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UNISON evidence to the Low Pay Commission
on minimum wage rates for 2017
July 2016
CONTENTS
INTRODUCTION.....................................................................................................................................3
1. SUMMARY OF RECOMMENDATIONS.............................................................................................4
2. EXECUTIVE SUMMARY...................................................................................................................5
3 ECONOMIC CONTEXT.....................................................................................................................9
3.1 Economic growth........................................................................................................................9
3.2 Labour Market..........................................................................................................................10
3.3 The cost of living.......................................................................................................................13
3.4 Pay settlement and average earnings.......................................................................................17
3.5 European Union referendum result..........................................................................................19
4. GENERAL INCOME TRENDS.............................................................................................................21
4.1 Low pay in the UK.....................................................................................................................21
4.2 Earnings of low-paid staff.........................................................................................................23
4.3 Trends for high income groups.................................................................................................25
4.4 Trends in the gender pay gap...................................................................................................27
4.5 Impact of inflation on real value of National Minimum Wage..................................................28
4.6 Young workers and apprentices................................................................................................30
4.7 Welfare context for low paid employees..................................................................................31
5. PUBLIC SERVICE PAY TRENDS..........................................................................................................34
5.1 Living standards squeezed........................................................................................................34
5.2 Progress in winning the Living Wage........................................................................................34
5.3 Low pay persists........................................................................................................................35
5.4 Budget cuts...............................................................................................................................36
5.5 Privatisation driving down wages.............................................................................................37
5.6 Level playing field.....................................................................................................................39
6. IMPACT OF THE NATIONAL MINIMUM WAGE................................................................................41
6.1 Macroeconomic impact............................................................................................................41
6.2 “National living wage”..............................................................................................................43
7. ENFORCEMENT OF THE NATIONAL MINIMUM WAGE...................................................................45
7.1 Scale of non-compliance...........................................................................................................45
7.2 Response to LPC recommendations..........................................................................................45
APPENDIX 1 - Example scenario for conversion...................................................................................51
APPENDIX 2 – Calculation of Local Government NJC Staff affected by “national living wage”............52
APPENDIX 3 – Draft payslips................................................................................................................54
APPENDIX 4 – Draft National Minimum Wage (Prescribed Information) Regulations.........................58
2
INTRODUCTION
As one of the largest trade unions in the UK, UNISON represents in excess of 1.2 million members working across the public services. Our members are employed directly by public sector organisations, by private contractors and community / voluntary organisations engaged in providing public services, and by utility companies.
UNISON represents workers in local government, the health service, social care, schools universities, further education and sixth form colleges, police and probation services, water and energy companies, environment agencies and transport.
With such a large and wide-ranging set of employees amongst our membership, two-thirds of whom are women, we are well placed to comment on the experiences of workers at the sharp end of low pay.
The evidence that we present in this document sets out our key recommendation for the commission to consider and an executive summary of chapters which go on to consider in greater detail the economic trends affecting the National Minimum Wage, the specific experience of low pay in the sectors where our members work, the impact of the National Minimum Wage on the wider economy, the specific impact of the “national living wage” and the enforcement issues in application of the National Minimum Wage.
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1. SUMMARY OF RECOMMENDATIONS
UNISON believes that the ultimate goal for National Minimum Wage policy in the UK should be as follows:
The National Minimum Wage should be raised to the level of the UK Living Wage announced annually by the Living Wage Foundation
National Minimum Wage rates should be harmonised into a single rate across all age groups
While the current National Minimum Wage system prevails, UNISON believes that the following recommendations should be carried through:
The “national living wage” target of 60 per cent of median earnings should be increased to the higher 60 per cent of median male earnings
The April 2017 increase in the “national living wage” should at least match the £7.60 hourly rate set out by the Office for Budgetary Responsibility in following a straight path toward the 60 per cent of median earnings target in 2020
The April 2017 increase in the minimum wage rates applicable to younger workers and apprentices should at least match the 5.6% increase applicable to the “national living wage” in recognition of the commission’s commitment to deliver “significantly faster increases in the minimum wage,” forecasts for escalation in inflation and average earnings, as well as preventing a growing gap opening up between minimum rates for workers aged above 24 and those aged 24 or below.
The commission’s calculation of the minimum wage “bite” should be amended to take account of operating surpluses and provide an improved reference point for the affordability of minimum wage increases.
The Low Pay Commission should call on the government to ensure that additional financial provision is made to fund the projected increase in the “national living wage” up to 2020 for those working in the public services
The Low Pay Commission should call on the government to commission an independent review into pay and contractual practices in privatised and outsourced public services
The Low Pay Commission should undertake an assessment of the effectiveness of the current enforcement regime, including implementation of naming and shaming and the HMRC’s new NMW campaign
As provided for by section 12 of the 1998 NMW Act, regulations should be established requiring employers to provide their workers with a statement demonstrating compliance with the NMW/NLW
A formal public protocol should be established for HMRC to handle third party whistleblowing on breaches of the NMW in the social care sector
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2. EXECUTIVE SUMMARY
Economic context
Summary
The most recent forecasts from the Office for Budgetary Responsibility predict that the economy will grow steadily at over 2% during 2017 and 2018.
The sustained decline in unemployment rates over the last four years is expected to flatten out over 2017 and 2018.
Unemployment rates for workers aged under 25 have continued to fall much more sharply than the general rate.
The damage inflicted on workers’ standard of living from high inflation has abated over the last year and a half, but a sharp climb is now expected to take the Retail Prices Index back up to 2.6% in 2017 and 3.1% in 2018
Pay settlements are expected to continue to average 2% into 2017, while average earnings are forecast to jump by 3.6% in 2017 and 3.5% in 2018
Following the EU referendum result, forecasts are subject to a greater level of uncertainty and the government has indicated that this period of economic uncertainly could last a decade
Conclusions
UNISON believes that forecasts of steady growth in the economy offer no reason for the Low Pay Commission to depart from its plan to follow a straight path in uprating the “national living wage” to reach the target 60% of median earnings by 2020. In addition, the uncertainty created by the EU referendum result is not liable to abate for many years and therefore does not provide a reason to divert from the planned path.
With the unemployment rate at its lowest level for over a decade and average earnings forecast to rise markedly, the conditions are in place for the commission to honour its 2014 commitment to seek “significantly faster increases in the minimum wage.”
The sharpness of the decline in the unemployment rate for young workers offers the opportunity to deliver major improvements in the rates for workers aged under 25 and apprentices, after years of falling even further behind the adult rate.
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General income trends
Summary
The scale of low pay in the economy has remained steady at around one in five workers based on measurements linked to average earnings, but when calculated to take account of the cost of living low pay has risen sharply and is set to continue that trend.
The “national living wage” is set to improve the UK’s position in comparison to other European countries, but low pay is set to remain a much more widespread problem compared to the average among western European countries.
The Living Wage has seen rapid growth in its adoption by employers and is widely
seen as a standard benchmark of the wage needed to maintain a basic but decent standard of living.
Increases in the National Minimum Wage have lagged well behind the rate of increase in UK companies’ operating surpluses, dividend payments to shareholders and the pay of FTSE 100 chief executives over recent years.
The value of all National Minimum Wage rates applicable to workers aged under 25 is worth less now than seven years ago because increases in rates have been outpaced by the cost of living.
Young workers have sustained particularly large cuts in the value of the National Minimum Wage they receive.
While the income of many low-paid workers is set to fall as a result of welfare cuts and the 1% National Insurance increase for those in occupational pension schemes, private sector employers are set to see a further reduction in their tax burden.
The gender pay gap, based on median earnings for full-time employees, stood at 9.4% in 2015. When part-time employees are included, the gap balloons to 19.2%.
Conclusions
The “national living wage” target rate of 60% of median earnings is a significant step forward for tackling low pay in the UK. However, calculations based on median earnings do not respond sufficiently to changes experienced by workers in the cost of living. The Living Wage rates published annually by the Living Wage Foundation remain the benchmark for achieving genuine reductions in low pay. Both the UK and London Living Wage take into account affordability for employers by linking the rate to average earnings but they also respond to changes in the cost of living.
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The “bite” of the minimum wage against average earnings is an inadequate measure of affordability for employers, particularly at a time when the changing nature of the labour market has held average earnings growth down while operating surpluses have grown substantially. Operating surpluses need to be built into this calculation for it to provider a reasonable reference point for affordability.
Major increases are needed in all National Minimum Wage rates applicable to workers aged under 25 simply to restore their real value to their 2009 level. In the case of 16 to 20 years olds, between 7% and 10% is needed to catch up on the value lost.
By pegging the “national living wage” to median earnings for all employees aged over 25, increases are linked to a figure that has the gender pay gap incorporated into it. In order to address the gender inequality that still prevails across the UK economy, the “national living wage” should be pegged to male median earnings for the target age group.
If the minimum wage rates for staff aged under 25 and apprentices are allowed to lag behind the increases in the “national living wage,” incentives grow for employers to violate the Equality Act through tacit age discrimination in the recruitment process.
Public service pay trends
Summary Public sector wages have been held down more tightly than general wages across
the economy because of the 1% pay cap that is due to continue into 2020
Progress has been made in achieving the Living Wage through many national and local agreements within the public services, however large sections of the public service workforce are still paid below the Living Wage. Local government contains the largest pool of low-paid workers directly employed by the public sector, but low pay is vastly extended across the public sector by privatised ancillary services and the low pay norms of the social care sector.
The introduction of the “national living wage” has taken place against a background of drastic cuts to most public sector departmental budgets, leaving required increases in the paybill to take place on an unfunded basis.
Conclusions The National Minimum Wage has a vital role in ensuring a level playing field between
providers of public services and slowing the trend toward privatisation based on achieving lower costs through cheaper labour.
The significant cost implications of the “national living wage” for public sector employers and their contractors need to be addressed through a specific government funding allocation to meet those costs.
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Impact of the National Minimum Wage
Summary The Low Pay Commission’s vast body of research on the impact of the National
Minimum Wage has found “little adverse effect on aggregate employment; the relative employment shares of the low-paying sectors; individual employment or unemployment probabilities; or regional employment or unemployment differences.”
Research by Landman Economics has found that the adoption of the Living Wage as the National Minimum Wage is likely to lead to a neutral effect on employment.
Nationally agreed pay spines across public sector employers have established rates above the “national living wage” as the minimum applicable to all staff regardless of age.
Conclusions UNISON believes that the lack of evidence for rises in the National Minimum Wage
ever having resulted in significant damage to employment points to the conclusion that rises have been well within the level that the labour market can bear. It is also a reflection of the fact that too much importance is attached to the concerns of individual employers about increased wage costs while insufficient importance is given to benefits for employers resulting from higher demand in the economy.
