WIREDGOV

Big businesses taking advantage of benefit system ‘top-ups’

Big businesses should be encouraged to use their profits to increase workers’ wages towards the Living Wage and ease the burden on the taxpayer, says a major think tank.

The report by the Centre for Social Justice (CSJ) says businesses have benefitted from sacrifices made by hard working employees, and with rising economic prosperity workers should be able to share in more of their company’s successes.

The think tank claims some businesses are taking advantage of the benefits system by resisting pay increases in the knowledge that the state will ‘top up’ the income of the low-paid using Tax Credits.

The findings are set out in a new report, Tackling Low Pay. The use of Tax Credits to ‘top up’ low paid workers’ earnings to ensure a reasonable standard of living ‘exploded’ under New Labour, rising by 2,400 per cent from £1 billion in 1999/2000 to £24 billion in 2008/09.

To incentivise employers to pay a Living Wage, the report calls on big, profitable companies to disclose in an annual report the measures they are taking to become a Living Wage employer and to help their employees progress.

The report also calls for sizeable increases in the National Minimum Wage, after it lost a considerable amount of value during the recession. With the economy now strong enough to withstand such a rise, it recommends sizeable above inflation increases in the minimum wage until there is evidence it is harming employment.

The report also says that Universal Credit is an important tool in tackling low pay, and helping part-time workers gain more hours of employment.

Commenting on the report, the author David Skelton, said: “In a time of growing profitability and economic success, it is unreasonable to expect the taxpayer to continue topping up low pay when big businesses have the ability to increase wages. The recommendations outlined in this report, if implemented, will go a long way to improving the lives of countless people, without costing jobs. Low pay and poverty are often associated with a host of other social problems, including family breakdown, serious personal debt and an endless cycle of social and economic deprivation. These are all problems that prevent families and communities from realising their full potential.”

The report reveals that three quarters of workers are shackled by low pay for life. Only around 25 per cent of low-paid workers ‘escape’ low pay.

The report also finds that 4.3 million workers in the UK have skills and qualifications exceeding those needed for their job, suggesting that businesses should help their employees to progress in work.

CSJ Director Christian Guy said,“This report should be used by an incoming government to inform the next stage of efforts to make work pay.”

To help prevent cycles of deprivation, the report outlines a series of other recommendations, including:

• Firms with an annual turnover of more than £100 million should be expected to state on company letterheads and other marketing documents whether or not they pay the Living Wage.

• Living Wage employers should be expected, within reason, to procure all services from other Living Wage employers.

• The Government should ask the Low Pay Commission (LPC) to recommend ways for the minimum wage to recover its lost value as quickly as possible.

• The power of the LPC should be broadened so that it is responsible for setting the advisory level of the Living Wage outside London. The LPC should also consider the impact on state welfare payments when setting the National Minimum Wage.

• To allow businesses and public sector bodies to plan, the Living Wage level should be announced at least six months before implementation.

• The Low Pay Commission should be asked to provide an annual assessment of the impact of the Living Wage on employment, labour costs, productivity and other key metrics.

• As the financial situation allows, the government should reduce the Universal Credit taper to 55 per cent and possibly lower and increase the work allowance in order to boost work incentives.

• Where feasible, businesses should look to open up development routes within the organisation for low-paid workers.

For media inquiries, please contact: - Centre for Social Justice – Media: 07780 707322 - Alistair Thompson, Media Intelligence Partners Ltd – Mob: 07970 162 225 - William Walter, Media Intelligence Partners Ltd – Mob: 07971 441 735

NOTES TO EDITORS

The London Living Wage currently stands at £9.15 an hour and the Living Wage outside of London at £7.85. There are currently 1,229 Living Wage employers accredited by the Living Wage Foundation. The London Living Wage is calculated by combining 60 per cent of the median London income and an assessment of the cost of living in London. Outside of London, the living Wage level is set by the Centre for Research in Social Policy at Loughborough University.

The Centre for Social Justice (CSJ) is an independent think tank established in 2004 to put social justice at the heart of British politics. In June 2013, the CSJ was awarded UK Social Policy Think Tank of the Year at Prospect magazine’s Think Tank Awards. Last year the CSJ published Breakthrough Britain 2015, which set out almost 200 evidence-based policy recommendations to tackle poverty in the UK. This included solutions to worklessness, educational failure, addiction, family breakdown and problem debt.

The current Home Secretary Theresa May said the CSJ was the “catalyst” for the Government’s Modern Slavery Bill. This legislation, which will help Britain lead a global fight against modern slavery, was a key recommendation in the CSJ’s landmark 2013 report, It Happens Here.

The CSJ has published dozens of seminal papers which have shaped government policies, including Dynamic Benefits, which has led the Coalition’ welfare reforms. Further to this, the CSJ manages an Alliance of over 300 of the most effective grass roots, poverty-fighting organisations.

The CSJ is able to draw upon the expertise and experience of Alliance charities for research work and media inquiries. Journalists wishing to conduct grass-roots research into social problems can be put in touch with front-line charity directors and staff.