Want to raise living standards? Pay the Living Wage if you mean business

10th Nov 2014

CBI proposals to improve living standards for low-income families are welcome, says Katie Schmuecker - but could employers be doing more?

“Improving lives by making growth work for everyone” is the strapline for a Confederation of British Industry (CBI) report published today, which also urges a focus on the lowest-income families whose living standards have been hardest hit. These are goals we would wholeheartedly agree with, and it is good to see one of the UK’s leading business organisations taking seriously the living standards of the UK’s low-paid workers. But how do their proposals stack up?

There are two recommendations that have stolen the media headlines:

  1. Extending free childcare to all one and two year olds: this would help low-income families manage the extra costs that come with being a working parent, and tackle head on what is a barrier to work for some. However, as a universal measure it is an expensive way of helping the worse off; the tax credit (or, in time, Universal Credit) system would prove a more targeted approach.
  2. Increasing the threshold at which employees start paying National Insurance contributions (NICs): while the income tax threshold has received a good deal of policy attention, the NICs threshold remains unmoved. As such, increasing the NICs threshold will certainly benefit low-paid employees more than further rises to the income tax threshold. However, as JRF has argued, attention needs to be paid to how the tax system and benefits system interact. At present, low-paid employees receiving Universal Credit will only get to keep around a third of the value of such a tax cut.

However, there is much more to the report than just these two recommendations. It also sets out ideas for tackling the education attainment gap; to boost productivity in order to increase pay; and helping people to progress to better-paid jobs.

Each of these goals will be good for individuals – providing routes to earning enough to lift themselves and their families out of poverty, and minimising the time spent stuck in low-paid work. Importantly, the report also notes that they will be good for business too.

The final area where the report makes recommendations is on how businesses can use their fringe benefit package to support employees to save for a rainy day. This is a good idea, but there is scope for greater ambition. Discount and voucher schemes, help with travel and childcare costs, sick pay and flexible working are all areas where employers could do more through their fringe benefit packages to support their low-income employees, according to JRF research.

But of course there is something of an elephant in the room here. The CBI is right to say rising productivity is the primary route to higher pay and improved living standards. Nonetheless, as part of Living Wage week it was announced there are now over 1,000 accredited Living Wage employers in the UK. This number has more than doubled in the last year, but are we really to believe that this is the extent of the employers that can afford to pay it? As well as being the public voice for businesses, I do hope the CBI is also privately challenging its members to go further.