Living Wage

Kwasi Kwarteng Excerpts

Wednesday 9th January 2013 Westminster Hall

[Kwasi Kwarteng (Spelthorne) (Con)]

I am pleased to serve under your chairmanship, Mrs Main.

I agree with many of the remarks made by my hon. Friend the Member for Christchurch (Mr Chope), who put his case trenchantly. We are having a very simple argument: it boils down to whether we want free enterprise and a free market system or whether we think that state intervention is the way to achieve better economic outcomes for the people of this country. It seems to me that this debate has been taking place for years in Britain. Until recently, there had been a general presumption in favour of the markets.

I am pleased that the hon. Member for Birmingham, Erdington (Jack Dromey) referred to May day as a great rallying point, because of course it was a great socialist parade. Those of us who remember the cold war will recall that May day was the Soviet Union’s big day, when tanks drove through Red square; it was very much something that the Soviet Union celebrated. I am sure that the hon. Gentleman would love to go back to those days, but many of us have moved on. I make the point perhaps a little flippantly, but there is a serious argument about whether one feels that better outcomes can be achieved through state diktat.

[Meg Hillier (Hackney South and Shoreditch) (Lab/Co-op)]

The hon. Gentleman is talking about state intervention. Many people in my constituency and across London must effectively be subsidised through in-work benefits because of their low wages. There is therefore state subsidy and a cost to the state with the current regime.

[Kwasi Kwarteng]

We could have a separate argument about the efficacy of—[Interruption.] Let us stick with this theoretical idea.

[Mr Lammy]

Will the hon. Gentleman give way?

[Kwasi Kwarteng]

No, I have given way once, and I need to proceed. The notion that one can improve outcomes simply by passing laws about the level of pay is false. The one way—

[Anas Sarwar (Glasgow Central) (Lab)]

Will the hon. Gentleman give way?

[Kwasi Kwarteng]

No. Let me—[Interruption.]

[Mrs Anne Main (in the Chair)]

Order. The hon. Gentleman is not giving way. I would appreciate it if he were not barracked.

[Kwasi Kwarteng]

The reason wages have gone up over the past 50 years is economic growth; that is what has driven the rise in real wages, not laws passed by Governments, the minimum wage or anything like that. The one way to secure economic growth is to create a situation in which businesses can thrive. I would like to see lower taxes and more people taken out of taxation—the Government have successfully done that—so that they can spend more of their own money. I would also like the burdens placed on employers through national insurance to be reduced. Such measures will be far more effective in driving up our workers’ standards of living than Westminster or Whitehall imposing a living wage right through the country.

I am pleased that my hon. Friend the Member for Christchurch mentioned that there was some regional variation between London and the rest of the country. In the debates about the minimum wage, it was seen as a national minimum wage that did not recognise any variation in the cost of living between London and rural Scotland.

[Anas Sarwar]

Just to clarify, the hon. Gentleman’s argument is exactly the same argument that was made against the minimum wage in 1997. Does he support the minimum wage?

[Kwasi Kwarteng]

I support it now, because it is a fact of life. To address the hon. Gentleman’s comment directly, the minimum wage is not set at a level that is damaging to business. It is set at a reasonable level, although I am not saying that it is the best level. I want people to earn more—of course I want them to be more affluent—but the way to achieve greater prosperity is to allow businesses to do well, to flourish and to employ people, and that will not happen as a result of the state demanding a certain level of wages. We have been there: in the ’70s, we had national incomes policy and price policy, but that all failed—it was a complete disaster. It is baffling, in 2013, that we are hearing the same old socialist arguments for Government intervention and control.

I appreciate that many others want to speak, so I will finish on this point.

[Ian Lavery]

Is it a socialist ideal or policy to support having a decent living wage so that people can put bread on the table for their kids?

[Kwasi Kwarteng]

I have said this about three times in my speech: everybody wants people to have higher wages—[Interruption.]

[Mrs Anne Main (in the Chair)]

Order.

[Kwasi Kwarteng]

No one is arguing against higher wages. We are arguing about the most effective way of raising living standards and economic prosperity for the whole country. I am suggesting, as a matter of theory, history and experience, that the socialist approach of using Government diktat is not the most effective way of dealing with this issue.