UNISON intends commissioning research on the employment effect of the “national living wage” to see if there is any evidence to support the claims made by the Office for Budgetary Responsibility that it would result in 60,000 job losses.
Enforcement of the National Minimum Wage
Summary The number of workers identified as being owed arrears for under payment of the
National Minimum Wage more than doubled in the year to 2015-16, , while the scale of arrears more than trebled to £10.3m.
11% of the care workforce, equivalent to 160,000 direct care jobs, were paid below the minimum wage in 2013/14, with the level of underpayment standing at £815 per worker.
Conclusions As provided for by section 12 of the 1998 NMW Act, regulations should be
established requiring employers to provide their workers with a statement demonstrating compliance with the NMW/NLW.
A formal public protocol for should be established for HMRC to handle third party whistleblowing on breaches of the NMW in the social care sector.
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3 ECONOMIC CONTEXT
3.1 Economic growth
The value of UK economic output, as measured by the Gross Domestic Product, has shown growth over the last six years. In 2013, GDP surpassed the pre-economic crisis level recorded in 2008, then grew by 2.9% in 2014 and 2.3% in 2015.
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 20151500000
1550000
1600000
1650000
1700000
1750000
1800000
GDP growth
GDP
(£m
)
Source: Office for National Statistics (GDP based on Gross Value Added, chained volume at constant prices)
The latest Office for Budgetary Responsibility forecasts state that the rate of growth of the economy will average 2% in 2016, then remain between 2.2% and 2.1% over the following four years.
2016 2017 2018 2019 20200.0
0.5
1.0
1.5
2.0
2.5GDP forecast
Perc
enta
ge a
nnua
l inc
reas
e
Source: OBR Economic and Fiscal Outlook, March 2016
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3.2 Labour Market
3.2.1 Unemployment ratesThe unemployment rate across the economy has shown a steady decline for over four years, with the proportion of the adult economically active population classified as unemployed dropping from 8.6% in the three months to November 2011 to 4.9% by the three months to May 2016.
While the unemployment rate for younger groups remains substantially higher, the rate has shown major declines and the gap with the general rate has been shrinking considerably.
Sep-Nov 2
011
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ar 2012
May-Ju
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Sep-Nov 2
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Jan-M
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May-Ju
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Sep-Nov 2
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Jan-M
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May-Ju
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Sep-Nov 2
014
Jan-M
ar 2015
May-Ju
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Sep-Nov 2
015
Mar-May
20160.05.0
10.015.020.025.030.035.040.045.0
Unemployment rates
16-64 year olds16-17 year olds18-24 year olds
Perc
enta
ge
Source: ONS, Labour Market Statistics, July2016 (seasonally adjusted rates)
Since its 2011 peak, the unemployment rate for 16 to 64 years olds has fallen by 3.5 percentage points, while the rate for 16 to 17 year olds has dipped much more sharply by 9.8 percentage points and the rate for 18 to 24 year olds has fallen by 8.7 percentage points. A large chunk of that decline for 18 to 24 year olds has taken place within the last year, with a 2.6 percentage point fall.
10
16-64 year olds 16-17 year olds 18-24 year olds
-12.0
-10.0
-8.0
-6.0
-4.0
-2.0
0.0
Decline in unemployment rate
Decline in unem-ployment rate since Nov 2011
Decline in unem-ployment rate over last year
Perc
enta
ge
The Office for Budgetary Responsibility predicts that the unemployment rate will continue to slide, averaging 5% over 2015 and 2016, before a slight rise to 5.2% and then 5.3% over the next three years.
2016 2017 2018 2019 20200
1
2
3
4
5
6
Forecast unemployment rate
Perc
enta
ge
Source: OBR Economic and Fiscal Outlook, March 2016
Unemployment levels meant that there were around 2.2 unemployed people for every vacancy on average in the three months to May 2016, down from over 5.8 per vacancy at its peak in the three months to December 2011.
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3.2.2 VacanciesOver the same period between 2011 and 2016, the UK economy saw a 61% growth in vacancies, taking vacancy levels to 747,000 by the three months to June 2016.
Public administration, health and social work, and education sectors all have a much higher proportion of employers experiencing vacancies than the UK wide average. An estimated 31% of public administration, defence and compulsory social security employers, 30% of health and social work employers, and 33% of education employers report vacancies, whereas the UK average stands at 19%.1
3.2.3 Turnover The 2015 XpertHR labour turnover report recorded a further rise in median voluntary resignation rates across the economy from 9.9% in 2013 to 12.8% in 2014, with private sector services showing a jump from 10.4% to 13.9%
Median turnover rates (which measure the proportion of employees who leave an organisation for any reason – resignation, retirement, dismissal or redundancy) rose from 16% to 18.5% between 2013 and 2014, with private services showing a jump from 17.5% to 20.3% and public sector services rising from 10.1% to 13.4%.
1 UK Commission for Employment and Skills, Employment Skills Survey 2015
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3.3 The cost of living
3.3.1 OverviewThe inflation rate experienced by workers has been running at around the 1% mark over most of the period since the start of 2015, but has edged up pver recent months to hit 1.6% in June 2016. This follows a period of approximately three years when the Retail Prices Index clustered around the 3% mark and, prior to that, centred on 5% during most of 2010 and 2011.
Jun-
10Au
g-10
Oct
-10
Dec-
10Fe
b-11
Apr-
11Ju
n-11
Aug
11
Oct
11
Dec-
11Fe
b-12
Apr-
12Ju
n-12
Aug-
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Feb-
13Ap
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Jun-
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-13
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Feb-
15Ap
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Jun-
15Au
g-15
Oct
-15
Dec-
15Fe
b-16
Apr-
16Ju
n-16
-1
0
1
2
3
4
5
6
Inflation ratesCPI RPI
Year / Month
% ch
ange
ove
r 12
mon
ths
Source: Office for National Statistics website at www.ons.gov.uk
Between 2010 and 2015, the cost of living, as measured by the Retail Prices Index, rose by a total of 19.5%.
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3.3.2 Components of inflation Though declines in food costs and energy costs (driven particularly by dramatic drops in petrol prices) have reduced current inflation rates sharply, this masks longer term changes in the cost of living that have taken place since 2010. The table below shows the scale of food price inflation between 2010 and 2015, as well as dramatic jumps in electricity and gas charges.
Item % price rise 2010 - 2015
Item % price rise 2010 - 2015
Item % price rise 2010 - 2015
Beef 26% Fruit 16% Gas 32%
Fish 18% Mortgage interest payments
16% Electricity 28%
Butter 24% Bus and coach fares
21% Water 18%
Potatoes 15% Rail fares 23%
The price of housing also remains one of the biggest issues facing employees and their families. Across the UK, house prices rose by 8.1% in the year to may 2016, taking the average house price to £211,2302. The ratio of average house prices to average earnings grew in every country of the UK between 2012 and 2013 except Scotland. The ratio stands at 11.8 in England (14 in London), 8.7 in Wales, 8.4 in Scotland and 7.1 in Northern Ireland3.The rate of increase in rents has also been well ahead of general price increases over most of the last year, though the introduction of the stamp duty surcharge on second homes has recently brought a surge of homes to let onto the market, taking the annual increase down to 1.8% over the year to May across England and Wales and taking average monthly rent up to £793 a month4 New tenancy rates have seen a similar pattern emerge, with a jump of 3.5% across the UK (excluding London) in the year to June 20165 and London experiencing increases of 3.9% over the same period. Though neither CPI nor RPI figures provide a separate estimate for childcare costs, they form a key area of expenditure for many workers (UNISON surveys have consistently found that around a third of staff have child caring responsibilities).Therefore, it is also worth noting that the annual Family & Childcare Trust survey6 for 2016 found that the cost of a part-time nursery place for a child under two has been growing by an average annual rate of 5.3% since 2010 and it now costs £6,072 per year to place a child in nursery care for 25 hours a week.
2 Office for National Statistics, House Price Index May2016, published July 20163 Office for National Statistics, Trends in the UK Housing Market, 20144 LSL Property Services, Buy to Let Index, May 20165 HomeLet Rental Index, June 20166 Family & Childcare Trust, Childcare Costs Survey 2016
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3.3.3 Forecast inflation ratesRPI inflation had already grown to 1.6% by June 2016 and the Treasury average of independent forecasts predicts that inflation will average 1.8% over 2016 before accelerating to 2.6% next year and in excess of 3% between 2018 and 2020. The medium term forecast puts the expected rates at the following levels.
Year RPI forecast
2016 1.8
2017 2.6
2018 3.1
2019 3.1
2020 3.3Source: HM Treasury Forecasts for the UK Economy, May 2016
If these rates turn out to be correct, the cost of living employees face will have grown by almost 15% by the close of 2020, following the pattern set out in the graph below, and averaging 2.9% per year.
2016 2017 2018 2019 20200.0
2.0
4.0
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Forecast cumulative increase in cost of living
% in
crea
se
These forecast levels show the minimum levels needed if the Low Pay Commssion is to meet the commitment set out in its 2014 report to “recommend progressive real increases in the value of the minimum wage.”
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3.3.4 Inflation for staff on low payIn 2014, the Institute of Fiscal Studies published a study which found that, between 2008 and 2013, the lowest income fifth of households faced average annual inflation that was 1% higher than the highest income fifth.7
This conclusion was bolstered later in the same year when the Office for National Statistics found that among the lowest-spending households average annual inflation ran 1% higher than the highest-spending households between 2003 and 20138. The cumulative result was that the prices of products purchased by the lowest-spending households grew by 45.5%, compared with 31.2% for the highest-spending households.
Reason for comparing wages to RPIUNISON believes that the Retail Prices Index (RPI) remains the most accurate measure of inflation faced by employees.
The most widely quoted figure for inflation in the media is the Consumer Prices Index, However, UNISON believes that CPI consistently understates the real level of inflation for the following reasons:
CPI fails to adequately measure one of the main costs facing most households in the UK – housing. Almost two-thirds of housing in the UK is owner occupied, yet CPI almost entirely excludes the housing costs of people with a mortgage;
CPI is less targeted on the experiences of the working population than RPI, since CPI covers non working groups excluded by RPI – most notably, pensioner households where 75% of income is derived from state pensions and benefits, the top 4% of households by income and tourists;
CPI is calculated using a flawed statistical technique that consistently under-estimates the actual cost of living rises faced by employees. The statistical arguments are set out exhaustively in the report “Consumer Prices in the UK” by former Treasury economic adviser Dr Mark Courtney, which can be found at https://www.unison.org.uk/content/uploads/2014/11/TowebFull-report-Consumer-Price-indices-in-the-UK2.pdf .
