Solving UK in-work poverty means responsible investors asking the right questions

It’s not right that 1 in 8 workers – nearly four million people – are held back by in-work poverty. To right the wrong of poverty we need more people in quality jobs which offer security, good pay and prospects for progression.

Better jobs – especially in lower paid sectors such as retail and social care - will help loosen the grip of in-work poverty. How can UK businesses be incentivised to deliver these better jobs? One answer is a push from their investors to ask more demanding questions about the UK employment practices of the firms they invest in. How can they do more to encourage companies to up their game when it comes to creating better jobs? Whilst responsible investors are rightly concerned about overseas supply chains, they need to think about UK employment practice too.

A new project from ShareAction has asked businesses, investors and civil society organisations what this responsible investment could look like. They have three main recommendations for investors:

  1. Encourage disclosure and transparency by companies on workforce issues and report on how they respond to these requests.
  2. Participate in collaborative engagement with other investors as a way of amplifying your influence.
  3. Raise workforce issues regularly with senior company executives as an integrated part of discussions on business strategy.

So, what should investors – asset managers and asset owners - be asking companies about what could help solve the UK’s in-work poverty problem?

Over a third of the UK’s FTSE100 companies already pay the higher voluntary Living Wage or above to all of their staff. Investors need to ask why a firm cannot commit to this higher Living Wage and how they are moving towards paying all colleagues pay which reflects the actual cost of living. There is clear evidence of a business case to paying the higher Living Wage such as reducing recruitment costs, improving employee engagement and retaining talent. Firms can also demonstrate how their employee fringe benefit schemes are designed to support the lowest earners: there are lots of examples of businesses with excellent reward schemes such as low-cost deposit schemes, or discounts on the weekly shop.

Jobs which offer security in both hours and contract-type give households on low incomes the certainty of income needed for better well-being and reducing costs such as childcare. Job stability enables employees to plan both for the future and in the short-term. Investors need to ask whether businesses are reliant on precarious work and what that means for the long-term strategy of the business. Many businesses keep the use of zero-hours contracts to a minimum, or do not use them at all, and are able to rota shifts with reasonable notice, proving that this business model is not inevitable.

Low-paid employees can more out of poverty by getting a better job within the company or moving to a different employer. We need more companies to invest in continuous training for their lower-paid staff, and designing progression routes and flexible jobs which mean employees can move up the pay scale. With five out of six UK low-paid workers failing to escape low pay after 10 years, investors can ask how a company is supporting their employees to progress and develop their skills.

Larger employers need to report on their gender pay gap: this has shone a light on women’s pay in a new way and galvanised action on how the pay gap should be closed. Women also occupy a disproportionate number of low-paid jobs in the UK, driving the gender pay gap overall. Research has demonstrated that companies with a more diverse workforce show higher returns. Investors need to ask firms about both gender diversity and pay at all levels of the business.

Larger employers must also report under the transparency in supply chains clause of the Modern Slavery Act. However, there is patchy compliance with the regulations and potential risks, both legal and operational, for companies who are not demonstrating good due diligence. Again, investors can check whether companies are fulfilling their obligations to eradicate modern slavery.

Everyone has a role to play in solving UK poverty. Investors have the power to drive change in business practices to move away from poor quality and precarious jobs to progressive workforce practices. This would form the basis of a more productive UK plc, and stop the rising tide of in-work poverty.