It’s time to give Britain a pay rise and improve our low-wage economy

Better pay makes sense all round, as workers are not the only ones to benefit – employers reap the rewards too, says Louise Woodruff.

David Cameron is right to ask businesses to give Britain a pay rise. While wages have started to grow, this is not coming quickly enough to make a difference to people struggling to make ends meet. More than half of those people in poverty live in households where at least one person is working, and pay really matters. Businesses can make a real difference to their employees and local communities by paying their low-paid staff more, developing ways to address the impact of poverty on their workforce and creating new, decent jobs.

The UK has a larger proportion of low-skilled, low-paid jobs than virtually any other Northern and Western European country. Low pay is now the norm for many workers – one in five of the entire workforce were paid at or below the Living Wage in 2012.

And it doesn’t just affect the prosperity of employees. Research published by Barclays last year shows that workers with financial worries are less productive, and this has a direct effect on the bottom line for employers too (an estimated 4 per cent of payroll costs).

More than 1,000 employers already pay the Living Wage. This includes smaller businesses as well as larger employers across the private, public and voluntary sectors. The Living Wage is currently £7.85 an hour outside London, and £9.15 in London. The Living Wage Foundation has just published interesting new evidence that looks at the impact on business of paying the Living Wage.

While it will increase the wage bill for businesses, the study finds this can be offset by financial savings such as “reducing staff turnover; increasing worker morale and loyalty; reducing absenteeism; productivity improvements; strengthening recruitment opportunities and providing reputational benefits”. While businesses have created new jobs, unfortunately this is not always enough to make a serious inroad into poverty. We need better jobs as well as more jobs. Evidence from JRF shows that work offers less of a guarantee of a decent living standard than it did in the past. Only one in five low-paid workers fully escape low pay after ten years.

But, increasing pay is only part of the answer to in-work poverty – we also need workplaces that provide decent, secure work with good-quality training and opportunities for progression, and for workers to have a say at work and be offered flexible working.

Businesses that accept the Prime Minister’s challenge to raise wages can make a real difference to society by helping to address in-work poverty, especially if they focus on their lowest-paid staff and understand that other staff a bit further up the pay scale could also be in poorer households.