The Royal Statistical Society has added its weight to criticisms of CPI over the last year, stating that CPI was never intended as a measure of changes in costs facing households. Rather, it was “designed in the 1990s for macroeconomic purposes” and its purpose is to act “as the principal inflation indicator for the Bank of England in its interest-setting rate role.”
The society sums up its position as follows:
“Why should the typical household accept an inflation index that: -
fails to take account of, or does not track directly, one of their main expenditure items: mortgage payments and other costs of house purchase and renovation;
gives more weight to the expenditure patterns of wealthier households than of other households;
fails to take account of interest on loans for a wide variety of purposes, ranging from student loans to loans for car purchase;
7 Institute of Fiscal Studies, IFS Green Budget 20148 Office for National Statistics, Variation in the inflation experience of UK households: 2003-2014, December 2014
16
includes the expenditure of foreign tourists in the UK but not their own expenditure outside the UK;
fails to include Council Tax.”
The new measures of inflation published by the Office for National Statistics since 2013, CPIH and RPIJ, have gained little use. CPIH uses the rental equivalence approach to incorporating housing costs into the CPI measure and UNISON believes that this approach provides a very poor proxy for the actual changes in housing costs faced by owner occupiers.
RPIJ applies the flawed statistical techniques to RPI that contribute so strongly to CPIs consistent underestimatation of inflation.
CPI is the figure quoted uniformly across the media, but RPI remains by far the most common reference point for pay negotiations. Incomes Data Research found in its 2016 Reward Intentions Survey that 75% of employers regard RPI as the “most relevant to making decisions on the level of pay award,” compared to 53% for CPI, 5% for RPIJ and 3% for CPIH.
In considering evidence submitted last year as part of a review by the UK Statistics Authority of consumer price measurement, the National Statistician has chosen to support the views of those who are critical of RPI methods and recommend adoption of CPIH as the Office for National Statistics’ preferred measure of consumer inflation (despite the fact that the methodology used to calculate CPIH is currently designated as inadequate for the measure to be called a “national statistic”). However, in an implicit acceptance of the limitations of CPI, the National Statistician also recommended that work should start on developing a Household Inflation Index, which was a proposal put forward by the Royal Statistical Society to achieve a more realistic measure of the costs facing households.
3.4 Pay settlement and average earnings
3.4.1 Pay settlement trends across economyPay settlements across the economy are currently running at around 2%, with the private sector in line with the national average at 2% and the public sector lagging behind at 1% under the weight of the government’s imposition of the pay cap.
The table below shows pay settlements across a range of key sectors and reveals that the notoriously low paying sector of retail is currently delivering one of the highest pay settlement rates at 2.4%.
Sector Average reported pay settlementsAcross economy 2.0%Private sector 2.0%Public sector 1.0%Not for profit 1.0%
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Sector Average reported pay settlementsEnergy & gas 1.5%Water & waste management 1.9%Retail & wholesale 2.4%Transportation & storage 2.0%Information & communication 2.0%Admin & support services 2.0%
Source: Labour Research Department, based on reported settlements in sector over last year
Private sector employers expect settlements to continue at 2% over the year to February 20179 while public sector rates are forecast at 1% to Autumn 201610 under the weight of the government’s pay cap.
3.4.2 Average earnings trends across economyAverage earnings figures provide a less accurate picture than pay settlements of what is happening to the wages of an individual worker in employment since they are heavily affected by changes in the composition of the workforce.
Nonetheless, it is worth noting that average earnings growth across the economy is currently running at 2.3%, with the private sector ahead at 2.4% and the public sector lagging at 1.7%.
Forecasts of average earnings predict average earnings will pick up over 2016 to average 2.6% in 2016, then jump to 3.6% in 2017, where it is expected to broadly remain over the following three years.11
2016 2017 2018 2019 20200
0.5
1
1.5
2
2.5
3
3.5
4
Forecast average earnings growth
% a
nnua
l gro
wth
Source: Office for Budgetary Responsibility, Economic and Fiscal Outlook, March 2016
9 Pay forecasts for the private sector, March 2016, XpertHR 10 CIPD, Labour Market Outlook, Autumn 201511 Office for Budgetary Responsibility, Economic and Fiscal Outlook, July 2015
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3.5 European Union referendum result
The vote to leave the European Union in the June referendum has plainly added an immense amount of uncertainty to the economic outlook for the UK.
The nature and scale of the impact on the economy is a matter that was highly contested during the referendum campaign and forecasts are subject to huge uncertainty about how the process will now unfold.
The only sure factor seems to be that uncertainty is set to prevail for a long time. The government itself stated in its February 2016 publication The Process of Withdrawing from the European Union that “a vote to leave the EU would be the start, not the end, of a process. It could lead to up to a decade or more of uncertainty.”
Withdrawal will require the triggering of Article 50 of the Lisbon Treaty, which would then set in train the specified two year process for agreeing the terms of withdrawal. Outside the EU, the UK would have to negotiate trade deals with the over 50 countries that currently have deals with the EU,
The timescale that this entails is extensive given that Oxford Economics found that “an analysis of regional trade deals conducted over the past 20 years found an average duration of 28 months.”12
Therefore, we do not believe that the EU referendum result provides grounds for lowering increases to the National Minimum Wage rates in the near term or rowing back on the commitment to follow a straight line toward the target to achieve a “national living wage” of 60% of average earnings by 2020.
Economic uncertainty is likely to prevail throughout the period to 2020 and with the journey toward the “national living wage” target having barely begun, there are no current forecasts which can predict with any accuracy when a possible economic downturn will hit hardest over the next four years,.
Furthermore, the formula for the “national living wage” already effectively provides a mechanism for adjusting the target wage down in the event of recession. A recent report by the Resolution Foundation found that, under the most pessimistic growth scenario, the target rate for the “national living wage” would automatically adjust down to £7.91 an hour13.
12 Oxford Economics, Assessing the Economic Implications of Brexit, 13 Resolution Foundation, The First 100 Days: Early Evidence on the Impact of the National Living Wage, July 2016
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Summary
The most recent forecasts from the Office for Budgetary Responsibility predict that the economy will grow steadily at over 2% during 2017 and 2018.
The sustained decline in unemployment rates over the last four years is expected to flatten out over 2017 and 2018.
Unemployment rates for workers aged under 25 have continued to fall much more sharply than the general rate.
The damage inflicted on workers’ standard of living from high inflation has abated over the last year and a half, but a sharp climb is now expected to take the Retail Prices Index back up to 2.6% in 2017 and 3.1% in 2018.
Pay settlements are expected to continue to average 2% into 2017, while average earnings are forecast to jump by 3.6% in 2017 and 3.5% in 2018.
Following the EU referendum result, forecasts are subject to a greater level of uncertainty and the government has indicated that this period of economic uncertainly could last a decade.
Conclusions
UNISON believes that forecasts of steady growth in the economy offer no reason for the Low Pay Commission to depart from its plan to follow a straight path in uprating the “national living wage” to reach the target 60% of median earnings by 2020. In addition, the uncertainty created by the EU referendum result is not liable to abate for many years and therefore does not provide a reason to divert from the planned path.
With the unemployment rate at its lowest level for over a decade and average earnings forecast to rise markedly, the conditions are in place for the commission to honour its 2014 commitment to seek “significantly faster increases in the minimum wage.”
The sharpness of the decline in the unemployment rate for young workers offers the opportunity to deliver major improvements in the rates for workers aged under 25 and apprentices, after years of falling even further behind the adult rate.
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4. GENERAL INCOME TRENDS
The general trends in pay settlements and average earnings have been set out in the “economic context” section of this submission. However, in this chapter we consider more specific aspects of pay trends, encompassing the scale of low paid employment in the UK, parallel trends in high pay and profits, plus developments in the Living Wage and the relative value of the National Minimum Wage.
4.1 Low pay in the UKThe Resolution Foundation’s 2015 Low Pay Britain report has again produced an exhaustive analysis of the scale of low pay in Britain14
The research found that: One-in-five employees (21% or 5.5 million individuals) were low paid (defined as less
than two-thirds of median gross hourly earnings) in Great Britain. There has been little change in this proportion over the past 20 years.
More than one-in-five employees (22% or 5.7 million individuals) were paid less than the Living Wage. This is an increase from 20 per cent in 2013.
The foundation summarised the long term trends in these measures with the graph below.
While the low pay measure has been fairly flat, the Living Wage measure has been rising sharply and this trend is expected to accelerate. The foundation forecasts that the introduction of the “national living wage” will reduce the proportion of workers earning below the two-thirds threshold to 19% by 2020. However, the proportion of the workforce earning
14 Resolution Foundation, Low Pay in Britain, October 2015
21
below the Living Wage, which responds much more directly to changes in the cost of living, will accelerate to 30% by 2020.
The report goes on to demonstrate once more how low pay disproportionately afflicts the young, women and part-time workers, as reflected by the report’s graphs below.
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The report also shows that the UK’s position among European countries will be improved by the introduction of the “national living wage.” Nonetheless, the proportion of the workforce that is defined as low-paid will remain higher than the EU average and the great majority of western European countries have significantly lower rates.
4.2 Earnings of low-paid staff The Joseph Rowntree Foundation’s calculation of the Minimum Income Standard, based on what members of the public think people need to achieve a socially acceptable standard of living, put the 2014 figure at £17,100 for a single person and £20,000 each for a couple with two children, both working full-time15.
These figures feed into the Living Wage calculation for outside of London, which was set at £8.25 an hour in November 2015. Calculations by the Greater London Authority Economics Unit put the Living Wage for the capital at £9.40 an hour.
The £8.25 figure is a weighted composite of the wage needed by a variety of different household types. The hourly wage for different households range from £5.83 for a couple to
15 Joseph Rowntree Foundation, A Minimum Income Standard for the UK in 2015, July 2015
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£20.97 for a lone parent with three children, while couples with one or two children were found to need a wage around the £10 mark.
Adoption of the Living Wage has expanded with astonishing rapidity over recent years to become a standard benchmark of the minimum earnings needed for low-paid staff to have a “basic but acceptable” standard of living.
There are now in excess of 2,300 employers accredited as Living Wage employers by the Living Wage Foundation, a figure that has grown from around 200 just four years ago.
The Living Wage is now paid by some of the UK’s most high profile private companies, such as Barclays, HSBC and KPMG. It has even made inroads into the retail sector, where IKEA and Lidl have signed up as Living Wage employers. The Living Wage has now reached the point that over a quarter of the FTSE 100 companies are now accredited.
Across the public sector, the Scotland government has established the Living Wage within all its public sector organisations and minimum rates in the Wales NHS and among police staff in England and Wales have been raised to the Living Wage or above in the most recent pay settlements. Framework agreements for payment of the Living Wage to support staff are also in place across more than 12,000 schools.
