Is it possible to pay the UK 'national living wage' without cutting benefits?

I get a daily news update on the topic of the ‘living wage’. Recently I’ve been inundated with news from the UK. Ironically, these UK updates are not about a living wage at all. They’re about UK companies adjusting to the new increased minimum wage level for over 25s, which the government calls the ‘national living wage’. This is leading to companies cutting benefits. And that's leaving some workers worse off, rather than getting the promised pay rise.

The UK’s mis-named ‘national living wage’ rate was calculated by the Low Pay Commission. It’s based on a percentage of median income in the UK. Journalists taking a short-cut and calling the ‘national living wage’ the living wage are adding to the confusion. Yet, the actual 'living wage', which is higher and which was set by the Living Wage Foundation, describes how much people actually need to live on.

Tellingly, the governments of China, Ecuador and others, having recognised the need for their workforce to have better pay, raised minimum wages gradually over several years. This allows companies time to adjust.

However, the UK government has chosen to introduce a relatively steep minimum wage increase (from £6.70 to £7.20 per hour) with a very short lead in time. So UK companies have had to scramble to find ways to adjust in the short term. 

Many companies reacted by cutting benefits, overtime pay and perks

Many companies reacted by cutting benefits, free meals, overtime pay or hours, bonuses and perks, which is leading to some workers experiencing a drop in income overall.

This is unacceptable.

The purpose of the increased minimum wage is to ensure that workers are better off. Providing perks is, in effect, an acknowledgement that lower wages are not enough for workers to survive on.

Because of its name, employers may think that when the ‘national living wage’ is paid, these perks will no longer be needed. But since the ‘national living wage’ is no such thing, workers will still struggle to survive and will still need additional support from their employers and from the government.

Ideally, employers will pay the actual 'living wage'. This will mean that perks, like vouchers to spend at their employers’ establishments, are no longer needed and workers can choose where to shop and eat.

Look at all parts of the value chain when making adjustments for wage increases

Rather than seeing their workforce as the sole area of adjustment to free up value for the wage increase, companies should be looking at all parts of the value chain, up to and including shareholder profit.

Shareholders will understand that a workforce that is not relying on debt, working multiple jobs and experiencing financial and therefore emotional stress is more likely to result in a stable and profitable business in the long-run. 

Other ways that companies can free up value for wages include increasing prices and improving efficiency and productivity. Companies could also lobby for tax reductions to help them pay the new rate.

It also remains to be seen whether the fears that the new minimum wage rate will lead to extensive job cuts are justified. Similar fears of large scale unemployment were expressed when the minimum wage was initially introduced, but never materialised.

Companies should beware of discriminating against under 25s

Another confusing aspect of the ‘national living wage’ is the age limit.

While it is no doubt intended to ensure that younger, less experienced workers are not priced out of the job market, it can result in workers being paid different rates for doing exactly the same job because of a difference in age.

This is discrimination and is also unacceptable.

Companies are not forced to pay those under 24 less. These are minimum wage rates and they can choose to pay more so that workers of different ages doing the same work receive the same level of pay.

What is good practice?

Let’s start with second best practice.

Second best practice is those companies which were early adopters of the ‘national living wage’, are paying the new rate to all staff regardless of their age without cutting benefits, and have a plan in place to move towards the actual Living Wage.

This should include ensuring that workers are able to join a trade union and can negotiate their wages through collective bargaining.

But best practice is those companies which have become accredited Living Wage employers and are paying the actual 'living wage' to all their staff and contractors regardless of age. And yes, it is possible, even for employers in traditionally low paid sectors like social care.

And of course, all companies need to remember that the ‘national living wage’ is a minimum wage – they can choose to pay more. They can, in principle, choose to pay a 'living wage'.

For more information on (actual) living wages see our Living wages issues page.