We can argue about this specific issue. Parties in London are suggesting that we have a living wage, but that is something for companies and councils. I object to the idea that Whitehall and Westminster should set a national living wage that applies right through the country.

Let me finish where I started—with the theoretical debate. There is a big debate about whether a free market system will produce better outcomes than an essentially state-controlled system. All through the world, the most successful economies are free market systems.

[Mr Iain Wright (Hartlepool) (Lab)]

China.

[Kwasi Kwarteng]

In China, the state contributes only 20% of spending. In terms of state spending as a proportion of GDP, China is a far more private sector-driven economy than the UK or other western European countries.

[Mrs Anne Main (in the Chair)]

Order. May I ask the hon. Gentleman to bring his remarks to a close?

[Kwasi Kwarteng]

The notion that we can go back to socialism and that that will somehow increase living standards is false, but I fear that that is what this living wage proposal is about. It is simply trying to impose more regulation, more rules and more of a straitjacket on business, thereby inevitably impeding and impairing our ability to grow the economy and create genuine prosperity.

--- Later in debate ---

[Kwasi Kwarteng]

Will the hon. Lady give way?

[Lisa Nandy]

I will give way in a moment. Let me finish my sentence. I am unashamed to stand up for the people I represent, who, after a long week at work, do not earn enough to pay for basic necessities.

[Kwasi Kwarteng]

It is rare that we have such candour on this estate, so I am glad to hear what the hon. Lady says. I congratulate her on putting her hand up and saying that she is actually a socialist. That is what this debate is about.

[Lisa Nandy]

Forgive me, but I thought it was about the living wage and the conditions of the lowest paid in this country.

I congratulate my hon. Friend on helping to put some momentum behind an incredibly important issue. Last year, the council in my area, Wigan council, became one of many around the country to pledge to pay the living wage. That will have profound and important consequences for the 565 people who work for it, but who do not currently earn the living wage. For those who were previously on the minimum wage, the change will put an extra £40 a week in their pockets. The significance of that for the lowest paid cannot be overestimated.

I say to Conservative Members that there is no political fissure on this issue, although they seem to be trying to create one. Although the majority of councils across Greater Manchester that have agreed to pay the living wage are Labour run, Trafford council has done the same, and it is run by the Conservatives. In London, of course, the Mayor, Boris Johnson, has also spoken on this issue.

[Kwasi Kwarteng]

Will the hon. Lady give way on that specific point?

[Lisa Nandy]

No, I will not give way, because several people want to speak, and the hon. Gentleman has had his turn.

We know the difference the living wage will make for the 4.4 million people across the country who earn less than £7 an hour, and so do the hon. Gentleman’s colleagues on Conservative-run councils. We also know the difference it will make for their families. The Child Poverty Action Group has calculated that two parents on the minimum wage can meet only 82% of the basic costs of bringing up their children. Essentially, we are telling those parents, “Go to work, work hard and work long hours. When you come home, your children will still go without the basic essentials they need to have decent childhoods.” The Institute for Fiscal Studies calculates that one in four children will grow up in poverty by 2020, which is a disgrace and a scandal. In Greater Manchester, part of which I represent, 40% of children already grow up in poverty.

The failure to pay the living wage strikes at many of the Government’s objectives. Their strategy to tackle child poverty is based on trying to get parents into employment, but 58% of children growing up in poverty have a parent who works. The point is this: if work does not pay, we will not be able to tackle child poverty. As my hon. Friend the Member for Birmingham, Erdington (Jack Dromey) said so eloquently, on behalf of his constituent, Elaine, the living wage means that parents and children get to spend time together. That is why Save the Children and so many other children’s charities support it. There is also a clear economic case. The costs of child poverty have been estimated at some £25 billion a year. Taking action on this issue is an urgent economic necessity, not just a moral one.

I want to take on one of the points that Government Members have made, which is about helping businesses. My hon. Friend the Member for Erith and Thamesmead also alluded to that. In my constituency, the public and private sectors are completely interdependent. Some two thirds of my constituents are employed by small and medium-sized businesses. The other third—until the Government were elected—were employed by the public sector. Small and medium-sized businesses rely on the public sector; they rely on people being in work in it, in decently paid jobs, so that they can spend in their businesses and flourish. The fact that my council has taken a lead and said, “We will ensure that all the people in our employ are able to have enough money to go out and spend it in the local economy,” will be a tremendous boost to the small and medium-sized businesses that I am keen to support.