While the Living Wage has been gaining ever greater inroads, the graph below shows how the gap between the Living Wage and the minimum wage hourly rate formerly known as the adult rate has grown over recent years.
2011 2012 2013 2014 2015
-£1.80-£1.60-£1.40-£1.20-£1.00-£0.80-£0.60-£0.40-£0.20£0.00
-£1.12-£1.26
-£1.34 -£1.35-£1.55
Growth in shortfall between national minimum wage and living wage
Forecasts from the Office for Budgetary Responsibility also forecast a worrying gap opening up over the next four years between the National Minimum Wage for workers aged between 21 and 24 and the “national living wage” applicable to workers aged 25 or over. By 2020 the OBR predicts that a 24 year old on the minimum rate will be receiving over £1 less an hour than a 25 year old.
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2016 2017 2018 2019 20200
0.2
0.4
0.6
0.8
1
1.2
Forecast shortfall between highest NMW rate and NLW
Diffe
renti
al (£
)
Source: Office for Budgetary Responsibility, Economic and Fiscal Outlook Supplementary Economy Tables, March 2016
4.3 Trends for high income groupsWhile appreciating that the Low Pay Commission makes no ruling on earnings of high income groups, UNISON believes that it is a relevant issue in that public perceptions of fairness in the treatment of low-paid staff are influenced by the level of rewards received by very high earners.
The graph below shows how the 13% increase in the value of the adult National Minimum Wage over the last five years compares to remuneration growth of over 20% among FTSE 100 chief executives, a 24% expansion in the operating surpluses of UK companies and 49% growth in dividend payments to shareholders.
National minimum wage*
Top bosses' pay ** Company profits *** Dividends to shareholders****
0.0%10.0%20.0%30.0%40.0%50.0%60.0%
National Minimum Wage comparison 2010 - 2015
Grow
th ra
te
* Based on adult National Minimum Wage between 2010 and 2015
** Based on growth in average FTSE 100 chief executive pay between 2010 and 2014 from High Pay Centre, The State of Pay, August 2015 *** Based on corporations' operating surpluses between Q1 2010 and Q4 2015 from Office for National Statistics, Second Estimate of GDP, Quarter Q4 (Oct to Dec) 2015
**** Based on dividends paid between 2010 and 2015 from Capita UK Dividend Monitor, January 2016
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4.3.1 Calculation of the minimum wage “bite”While UNISON acknowledges that the “bite” of the minimum wage in terms of tracking its relative value to average earnings is used extensively by the Low Pay Commission for good reason as an indicator of affordability for employers, we believe that this methodology is flawed because it pays insufficient attention to movements in operating surpluses across the economy.
In the type of labour market that has been prevalent since the 2008 economic crisis, the balance of strength between employers and employees has remained in favour of the employer despite a decline in unemployment lasting over four years.
Around 1.7 million people remain unemployed, but perhaps even more significantly underemployment has grown by close to a million since the recession to reach 3.3 million people16 and the composition of the labour market has made a significant shift toward low-paid, insecure work.
Zero hours contracts have gained a great deal of publicity over recent years and the most recent figures found that the number of workers on such contracts had jumped 15% over 2015, taking zero hour contracts to 2.5% of the workforce.17 These workers average wages of £188 a week, compared to £479 for permanent workers.
However, short hours contracts, temporary contracts, part-time contracts, agency work and self-employment have all contributed toward the changing composition of the labour market.
Between 2010 and 2014, the TUC estimated that self-employment accounted for 44% of the net rise in employment and 40% of that growth was part-time self employment. Its research found that this was not a product of new business start-ups (which had actually fallen), but people working for themselves, freelancing or sub-contracting.
Even though that growth has slowed since 2014, there are now 4.6 million self-employed workers - an increase from 13% to 15% of the workforce since 2008.
The Social Market Foundation has found that just under half of the UK’s self-employed are in low pay, compared to the UK average of a fifth.
The number of people working part-time involuntarily has also jumped 70% since early 2008 from 700,000 to 1.2 million. Similarly, involuntary temporary work has risen from 363,000 to 556,000.
Conversely, the share of full time workers in employment fell from 64.4% in the three months to March 2008 to 62.4% in the three months to January 2016.
The aggregate upshot of all these developments in the labour market is that increases in average earnings to which the bite of the minimum wage is pegged have remained at extremely moderate levels.
However, in these circumstances changes in average earnings have not been a representation of the limits of affordability for employers but of the weakness of labour in the labour market.
The graph below reflects how operating surpluses across the economy increased by 17.4% between 2012 and 2015 to hit £410 trillion. Over the same period, compensation of employees grew by less than half that figure at 8.3% to £921 trillion, while average earnings grew by 4.4%.
16 TUC, High unemployment means full jobs recovery is still a long way off, June 201517 TUC. Anjum Klair, Employment is at record levels – so what’s the problem, April 2016
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[If the comparison is carried out on the basis of net operating surplus, which takes account of capital depreciation, the differential is even starker, as the net operating surplus for private non-financial corporations grew by 27% across the economy between Q1 2012 and Q4 2015.]
Gross operating surplus Compensation of employees
Average earnings0.0%2.0%4.0%6.0%8.0%
10.0%12.0%14.0%16.0%18.0%20.0%
Change to key income indicators 2012-15
Grow
th ra
te
We believe that the absence of an average operating surplus figure means that the bite during a period when average earnings are modest while surpluses are surging does not provide a true representation of affordability of increases in the National Minimum Wage.
We appreciate that the aggregate surplus figures currently published by the Office for National Statistics do not provide the detail necessary to examine sector performance or averages per employee that would be needed to inform decisions. Therefore, we believe that the Low Pay Commission should set out clearly to the ONS that future production of these figures is urgently needed to facilitate decisions about minimum wage rates.
[This issue is set out more comprehensively in a report accompanying this document that has been researched and written by Landman Economics]
4.4 Trends in the gender pay gapThe latest Annual Survey of Hours and Earnings found that the gender pay gap, based on median earnings for full-time employees, stood at 9.4% in 2015. When part-time employees are included, the gap balloons to 19.2%.
The graph below shows the long term trends in the gap for median gross hourly earnings (excluding overtime), which has generally flattened out since 2010 after a gradual decline since 1997.
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4.5 Impact of inflation on real value of National Minimum WageThe graph below contrasts the path of the minimum wage rates with the path that they would have folllowed if they had kept pace with RPI inflation since 2009.
2009 2010 2011 2012 2013 2014 2015 2016£3.00
£3.50
£4.00
£4.50
£5.00
£5.50
£6.00
£6.50
£7.00
£7.50
Change in value of minimum wage rates
Actual value of rate formerly known as adult rateValue of rate formerly kown as adult rate if kept pace with in-flationActual 18-20 year old rate rate18-20 year old rate rate if kept pace with inflationActual 16-17 year old rate rate16-17 year old rate rate if kept pace with inflation
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The difference between the current value of all the rates now applicable to workers below the age of 25 and the rates if they had maintained their real value since 2009 has narrowed over recent years. However, they all remain below their 2009 real value. If the value of the rate formerly known as the adult rate had kept pace with RPI inflation it would be worth £7.14 in 2016. Therefore, the “national living wage” introduced at £7.20 does little more than restore the 2009 value of the adult rate.[Even if these figures are calculated on the basis of the Consumer Prices Index (which we believe consistently underestimates the actual inflation faced by workers), the value of the adult rate only returned to its 2009 value in 2015.] This means that the value of a full-time minimum wage salary has suffered annual falls in purchasing power in line with the graph below, based on a 35 hour week and RPI accumulated inflation rates since 2009.
2010 2011 2012 2013 2014 2015 2016£0
£200
£400
£600
£800
£1,000
£1,200
£1,400
Annual loss in value of pay packet for workers on minimum wage
Annual loss forworkers on rate formerly known as adult rateAnnual loss for 18-20 year olds Annual loss for 16-17 year olds
This year, the value of the rate formerly known as the adult rate is still over £300 less than it had been in 2009 for a worker on a 35-hour a week full time job. The scale of the losses sustained by young workers has been even greater, with the 2016 wage of 16-20 year olds devalued by over £700. The cumulative impact of this devaluation since 2010 has been £4,122 for adult workers, £5,807 for 18-20 year olds and £4,561 for 16-17 year olds.When the value of the National Minimum Wage is compared to house price growth, the contrast is particularly acute. The New Economics Foundation notes that, “if the National Minimum Wage had grown since its introduction at the same pace as house prices it would now be over 40% higher than the government’s “national living wage” - at more than £10 per hour rather than the current £7.20.” In London, the “National Minimum Wage would be nearly £14 an hour - 90% higher than the current rate.”
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4.6 Young workers and apprentices UNISON believes that the lower National Minimum Wage rates that apply to young workers and apprentices are fundamentally unfair and discriminatory. To have a young employee working alongside an older employee receiving different rates for doing exactly the same job represents an unacceptable injustice in the workplace. This needs to be addressed through extending the “national living wage” rate to young workers.
The UN Committee on Economic, Social and Cultural Rights was moved to state in its June 2016 report on the UK that “despite the increase of the national minimum wage that came into effect on 1 April 2016, the Committee is concerned that it is not sufficient to ensure a decent standard of living ... and it does not apply for workers under the age of 25.“ It then went on to specifically call on the UK to “extend the protection of the national minimum wage to those under the age of 25.”
UNISON is particularly concerned that the addition of another age related tier to the minimum wage system acts as an incentive to violate the Equality Act by providing a financial incentive for tacit age discrimination in the recruitment process. The further wage rates for workers aged under 25 are allowed to lag behind the “national living wage” the greater this incentive becomes.
We also believe that action needs to be taken to ensure that apprentices are properly paid and that schemes are of the highest standard. We note that the government are keen to see the public services play a major role in helping achieving its target of securing three million new apprenticeships over the course of this parliament. However, we are seeing some evidence in local government that some apprentices are not receiving the NMW apprentice rate. We are also concerned that substantive posts in the NHS are being placed with apprentices in order to meet targets and secure a supply of cheap labour. There are, in addition, some emerging concerns around the practices of some Apprentice Training Agencies (ATAs) in the public services, who do cover pay sick pay and are less sensitive to than employers to some of the challenges faced by young people entering into apprenticeships. We are continuing to monitor this situation and to raise issues of concern with employers.
UNISON published a report earlier this year entitled You’re Hired: A UNISON Report on Apprenticeships in the NHS, which was based on Freedom of Information requests that went to 233 NHS trusts, health boards and clinical commissioning groups across the UK.
The study revealed the extent to which the National Minimum Wage for apprentices is providing a get-out from the national Agenda for Change NHS pay structure, which set the minimum apprentices pay rate at £7.31 at the time the report was written, in contrast to the £3.30 NMW apprentice rate.
