hide growing reliance on foodbanks.

Britain has a serious low pay problem. Real wages (inflation adjusted) for many remain lower than before the 2008 financial crisis. Low pay is defined as two-thirds of median hourly earnings (£12.78 x 2/3 = £8.52 in 2018), according to the Office for National Statistics. The proportion of low-paid employee jobs in terms of weekly earnings is 27.3% in 2018, the ONS estimates. Other ONS data estimates that although median wages have increased, and many workers received ‘national living wage’ rises, workers on wages just above this legal minimum were among 10 million workers (32% of the 32.5 million workforce) to receive 1% or less. This illustrates growing concentration of workers at the bottom of the pay scale, clustered around the official national living wage level. The implication is that some employers interpret the legal minimum threshold as a pay ceiling not just a minimum floor – and they are complying with the law. Furthermore, ONS statistics estimate 6,286,000 jobs paying employees less than the higher voluntary ‘real living wage’, though the actual number of employees may be lower.

The extent of low pay reflects a deeper systemic problem with the UK economy, also influencing its poor comparative productivity. Cost competition is a dominant business strategy; especially for employers in sectors with relatively poor quality low-skilled jobs. Official unemployment is historically low at 4%. But this obscures growing underemployment for many insecure low-paid workers working too few hours in bad jobs.

Notable structural causes of low pay include a financialised short-term economic model prioritizing shareholder value and extreme profit maximization, rather than productive longer-term inclusive economic and business policies with sustainable investment in better quality employment. Many employers find it cheaper to extract greater effort from low cost labour, by intensifying work pressure, for instance. Meanwhile, austerity has been deliberately used politically to impose a 1% pay cap on 5.3million public sector workers since 2010.

Declining union membership and collective bargaining coverage is a big factor causing loss of worker wage bargaining power, notably in the private sector. The ‘wage-effort bargain’ now generally firmly favours employers, creating acute power imbalances in employment relationships. Many workers (especially the majority who are not union members) don’t have enough power to bargain wages above the legal minimum.

Measures designed to curb low pay, like the real living wage, are vital. Yet, they are responses to symptoms caused by deeper underlying structural changes and political choices associated with ‘trickle-down economics’ and neo-liberalism. The UK is now positioned largely as a low-cost flexible deregulated market economy with limited taxation on the wealthiest and big corporations. Unless these structural and political causes of low pay are overturned by radically different policies, the UK’s low pay problem will persist; and may get even worse with Brexit. We can expect to see more examples of Polanyi’s ‘double-movement’ against market fundamentalism, with workers collectively mobilising to oppose low pay and other perceived injustices, like at McDonalds, Wetherspoon and TFI Fridays. The country needs more responsible businesses and good employers, but contemporary British capitalism encourages the opposite.