There is a growing army of people in my constituency who work part-time hours, despite desperately wanting to work for longer, or have zero-hour contracts or are in agency work. As the Joseph Rowntree Foundation’s recent report so compellingly illustrated, the divide between those in work earning poverty pay and those out of work getting poverty benefits is completely false, because those two groups are one and the same, and they are moving in and out of employment at an alarming rate. Trying to create a divide between the private and public sectors and between people in work and out of work is simply false.

Many of the solutions that have appeared with the growth in poverty in the past few years are from charities. One aspect of that rise has been the alarming and distressing growth of food banks around the Greater Manchester area. Many of those food banks are supported by supermarkets and I pay tribute to them for stepping up and doing that, but those very same supermarkets must ensure that they are not part of the problem, and that they do not refuse to take people on for anything other than part-time work or to pay a living wage. That would help stimulate the economy and meet their employees’ basic needs.

Finally, to set this in the context of what has happened largely over the course of my lifetime, we have seen the earnings of people at the bottom of society stagnate while the earnings of those at the very top have increased significantly. Between 1986 and 2012, incomes in the top 10% increased by 81%, while the bottom 10% increased by only 47%. Research has shown that if the national minimum wage had kept pace with the salaries of CEOs in FTSE 100 companies since 1999, it would now stand at £18.89 an hour.

We know that inequality is bad for society—that has been compellingly demonstrated by “The Spirit Level”—and we see it all the time in our own constituencies. Several Members of Parliament, including my right hon. Friend the Member for Tottenham (Mr Lammy) and I, have been trying to advance the case that, as in America, the pay ratios of the top two average earners in FTSE 100 companies should be published on the front page of their annual reports, so that we can see whether companies are fairly distributing reward. The trouble with that proposal is that, although it may compress and restrain wages at the top, it does not do very much for the lowest paid.

The living wage is becoming an urgent priority in Wigan, in Erith and Thamesmead and up and down the country. The living wage would be an effective and simple way of helping tackle the lengthening queues at food banks, the growing numbers of children growing up in poverty and the families that lack the means to make ends meet. My hon. Friend the Member for Erith and Thamesmead talked about ironing out some of the difficulties that have been raised by the living wage. The situation should not be allowed to continue; it is immoral and bad economics. I would like the Minister to begin by committing to at least ensuring that the living wage is extended to the Government’s employees across the board and to working with companies contracted by Government so that they also pay the living wage to their staff.

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[Meg Hillier (Hackney South and Shoreditch) (Lab/Co-op)]

Thank you very much, Mrs Main, for calling me to speak. It is a pleasure to serve under your chairmanship.

I congratulate my hon. Friend the Member for Erith and Thamesmead (Teresa Pearce) on securing this debate on a very important issue. I represent a constituency in the part of London—east London—that was the birthplace of the living wage campaign. I think that we would all agree—Labour Members would certainly agree and perhaps even some Government Members would agree— that a fair wage for a fair day’s work is something that we support. I was slightly disturbed by the hon. Member for Christchurch (Mr Chope) seemingly comparing people abroad working for £1 an hour or less with people here in Britain, as though that was an option for people here. I hope that he did not mean it quite that way, but that is how it came across.

Let us remember that it was the Conservative Government of the ’80s who abolished the mechanism for setting fair pay, the wages council. I am very proud that I am a Labour MP and that it was a Labour Government who introduced the minimum wage because of the abysmal failure of having a complete free rein on wages.

[Kwasi Kwarteng]

Is the hon. Lady suggesting that we go back to the ’70s and the kinds of industrial relations that we had then?

[Meg Hillier]

I cannot understand how the hon. Gentleman makes a jump to reach that conclusion from my suggesting that we do not want to go back to a complete free rein on pay. That is not what I am saying at all, as he well knows. It is mischievous of him to suggest that I am saying that.

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[Meg Hillier]

I will just make a little progress before I take interventions.