More than a third of employers across the NHS are hiring apprentices at the statutory minimum and the study suggested that employers are plugging staffing gaps with apprentices in return for low pay and minimal on-the-job training.
The contrast with the NHS in Scotland is startling, as all apprentices north of the border are guaranteed the Living Wage of £8.25 an hour.
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4.7 Welfare context for low paid employeesChanges to minimum wage rates have to be seen in the context of the March 2016 budget, which will result in a £2.7 billion a year cut in the welfare budget as the Universal Credit system takes effect.
The net cash effect on each income group is reflected in the black line showing on the graph below from the Institute for Fiscal Studies’ analysis in its Green Budget 2016. All but the richest two income decile groups will suffer losses, with the size of that loss generally higher for the poorest groups and reductions to entitlements falling £1,400 a year in some cases.
Recent analysis by the Resolution Foundation18 found that “Universal Credit will on balance be less generous than the tax credit system for working families. Even when considered alongside policies designed to boost incomes, including the introduction of the National Living Wage and income tax cuts, relative to the current system without those measures in place, the latest version of UC implies:
1.3 million working families entitled to support in the tax credit system willno longer be entitled to any in-work support, leaving them £42 a weekworse off on average;
A further 1.2 million are set to receive UC, but be an average of £41 aweek worse off;
1.7 million still in receipt of UC will be better off by an average of £38 aweek, in part due to the more generous treatment of housing costs; and
Only around 200,000 families – a mix of those without children and coupleparents – who are no are longer entitled to UC at all will be overall better offfollowing cuts to in-work support and boosts to income from the NationalLiving Wage and income tax cuts.”
18 Resolution Foundation, Universal Challenge: Making a success of Universal Credit, May 2016
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4.8 Tax context for private sector employersChanges in minimum wage requirements placed on employers have to be seen in the context of wider changes to the corporate tax regime in the UK. Between 2010 and 2015 corporation tax has been cut from 28% to 20%. The table below shows the effect of other aspects of corporation tax on government receipts, but corporation tax cuts have been the dominant factor in providing private sector employers with a £7.9 billion annual addition to net income. With the government announcing that corporation tax will be further slashed to 17% by 2020, making it the lowest rate in the G20, the annual benefit to private sector employers is anticipated to rise to £15 billion a year benefit by 202119.
Source: Institute for Fiscal Studies, Corporation Tax Changes and Challenges, February 2015
Business rates are also being cut in England by £6.7 billion over the next five years, with the cuts skewed toward small business. Rates will be entirely eliminated for 600,000 small businesses, which occupy a third of all properties.
Summary
The scale of low pay in the economy has remained steady at around one in five workers based on measurements linked to average earnings, but when calculated according to take account of the cost of living low pay has risen sharply and is set to continue that trend. The “national living wage” is set to improve the UK’s position in comparison to other European countries, but low pay is set to remain a much more widespread problem compared to the average among western European countries.
The Living Wage has seen rapid growth in its adoption by employers and is widely seen as a standard benchmark of the wage needed to maintain a basic but decent standard of living.
The Living Wage required by different household types varies markedly - couples with one or two children require a rate closer to £10 an hour
19 HM Treasury, Budget 2016
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Increases in the National Minimum Wage have lagged well behind the rate of increase in UK companies’ operating surpluses, dividend payments to shareholders and the pay of FTSE 100 chief executives over recent years.
The value of all National Minimum Wage rates applicable to workers aged under 25 is worth less now than seven years ago because increases in rates have been outpaced by the cost of living.
Young workers have sustained particularly large cuts in the value of the National Minimum Wage they receive.
While the income of many low-paid workers is set to fall as a result of welfare cuts, private sector employers are set to see a further reduction in their tax burden.
The gender pay gap, based on median earnings for full-time employees, stood at 9.4% in 2015. When part-time employees are included, the gap balloons to 19.2%.
Conclusions The “national living wage” target rate of 60% of median earnings is a significant step
forward for tackling low pay in the UK. However, calculations based on median earnings do not respond sufficiently to changes experienced by workers in the cost of living. The Living Wage rates published annually by the Living Wage Foundation remain the benchmark for achieving genuine reductions in low pay. Both the UK and London Living Wage take into account affordability for employers by linking the rate to average earnings but they also respond to changes in the cost of living.
The “bite” of the minimum wage against average earnings is an inadequate measure of affordability for employers, particularly at a time when the changing nature of the labour market has held average earnings growth down while operating surpluses have grown substantially. Operating surpluses need to be built into this calculation for it to provider a reasonable reference point for affordability.
Major increases are needed in all National Minimum Wage rates applicable to workers aged under 25 simply to restore their real value to their 2009 level. In the case of 16 to 20 years olds, between 7% and 10% is needed to restore value lost.
By pegging the “national living wage” to median earnings for all employees aged over 25, increases are linked to a figure that has the gender pay gap incorporated into it. In order to address the gender inequality that still prevails across the UK economy, the “national living wage” should be pegged to male median earnings for the target age group.
If the minimum wage rates for staff aged under 25 and apprentices are allowed to lag behind the increases in the “national living wage,” incentives grow for employers to violate the Equality Act through tacit age discrimination in the recruitment process.
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5. PUBLIC SERVICE PAY TRENDS
5.1 Living standards squeezed
Over the last five years, pay in the public sector has been shaped by the pay freeze imposed between 2011 and 2013, followed by a 1% pay cap that is set to run up to 2020.
For the public sector worker who has not benefited from any incremental progression in their pay, the combination of high inflation and low pay rises between 2010 and 2015 meant a 14.5% cut in the real value of median earnings. That left their 2015 wage £4,800 down on the value of their earnings at the start of 2010 and the accumulated loss from their wage failing to keep pace with inflation each year stood at over £21,000.
Over the next four years, the potential impact of the forecast for rising inflation on the value of an anerage public sector wage is shown below. At the end of the four year period, the average wage would have declined in value by over £2,000 under this scenario.
2016 2017 2018 2019
-2500
-2000
-1500
-1000
-500
0
-208
-695
-1386
-2073
Impact of 1% pay cap on value of average public sector wage
Cut i
n va
lue
of a
nnua
l pay
(£)
5.2 Progress in winning the Living Wage
Despite these restrictions, UNISON has made achievement of a Living Wage for the lowest paid staff a key feature of almost all its pay claims over recent years. As noted in the previous chapter, considerable advances have been made in achieving the Living Wage, most notably:
The Scotland government has established the Living Wage within all its public sector organisations
Minimum rates have been raised to the Living Wage or above in the most recent pay settlements for police staff in England and Wales, along with NHS staff in Wales
Framework agreements for support staff in more than 12,000 schools across the UK set the Living Wage as a key target
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Even where the Living Wage has not been achieved, pay deals have delivered considerably higher than average rises for the lowest paid staff. For example, local government employees on NJC terms and conditions saw a 6.6% rise for the lowest paid staff in 2016.
Furthermore, even where national agreements have not achieved a Living Wage settlement, a major proportion of individual councils, NHS trusts, schools and academies have taken up the Living Wage on their own initiative. A UNISON Freedom of Information survey in 2015 covering local government, the NHS, universities, further education colleges and police authorities that drew over 900 responses found that 51% of employers across these sectors already pay at least the Living Wage to their lowest paid staff.
Though not directly classified as public sector, a Guardian survey in June 2015 also revealed that two thirds of housing associations pay the Living Wage, with a third accredited by the Living Wage Foundation and a third paying the wage without official accreditation.
Only a minority of these employers go down the route of seeking official accreditation as a Living Wage employer. However, there are now 39 councils accredited as Living Wage employers by the Living Wage Foundation, along with nine trusts and 34 academies / schools.
5.3 Low pay persistsLocal government
Local government is one of the parts of the public sector where low pay remains most prevalent. It is estimated that 361,000 workers , accounting for 28% of the entire NJC local government workforce, earn less than the Living Wage.
Best estimates indicate that almost 436,000 local government workers will require an uplift in their rate beyond the 1% pay cap in order to achieve the “national living wage” by 2020. For the lowest paid staff this uplift will require an increase of over £2,200 or 15% of current salary.
The local government workforce contains a high proportion of groups that are frequently afflicted with low pay. Over three quarters of the workforce are women, many of whom are single mothers or in low-paid households in which their incomes are vital to the wellbeing of their children and families. In addition, over 50% of the workforce is made up of part-time staff, working regular unpaid overtime and now facing drastic cuts to hours in response to the enormous funding cuts imposed on local government.
In addition to the directly employed local government workforce, a vast number of jobs lie in private and voluntary organisations delivering public services. Among the most problematic in terms of low pay is adult social care, which is estimated to employ 1.4 million workers in front line care across the UK. Around 930,000 of those jobs currently pay below the Living Wage, leaving the median wage at £7.20 an hour over 2013/14.
The Joseph Rowntree Foundation has estimated that 72% of staff engaged in home care are paid below the Living Wage and an occupational breakdown reveals that sub Living Wage rates go to 52% of senior care workers, 78% of care workers and 85% of ancillary workers20. The foundation also note the turnover rates afflicting this sector, which have seen 18.5% of care workers exit their jobs between 2014 and 2015, while almost two out of every three care workers in post during 2010 had left by 2015.
20 Joseph Rowntree Foundation, The costs and benefits of paying all the lowest paid care home workers in the UK the Living Wage, 2015
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Health
In the NHS, approximately 104,000 staff in England are paid below the Living Wage, which amounts to 11% of the non-medical workforce.
No staff are currently below the “national living wage,” but in 2018/19 an estimated 51,000 staff will require uplift to the forecast rate, followed by further 53,000 in 2019/20 and another 36,000 in 2020/21.
Education
In Higher Education, a UNISON Freedom of Information request in 2016 found that 13,506 staff (3.8% of workforce) were paid below the Living Wage. All pay points are currently above the “national living wage,” but best estimates indicate that the bottom four points of the pay scale will require additional uplifting to reach the 2020 rate.
In Further Education, a similar situation exists. All pay points on the English pay scale are currently above the “national living wage,” but best estimates indicate that the bottom four points will require additional uplifting to reach the 2020 rate, with the lowest pay point needing approximately £1 extra an hour.
Among Sixth Form Colleges, approximately 14% of the 6,572 support staff workers employed across the sector receive less than the Living Wage. The lowest pay point is set at the “national living wage” rate and best estimates indicate that the bottom eight points will require additional uplifting to reach the 2020 rate, with the lowest pay point needing approximately £1.40 extra an hour.
Police and probation
All pay points on the English and Wales pay scale for police staff are currently above the “national living wage,” but best estimates indicate that the bottom three points will require additional uplifting to reach the 2020 rate.