I am also delighted that it is my party that is seeking to ensure that, in constituencies such as my own, a living wage will enable people to work. Let us be clear about something, before we run away with the idea that a living wage will be very damaging to lots of small businesses. A living wage is not something that a Labour Government would force upon business, or certainly not upon small businesses. There are businesses such as Moo.com in Tech city, which employs people in its warehouse in EC2, providing good, valuable jobs locally. Those people are on the minimum wage for the first part of their contract, until they have been there for a while, and then the company increases their wage. Flexibility is built into the Labour policy to ensure that the system will work.

I will offer one word of caution. We need to look at the hourly gross rate of pay. That is obviously important, because it reflects the day-to-day money that people take home to live on, but we also need to consider pensions and other work benefits. When we assess what is fair pay, those benefits need to be brought into the round. My point is that, if a company pays a little lower than the living wage but pays a pension, we need to be watchful. As a Labour Government, we will need to be clear that the pressure, or indeed the kudos, of paying the living wage does not lead to the erosion of other benefits that are a type of payment in kind. My hon. Friend the Member for Hayes and Harlington (John McDonnell) made some very good points about that.

[Kwasi Kwarteng]

rose—

[Meg Hillier]

I will give way one last time.

[Kwasi Kwarteng]

I am very grateful to the hon. Lady for giving way; she is being very generous in allowing interventions. What would she think about a Member of Parliament, for example, or someone else advertising for an apprentice at £3 an hour, which I understand one of her colleagues on the Labour Benches has done?

[Meg Hillier]

I would be appalled, and indeed I am appalled. I am part of the campaign in Parliament to ensure that all of us—from whatever party—pay people in our offices a fair rate. I like to think that I lead by example on that; in fact, I know I lead by example on the issue, alongside a number of my other colleagues. I think that we can all agree that what the hon. Gentleman just referred to is not something that we would want to see in the mother of Parliaments.

Let me relate this debate to real life, because we could have a theoretical discussion in Parliament about the economics of the issue. A kitchen porter came to my surgery and he was very upset. Being a kitchen porter is low-wage employment, but he was seeking work because he was out of work. However, his jobcentre was asking him to travel further afield in order to take a job as a kitchen porter. One could say that that was quite reasonable. However, because of the low wages for that type of job, the extra costs to travel out of the borough and the extra child care needed because of the longer hours spent travelling, it was not a viable option.

Let us be clear—that man is no shirker. However, the hon. Member for Christchurch suggests that the market would solve that problem, perhaps by single people taking that work. However, my constituent has a family to support; he wants to support them but is unable to do so under the current regime, except that the state will subsidise matters to a degree by providing benefits. So we are talking in the round here. There is always a cost to the state, whichever way we do things, and actually giving people the dignity of earning a living wage with which they can support their family and make choices for their family on their own is very much at the heart of Labour’s policy in this area.

I could add to that kitchen porter many other of my constituents, even some on higher salaries. The tube price hikes and the bus fare hikes by the Mayor of London, and the cost-capping—we had the vote yesterday in Parliament on in-work benefits—all put pressures on people’s ability to pay their costs of living. That is why a living wage gives people the dignity of being able to make their own choices.

We also need to look at national insurance contributions. That is something that we will need to work through as a party, as we flesh out the policy on the living wage. NICs are now more than 13% of total gross pay for small employers, which is more than employees contribute. The on-costs for a small employer are significant and we need to think about how we might want to encourage and support small employers, to get people into work, yes, but also to increase their pay gradually so that they are on a living wage. There is a real interest for business, but some of those start-ups in my constituency will be worried if they foresee a suggestion that overnight they will have to increase wages. We need to handle that issue carefully, because the jobs that are being created in my constituency and elsewhere are important.

I am proud that my local council, Hackney council, is one of those councils that are accredited as paying the living wage, because we in Hackney see the impact on people’s lives of that policy. We are living what is happening. However, it was interesting that when I asked the Deputy Prime Minister at Prime Minister’s questions in November how many Liberal Democrat councils were paying the living wage, answer came there none.

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[Mr Iain Wright (Hartlepool) (Lab)]

It is a pleasure to serve under your chairmanship, Mrs Main, and I wish you and all Members who have contributed to the debate a happy new year, particularly my hon. Friend the Member for Erith and Thamesmead (Teresa Pearce). I congratulate her on securing such an important and passionate debate.