Probation staff are similarly above the current “national living wage” but the bottom 13 pay points will require additional uplifting to reach the 2020 rate, with the lowest pay point needing over £1 extra an hour.
Community and voluntary sector
A survey of UNISON members in the community and voluntary sector conducted in 2015 suggested that 330,000 (32% of the workforce) are paid below the Living Wage.
.
5.4 Budget cutsPlanned public spending cuts over the period between 2015 and 2020 are expected to drain a further £8 billion from departmental budgets.21 This represents an easing of the £41 billion reduction between 2010 and 2015, but is still plainly a major tightening.
The distribution of the cuts burden imposed on government departments between 2010/11 and 2015/16 is reflected in the graph below, which demonstrates that local government has faced some of the most extreme reductions.
21 Landman Economics, The impact of planned cuts to public spending over the 2015-20 Parliament, March 2016
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Source: Institute for Fiscal Studies, Green Budget, February 2016
Therefore, the introduction of the “national living wage” has taken place without any extra funding made available to meet the costs across most departments.
Even in the NHS, which has not suffered real-term cuts, the situation led the NHS Pay Review Body to state in its 2016 report on recommended pay rates in the NHS that it had “serious doubts about any proposition to fund a social policy such as the National Living Wage from the funding available for general pay awards, which are intended to support recruitment and retention.”
Furthermore, in social care, where additional funds have been made available through the option to raise council tax by 2%, the Association of Directors of Adult Social Services has stated that those resources generate less than two-thirds of the funds needed to meet the “national living wage.”
5.5 Privatisation driving down wagesRunning counter to the trend of improved pay rates for the lowest paid in the public sector, the enormous scale of privatisation is acting as a huge downward pressure on wages in the delivery of public services.
The National Audit Office22 estimated that the UK public sector spent £187bn on goods and services in 2012, with half of this (£93.5bn) being spent on contracted-out public services.
In 2015, the Trade Union Congress and New Economics Foundation produced a joint study that indicated that the spend on contracted out services is set to reach over £100bn in 2014–15.23
22 NAO, The Role of Major Contractors in the Delivery of Public Services, March 201523 Trade Union Congress and New Economics Foundation, Outsourcing Public Services, March 2015
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Over recent years, the following developments have been among the most significant in the intensification of privatisation
In the NHS, the fundamental restructuring following the Health and Social Care Act puts clinical commissioning groups in charge of commissioning services and opens up provision of services to “Any Qualified Provider.” At the same time, NHS Foundation Trusts have been given scope to increase their private patient income and engage in more partnerships with non-NHS providers.
Following decades at the forefront of public service outsourcing, local government has faced even more acute pressures as a result of enormous funding cuts, resulting in ever larger scale privatisation deals.
Local authorities have continued to move away from offering social care services, to the point that direct provision from local authorities now accounts for less than 10 per
cent of residential care and around 16 per cent of domiciliary care.
The wholesale privatisation of the probation service has been carried through by the selling off of 21 Community Rehabilitation Companies.
Coupled with this, protection of employees’ pay, terms and conditions following transfer out of the public sector has been weakened by legislation contained in the Collective Redundancies and Transfer of Undertakings (Protection of Employment) (Amendment) Regulations 2014, as well as the Alemo-Herron v Parkwood legal case. The TUPE amendments now allow changes to pay, terms and conditions a year after transfer in certain circumstances, while the
Alemo Herron decision allowed employers to avoid applying pay rises in line with agreements of negotiating bodies to which employees formerly belonged.
The impact of privatisation on the income of the low-paid is apparent in the graph below produced by the TUC and New Economic Foundation in its 2015 Outsourcing Public Service report.
These patterns were confirmed by a 2014 study from The Smith Institute entitled Outsourcing the Cuts, which examined the impact of outsourcing on staff through a variety of case studies across public service sectors. The study included the following key conclusions:
Huge public-sector cuts are determining the objectives, nature and outcomes of the latest outsourcing deals in public services. On some contracts, the cuts are being passed directly on to low-paid workers. On others, there is a more mixed picture, with
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cuts being met via reduced pay and benefits for staff alongside other changes to working patterns and processes.
The scale of spending cuts across the public sector is setting the objectives and tone of current public service outsourcing strategy, which can only be understood in this context. For local authorities, for example, core funding will have been reduced by 40 % by the end of this parliament squeezing service budgets in an unprecedented way.
At all the case-study organisations, making cost savings in response to public spending cuts was the key objective of the outsourcing. In social care, budgets are being driven down to the extent that a huge worsening of terms and conditions is the only way of providing a service to the agreed price. The case study of Future Directions CIC – which provides skilled support workers for disabled adults with complex needs – has seen staff lose up to 40 percent of take-home pay, with worsened sick pay and annual leave.24
The contrast between treatment of low paid-staff when directly employed by a public sector organisation as opposed to contractors was also reflected in the findings of UNISON’s Freedom of Information request conducted among all public sector employers in local government, health, universities, further education / sixth form colleges and police forces over the summer of 2015. Whereas 51% of public sector organisations paid their lowest paid staff at least the Living Wage, just 11% required contractors to pay the Living Wage.
Therefore, while many areas of the public sector have displayed an admirable commitment to raising the earnings of the lowest paid staff to the point that they now enjoy the dignity of a Living Wage, privatisation has undermined this trend by allowing private and voluntary sector organisations to undercut the public sector through bids for contracts built on low wages.
Privatisation also gives a stark illustration of how an inadequate National Minimum Wage can reward lower wage employers over higher wage employers and thereby encourage the development of a low wage economy.
5.6 Level playing fieldTrends in the rapid escalation of private companies as accredited Living Wage employers despite the competitive disadvantage, in crude cost terms, that it may place on them shows that there is an appetite and capacity to pay the Living Wage.
However, many are held back by the absence of a level playing field, given that the National Minimum Wage stands so far behind the Living Wage.
An open letter from chief executives published in September 2014 on the future of the National Minimum Wage made it apparent the “level playing field” was one of the most valued dimensions of the National Minimum Wage, by stating:
"For businesses, it has created a level playing field, enabling employers to improve business performance and staff conditions without fear of being undercut by companies competing on lower wage rates”.
The readiness to commit to the Living Wage when it is on the basis of a level playing field is also demonstrated by the range of companies who have signed up to the Living Wage Foundations’ as Living Wage Service Providers.
24 The Smith Institute, Outsourcing the cuts, September 2014
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This category of foundation membership means that companies do not commit to paying the Living Wage to all staff, but they “always supply a Living Wage bid alongside every market rate submittal to all of their prospective and current clients.”
Dominated by cleaning, catering and facilities management companies, the list of signatories includes major providers, such as ISS, OCS and Sodexo.
While it may be relatively easy to sign up to the Living Wage in sectors where low wages account for a small part of the pay bill, in sectors where low wage employment forms a major part of the workforce, such as cleaning, catering and social care, the Living Wage is only likely to be delivered through the lead and level playing field that a legal minimum provides.
Summary Public sector wages have been held down more tightly than general wages across
the economy because of the 1% pay cap that is due to continue into 2020
Progress has been made in achieving the Living Wage through many national and local agreements within the public services, however large sections of the public service workforce are still paid below the Living Wage. Local government contains the largest pool of low-paid workers directly employed by the public sector, but low pay is vastly extended across the public sector by privatised ancillary services and the low pay norms of the social care sector.
The introduction of the “national living wage” has taken place against a background of drastic cuts to most public sector departmental budgets, leaving required increases in the paybill to take place on an unfunded basis.
Conclusion The National Minimum Wage has a vital role in ensuring a level playing field between
providers of public services and slowing the trend toward privatisation based on achieving lower costs through cheaper labour.
The significant cost implications of the “national living wage” for public sector employers and their contractors need to be addressed through a specific government funding allocation to meet those costs.
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6. IMPACT OF THE NATIONAL MINIMUM WAGE
6.1 Macroeconomic impactAs acknowledged in the Low Pay Commission’s 2014 report on The Future Path of the National Minimum Wage, the LPC has commissioned 130 research projects since 1999 on various aspects of the impact of the National Minimum Wage on the economy and, in general, these studies have found “little adverse effect on aggregate employment; the relative employment shares of the low-paying sectors; individual employment or unemployment probabilities; or regional employment or unemployment differences.”
This is despite the fact that most study of this area appears to be driven from a microeconomic perspective, which chimes with an individual employer’s outlook on a direct relationship between rising labour costs and a squeeze on profits. What is less obvious at the level of an individual organisation, but governmental policy makers have a duty to consider, is the macroeconomic impact of stimulating demand across the economy, especially given the particularly high propensity of the low paid to spend their income.
The macroeconomic impact of raising the National Minimum Wage to the Living Wage was considered in a Landman Economics report25 produced in October 2013. The key conclusions of that study are set out below.
“This research report has shown that, using reasonable assumptions about the
structure of the labour market and the current scope for economic stimulus in the UK
economy, it is unlikely that the extension of the Living Wage to all UK employees
would result in any substantial aggregate employment losses. In fact, it is quite
plausible that adopting the Living Wage on a statutory basis could actually increase
overall employment in the UK.
“This is for two reasons. Firstly, previous research from the IPPR/Resolution
Foundation which estimated that the immediate an across-the-board Living Wage
would result in 160,000 job losses is almost certainly an overestimate (as the authors
of the research themselves admit). Realistic assumptions about the structure of
labour markets and the potential for the Living Wage to induce productivity gains and
reduce turnover costs to businesses imply that the number of job losses arising from
a statutory Living Wage would most likely be considerably less than that, even if there were no scope for the Living Wage to stimulate the macroeconomy.
“The second reason – ignored in most of the previous discussions about the living
wage in the UK, but critically important – is that there is considerable scope for the
Living Wage to stimulate the economy. Unemployment and under-employment in the
UK economy are at historically high levels, and recovery from the “Great Recession”
of 2008-09 has been weak and patchy at best. Using recent estimates from the IMF
of the effectiveness of fiscal stimulus in the recent economic depression and
25 Landman Economics, The Economic Impact of Extending the Living Wage to all Employees in the UK, October 2013
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combining them with the UK Office for Budget Responsibility’s own multiplier
estimates, this report has shown that once the potential macroeconomic stimulus
effects of extending the Living Wage to all employees are taken into account, it is
more likely than not that a statutory Living Wage would result in a modest boost to
aggregate employment.
“A statutory Living Wage would therefore result in an economic ‘win-win’ on a number
of levels. It would boost demand and economic growth, reduce earnings inequality,
increase the share of wages in national income, and reduce the extent to which the
benefit and tax credit system has to prop up low wages to reduce in-work poverty. By
insisting on a voluntary approach to extending coverage, current proponents of a
Living Wage are being unnecessarily cautious. This report finds that a policy of
extending the Living Wage to all employees on a statutory basis – effectively making
the National Minimum Wage a “National Living Wage” – should be a priority for
policymakers.”
The key concluding table estimating the change in the number of jobs following adoption of the Living Wage as a statutory minimum, based on both OBR and IMF estimates of the multiplier effect, is set out below.
Multiplier estimates OBR (0.5) IMF lower bound (0.9) IMF upper bound (1.7)
GDP impact (£bn) 3.15 5.67 10.71
Increase in wage bill (£bn) 1.70 3.06 5.78
Number of jobs created (ataverage full-time wage)
64,000 115,000 218,000
Number of jobs (net ofIPPR/Resolution Foundationestimate of job losses)
-96,000 -45,000 +58,000
The history of false alarms raised around job losses was recalled by the Centre for Economic Performance at the London School of Economics in its study of the impact of the National Minimum Wage,26 when it stated:
“Prior to the introduction of the minimum wage, there were claims that it would not only destroy up to two million jobs but also push up inflation and interest rates as better paid workers sought similar pay increases to their low paid colleagues.
“None of these fears have materialised. So far, there is no evidence of significant job losses for the workers most affected by the minimum wage and there have been no obvious knock-on effects on the wages of better paid workers.”
26 Centre for Economic Performance at London School of Economics, The National Minimum Wage: The Evidence of its Impact on Jobs and Inequality, September 2008
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6.2 “National living wage”Research by the Resolution Foundation has found that a very small minority of employers have responded to the introduction of the “national living wage” by using less labour27. At this early stage in the introduction of the “national living wage”, UNISON has not been able to discern a particular widespread response across public services.
There have been examples of employers seeking to make cuts to other aspects of employees’ terms and conditions and some employers who pay the Living Wage have indicated that they will suspend raising the rate until their lowest pay point equates to the “national living wage.”
However, the more dominant issues have been consideration of the knock-on effect of the new minimum on pay points further up pay scales as part of national negotiations. For instance, the Sixth Form Colleges negotiating body has set up a working group to look at the pay spine principally in response to the “national living wage.”
Pay spines covering bargaining groups such as NHS Agenda for Change and police staff in England and Wales already specified minimum rates that exceeded the 2016 “national living wage” rate. However, the Local Government NJC pay scale saw an increase from £7 an hour in 2015 to £7.52 an hour in 2016. Such rates are applied regardless of age and therefore the differentiation of the minimum wage according to age has little relevance across the largest public service employers where UNISON represents members.
27 Resolution Foundation, The First 100 Days: Early evidence on the impact of the National Living Wage, July 2016
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Summary The Low Pay Commission’s vast body of research on the impact of the National
Minimum Wage has found “little adverse effect on aggregate employment; the relative employment shares of the low-paying sectors; individual employment or unemployment probabilities; or regional employment or unemployment differences.”
Research by Landman Economics has found that the adoption of the Living Wage as the National Minimum Wage would be likely to lead to a neutral effect on employment.
Nationally agreed pay spines across public sector employers have established rates above the “national living wage” as the minimum level for all staff regardless of age.
Conclusions UNISON believes that the lack of evidence for rises in the National Minimum Wage
ever having resulted in significant damage to employment points to the conclusion that rises have been well within the level that the labour market can bear. It is also a reflection of the fact that too much importance is attached to the concerns of individual employers about increased wage costs while insufficient importance is given to benefits for employers resulting from higher demand in the economy.
UNISON intends commissioning research on the employment effect of the “national living wage” to see if there is any evidence to support the claims made by the Office for Budgetary Responsibility that it would result in 60,000 job losses.
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7. ENFORCEMENT OF THE NATIONAL MINIMUM WAGE
7.1 Scale of non-complianceUNISON welcomes the new package of measures announced in September last year to strengthen compliance with the National Minimum Wage.
However, we remain unconvinced that these improvements are sufficient to meet the scale of non-compliance, particularly as the “national living wage” increases in value each year to reach its 60% of average earnings target.
It is notable that the National Audit Office (NAO) report28 published this year on NMW compliance indicated that the number of workers identified as being owed arrears more than doubled in the year to 2015-16, reaching over 58,000, while the scale of arrears more than trebled to £10.3m.
While it is not possible to be sure of the extent to which this increase may be down to greater resources going into investigations as well as rising non-compliance, lack of resources remains a problem as the NAO notes that 17% of complaints about non-compliance still have to wait over 240 days to get their cases resolved.
The report also highlights the particularly large scale of the problem in the care sector, which has also been documented by the Resolution Foundation. Its 2015 study29 estimated that 11% of the care workforce, equivalent to 160,000 direct care jobs, were paid below the minimum wage in 2013/14. Furthermore, the level of underpayment stood at £815 per worker, adding up to £130m in lost wages and £4m in reduced pension pots.
A two year evaluation of the care sector by the HMRC found that the principal reasons behind non-compliance in the care sector was unpaid training time, unpaid travel time between appointments and pay deducted for items such as uniforms.
7.2 Response to LPC recommendationsUNISON welcomes the set of recommendations put forward by the Low Pay Commission in its 2016 report, which included the issue raised by UNISON that payslips should clearly state the hours they are being paid for. However, we do not believe that they go far enough, for the reasons set out below
Payslips
LPC recommendation: We recommend that the Government reviews the current obligations on employers regarding provision of payslips and considers introducing a requirement that payslips of hourly-paid staff clearly state the hours they are being paid for.
UNISON has won a number of cases across the social care sector, including with all the largest employers, on behalf of our members where they have not been paid the National Minimum Wage. A common theme with all of these cases is that the amount of money that their payslips said they were owed did not correspond with the amount of money they were legally entitled to. This is largely because of the fact that travel time is not treated as
28 National Audit Office, Ensuring employers comply with National Minimum Wage regulations, May 201629 Resolution Foundation, The scale of minimum wage underpayment in social care, February 2015
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working time by the majority of social care employers when it comes to the calculation of paying their workers and so is not paid for and by extension not listed on their pay slips.
Therefore, the question that needs to be asked is not to what extent employers are already publishing payslips stating the hours being paid but whether the hours published on payslips actually reflects the hours that social care workers have actually worked. UNISON believes that the failure to do so is rife in the social care sector and a key reason why the Low Pay Commission’s recommendation around payslips for care workers will not remedy this problem.
UNISON believes that social care employers must go beyond simply listing the hours nominally worked by the care worker. They must also be required to list the corresponding rates of pay for the hours worked and show what elements of pay are subject to calculation of the minimum wage and discount any enhancements (e.g. for weekend working) to demonstrate compliance. Employers should not only comply with the law but they must be seen to be compliant in an open and transparent manner.
For homecare workers it is vitally important that pay slips list the hours that they are being paid for and the corresponding rate of pay. Information must be provided to show the number of hours spent in service users homes, with a breakdown of that time alongside the rate of pay for that work. There must also be clear provision detailing the amount of time spent travelling along with a breakdown of the time alongside the rate of pay for that work. Providing the breakdown will allow care workers to check whether that is a true reflection of their working time.
Providing the corresponding rate of pay for the time spent working will help to satisfy whether payment of the minimum wage has been met.
We set out below three examples to illustrate our point:
Care worker A receives a monthly pay slip that meets the Low Pay Commission’s requirements. It says that they worked 100 hours over the monthly pay reference period at £7.50 an hour and therefore before tax etc their pay was £750. It then lists the hours they worked in the month e.g. Monday 7am-11am & 8pm – 11pm etc.
A pay slip like this would meet the Low Pay Commission’s requirements and would provide the care worker some basic information in a seemingly clear and understandable format.
However, it would need a lot more detail to provide satisfaction that the employer is compliant with the minimum wage. It would need to list the relevant rates of pay for all the hours worked, including contact and travel time. It would also need to indicate what hours attracted enhanced rates of pay.
It would also need to include the breaks that a worker has throughout their day in order to highlight if the employer is scheduling a series of unpaid breaks as a way of circumventing the need to pay for travel time.
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Therefore, a pay slip for care worker B should list the headline information -
1. Total hours worked with a breakdown per category of work – contact, travel, training
The pay slip for care worker B should separately list the total amount of time spent by the worker carrying out the different varieties of contact time alongside the total amount of money paid for each variety of contact time. The same should apply for travel time. e.g. 20 hours were spent travelling during the pay reference period by care worker B at £7.20 an hour giving a total of £144. 60 hours were spent carrying out Standard contact time at £7.50 an hour giving £450. 10 hours were spent carrying out Enhanced weekly contact time at £8.50 giving £85 and 10 hours were spent carrying Weekend contact time at £10 an hour giving £100. Giving a total of £779 over the pay reference period. Any enhanced rates would need to be discounted to determine whether this is compliant with the minimum wage.
To be completely transparent, the employer should then provide a clear breakdown of each working day and list the pay for each section of the day.
E.g. Monday 1st of April 7am – 7:30am (Standard Contact time Mr Smith) = £3.75
7:30am- 7:45am (travel time to Mrs Jones) = £1.80
7:45am-8:15am (Standard Contact time Mrs Jones) = £3.75 ( running total of Standard contact time = £7.50)
8:15am-8:30am (travel time to Mrs Peters) = £1.80 (running travel time total = £3.60)
2. Total pay with breakdown of basic and enhanced elements
It should clearly establish how the employer pays it care workers for the different aspects of their work e.g. Standard contact time during the week before 9pm is paid at a rate of £7.50 an hour. Enhanced weekly contact time after 9pm Monday to Friday is paid at £8.50 an hour. Weekend contact time is paid at £10 an hour. Travel time is paid at £7.20 an hour at all times.
3. Total hours subject to NMW/NLW (hours x basic rate)
The worker can then determine that the total pay is in excess of the baseline NMW/NLW compliance calculation. The employer should be required to include a statement confirming compliance with a calculation demonstrating how it is said to be achieved as set out in the draft payslip at Appendix 3. This detailed and clear breakdown allows the care worker to check whether the hours they are being paid for corresponds to the hours they spent both carrying out contact time and travel time. If it does not, then they are in a stronger position to challenge their employer or to contact HMRC or their trade union.UNISON calls for a presumption of non compliance where the employer fails to provide the required information. and a penalty for employers who fail to provide this calculation at the point of payment.
The information also forces the employer to clearly list the calculations that they are obliged by law to carry out in order to prove that they are compliant with the minimum wage. It should be noted that where employers pay for travel time per hour the issues this raises should not pose difficulties. This issue relates to arrangements whereby the employer pays an elevated contractual rate for contact hours and nothing for travel time and they intend for the overall calculation to be compliant.
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Care worker C shows the example of a care employer that does not pay for travel time and illustrates why there is the need for a detailed breakdown of information.
Careworker C’s works a total of 100 hours, composed of 80 contact hours and 20 travel hours. Their employer only pays for contact hours at a rate of £7.50 per hour basic and £7.70 per hour premium rate for weekends.
Total pay for this pay period is £602.
During the pay reference period care worker C works 10 hours at the enhanced premium rate and 70 hours at the basic rate but is not paid for the 20 hours they spend travelling between visits.
Therefore, the total number of hours that are subject to NMW/NLW calculations are 100. To be compliant with the NMW/NLW they should be paid at least £7.20.
100 hours worked at the basic hourly rate of £7.50 delivers total pay of £750.
However, they have been paid for just 80 hours (70 x £7.50 + 10 x £7.70/80), which delivers total pay of £602.
Their pay is therefore not NLW compliant as this falls well below £7.20 NLW. BUT as this employer does not pay for travel time they just list the hours they pay care worker C for as permitted in their contract on their pay slip. So it just states that 80 hours worked for total of £602.
This payslip, which would meet the requirements set out by the Low Pay Commission, would give care worker C the impression that their employer is compliant with the NLW as £602 divided by 80 is £7.53.
If the worker manages to work out what element of their pay has been given at the enhanced rate then in this case it still looks as if though they are compliant with the minimum wage i.e. 80 hours of contact x £7.50 (pay at the basic rate) = £600.
UNISON therefore believes that the Government should make regulations, as provided for by section 12 of the 1998 NMW Act requiring employers to provide their workers with a statement demonstrating compliance with the NMW/NLW. UNISON considers that this is integral to improving NMW/NLW compliance and enforceability.
Section 12 provides that:
Employer to provide worker with national minimum wage statement.E+W+S+N.I.(1)Regulations may make provision for the purpose of conferring on a worker the right to be given by his employer, at or before the time at which any payment of remuneration is made to the worker, a written statement.
(2)The regulations may make provision with respect to the contents of any such statement and may, in particular, require it to contain—
(a)prescribed information relating to this Act or any regulations under it; or
(b)prescribed information for the purpose of assisting the worker to determine whether he has been remunerated at a rate at least equal to the national minimum wage during the period to which the payment of remuneration relates.
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Draft regulations prepared by UNISON are set out at Appendix 4. UNISON believes that it is essential that regulations are made as provided for under the Act. Employers are already required to pay workers the NMW/NLW and have the payroll information and work scheduling to demonstrate compliance so it would not result in increased burden upon them. They would simply be required to provide workers with the details of a calculation of compliance that they must already be undertaking. By providing this information to workers at the point of payment, workers will be able to verify to their own satisfaction that they are being paid in compliance with the law. Where they are not, they will be better able to challenge that non-compliance in a timely manner. This is especially important given the difficulties for low paid workers in relation to access to justice following the introduction of Employment Tribunal fees (the cost of bringing a claim can often be more than the sums that are owed). An additional significant factor is the current stance of HMRC to allow employers found to be non-compliant with the NMW/NLW to be able to self-correct for their wider workforce in the absence of meaningful scrutiny.
The extent of the problem of NMW/NLW non-compliance in the social care sector demonstrates that provision of this information on a voluntary basis is not sufficient. Workers are not being provided with information on NMW/NLW compliance, not least because NMW/NLW non-compliance is so endemic across the sector. Action must be taken and employers must be compelled, by law, to provide the information to workers at the point of payment to positively demonstrate that they adhere to the minimum wage standards as set out in law.
UNISON strongly believes that increasing transparency and requiring employers to provide this information will mean that the social care workforce would be able to satisfy themselves that they are being paid at least the NMW/NLW. Making employers demonstrate compliance would, in our view, be a significant step towards reducing the number of care workers being paid illegally, which would in turn help to improve care standards. It would also make cases where employers are not paying the NMW/NLW far easier to identify which will also assist with the enforcement process, easing the burden on ACAS, HM Revenue & Customs and the Employment Tribunal service.
Third party information
LPC recommendation: We recommend that the Government establishes a formal public protocol for HMRC to handle third party whistleblowing on breaches of the NMW, which should include arrangements for giving all possible feedback to relevant third parties and appropriate continuing involvement in any resulting casework.
UNISON believes that the social care sector would greatly benefit from the introduction of a formal public protocol for HMRC to handle third party whistleblowing on breaches of the NMW.
The National Audit Office has reported that up to 220,000 care workers in England are paid below the NMW. However, a Parliamentary Question from 2013 revealed that only 11 homecare workers rang to formally complain in 2011-12, and a further 19 the following year30. Subsequent Parliamentary Questions have revealed that the number of care workers to ring the helpline remains very low.
30 House of Commons, Hansard, 10 June 2013, http://www.publications.parliament.uk/pa/cm201314/cmhansrd/cm130610/text/130610w0002.htm
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A high proportion of care workers are employed on zero hours contracts. The former Care Minister Norman Lamb revealed that 307,000 care workers were employed on zero hours contracts. The number has increased since then. This is a key reason why so few care workers are contacting HMRC to report breaches of the NMW despite the fact that the practice is sadly endemic across the social care sector.
UNISON has represented a number of care workers employed on zero hours contracts who have seen their hours cut as a consequence of reporting non-payment of the NMW.
Establishing a formal public protocol for HMRC to handle third party whistleblowing on breaches of the NMW would be a positive step in the right direction and lead to an increase in the reporting of breaches of the NMW.
Giving trade unions a role to represent low-paid members in this setting would be a positive step across the sector which would have a potential knock on benefit for care standards. Illegally low pay for care workers plunges them into poverty, causes high staff turnover rates (over 30% in homecare alone) and has a detrimental impact on care standards. Too many good experienced care workers are forced to leave the sector because they cannot afford to stay.
Not paying for travel time, even though it is working time, encourages the practice of ‘call clipping’ whereby homecare workers leave their visits early in order to cut down on the amount of time they have to spend working for free. The National Institute for Health and Care Excellence recently issued clinical guidance for homecare where it was stated good homecare provision should
“Ensure service contracts allow home care workers enough time to provide a good quality service, including having enough time to talk to the person and their carer, and to have sufficient travel time between appointments[2]. They should ensure that workers have time to do their job without being rushed or compromising the dignity or wellbeing of the person who uses services.”
Poorer levels of care in the social care system inevitably lead to more pressure and costs being placed upon the NHS.
Summary The number of workers identified as being owed arrears for under payment of the
National Minimum Wage more than doubled in the year to 2015-16, , while the scale of arrears more than trebled to £10.3m.
11% of the care workforce, equivalent to 160,000 direct care jobs, were paid below the minimum wage in 2013/14, with the level of underpayment standing at £815 per worker.
Conclusions As provided for by section 12 of the 1998 NMW Act, regulations should be
established requiring employers to provide their workers with a statement demonstrating compliance with the NMW/NLW.
A formal public protocol should be established for HMRC to handle third party whistleblowing on breaches of the NMW in the social care sector.
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APPENDIX 1 - Example scenario for conversionSince 2011, the Living Wage has increased at an average of 3.6% a year. Assuming that this rate continues, raising the minimum wage from a £7.20 starting point at a rate of 7% a year would enable parity to be reached along the pattern shown below by approximately 2021.
Given that a 6% annual increase in the “national living wage” is required to reach the target £9 rate by 2020, just 1% extra per year is required to reach the Living Wage rate by 2021.
2016 2017 2018 2019 2020 2021£0.00
£2.00
£4.00
£6.00
£8.00
£10.00
£12.00
Path to conversion of rates
Living wage rateMinimum wage rate
Hour
ly ra
te
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APPENDIX 2 – Calculation of Local Government NJC Staff affected by “national living wage”
Current rates Impact of NLW by 2020Pay point Annual salary Hourly
rate2020 hourly rate
assuming 1% increase a year
2020 annual salary assuming 1%
increase a year
OBR estimate of NLW as hourly
rate in 2020
OBR estimate of NLW as annual salary in 2020
Increase in annual salary to reach NLW
% increase in annual salary to reach NLW
5 (until 1 Oct 15) 6 £14,514 £7.52 £7.83 £15,103.33 £9.00 £17,362.62 £2,259.29 15.0%7 £14,615 £7.58 £7.89 £15,208.43 £9.00 £17,362.62 £2,154.19 14.2%8 £14,771 £7.66 £7.97 £15,370.76 £9.00 £17,362.62 £1,991.86 13.0%9 £14,975 £7.76 £8.08 £15,583.05 £9.00 £17,362.62 £1,779.57 11.4%
10 £15,238 £7.90 £8.22 £15,856.72 £9.00 £17,362.62 £1,505.90 9.5%11 £15,507 £8.04 £8.37 £16,136.65 £9.00 £17,362.62 £1,225.97 7.6%12 £15,823 £8.20 £8.53 £16,465.48 £9.00 £17,362.62 £897.14 5.4%13 £16,191 £8.39 £8.73 £16,848.42 £9.00 £17,362.62 £514.20 3.1%14 £16,481 £8.54 £8.89 £17,150.19 £9.00 £17,362.62 £212.43 1.2%
Numbers of SCP staff affected* Estimated numbers of non SCP staff affected**Pay point Headcount
on pay pointFTE on pay
pointCumulative headcount
Cumulative FTE
Estimated headcount on pay point
Estimated FTE on pay point
5 (until 1 Oct 15) 19,600 5,930 19,600 5,930 29112 92836 22,890 6,820 42,490 12,750 33999 106767 19,460 6,050 61,950 18,800 28904 94718 19,310 6,230 81,260 25,030 28681 97539 18,770 6,100 100,030 31,130 27879 9549
10 21,460 7,140 121,490 38,270 31875 1117711 28,070 10,620 149,560 48,890 12920 479112 12,500 7,970 162,060 56,860 5753 359513 29,820 19,130 191,880 75,990 13725 863014 21,190 13,660 213,070 89,650 9753 6162
Total affectedPay point Estimated total
headcount on pay pointEstimated FTE on
pay pointCumulative estimated total
headcount on pay pointCumulative estimated total
FTE on pay point5 (until 1 Oct 15) 48712 15213 48,712 15,213
6 56889 17496 105,601 32,7107 48364 15521 153,965 48,2318 47991 15983 201,956 64,2139 46649 15649 248,605 79,863
10 53335 18317 301,940 98,18011 40990 15411 342,930 113,59112 18253 11565 361,183 125,15613 43545 27760 404,728 152,91614 30943 19822 435,671 172,738
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APPENDIX 3 – Draft payslips
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55
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APPENDIX 4 – Draft National Minimum Wage (Prescribed Information) Regulations
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59
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