As my hon. Friend mentioned, the living wage is an important means by which greater dignity and fairness can be offered to people, by lifting them and their families out of poverty while at the same time helping them to become less reliant on state benefits. She talked, as did my hon. Friends the Members for Wigan (Lisa Nandy) and for Hackney South and Shoreditch (Meg Hillier), about decent, hard-working people doing the right thing and going out to work to provide for themselves and their families. People having aspirations, and striving for a better future for themselves, their families, their communities and their country, should be rewarded. Hard work and effort should be appropriately remunerated in the form of a decent and dignified rate of pay, to avoid the misery and desperation of in-work poverty.

As Labour Members have mentioned several times, the national minimum wage, introduced by a Labour Government, has done a huge amount by providing the protection of a legal pay floor for more than 1 million people. However, although the minimum wage is an important achievement, it should not, as my right hon. Friend the Leader of the Opposition has said, be the summit of our ambitions. Indeed, he has been at the forefront of discussions about the living wage.

The living wage complements and reinforces the vision of a one-nation economy, in which everyone in society plays a part and has a stake, and where prosperity is fairly shared. I would like to think that this country, and the manner in which its economy is organised, has the ability to move on from an old-fashioned and outdated form of capitalism, which is what we have heard from the hon. Members for Christchurch (Mr Chope) and for Spelthorne (Kwasi Kwarteng) today. That form of capitalism sees a confrontational, divisive and somewhat inefficient “them and us” attitude between employee and employer, which prioritises the erosion of employment rights. A race to the bottom in relation to workers’ rights or wage rates will not help this country to improve our competitive position in the 21st-century global economy, or achieve greater fairness and social justice. I do not understand why people on the highest possible rate of pay are motivated by being paid more, while people on the lowest possible rate, who are struggling barely to make a living and feed their families, are motivated by being paid less. That seems fundamentally wrong.

[Kwasi Kwarteng]

Is the hon. Gentleman suggesting that state legislation will make Britain more competitive in the global economy?

[Mr Wright]

As I said, the national minimum wage has helped to lift people out of poverty, and as my hon. Friend the Member for Birmingham, Erdington (Jack Dromey) said, people on the lowest levels of pay tend to spend their money in the economy. The multiplier effect will, therefore, probably help benefits, jobs, prospects and economic positions—it certainly has a beneficial role to play in the economy.

Several hon. Friends have mentioned that local authorities, such as Islington, Lambeth—which was very well led by my hon. Friend the Member for Croydon North (Steve Reed)—Wigan, Camden, Oxford, Preston, Southwark and Hackney have introduced a living wage, and others are set to follow, including Newcastle city council in my own north-east region. In difficult financial times for local government, those local authorities should be applauded for doing the right thing for their employees. I hope that, despite the appalling financial settlement it received from the Government last month—the 2.2% cut being the highest in the region—my own local authority, Hartlepool borough council, will be able to follow suit.

This should not, however, be about local government, or even about the public sector—such an approach is entirely wrong. Wherever possible, a living wage should be adopted in the private sector. It might be more difficult for small businesses, as my hon. Friend the Member for Hackney South and Shoreditch mentioned, but it should be considered almost automatically by larger enterprises. Credit should be given to the likes of Barclays, Deutsche bank, PricewaterhouseCoopers and KPMG, which have become living wage employers. The nature of those firms’ business models and the sectors in which they operate, as well as the size of the companies, might mean that they have relatively fewer low-paid workers than other companies, particularly in sectors such as retail. Therefore, all credit must be given to Westfield shopping centre, Lush and the InterContinental Hotels Group, whose business models, on adopting a living wage, will rely more heavily on low-paid workers.

Hon. Members, particularly my hon. Friend who introduced the debate, have rightly mentioned the net savings to the Exchequer as a result of the implementation of a living wage. My hon. Friend mentioned that research by the Resolution Foundation and the Institute for Public Policy Research found that the Treasury would benefit by about £3.6 billion each year in the form of higher income tax payments and national insurance contributions, and lower benefits spending.

As my hon. Friend the Member for Croydon North and other Members have said, there is also anecdotal evidence that businesses will benefit from the introduction of a living wage, and will become more productive. There will be improved staff recruitment and retention and associated cost savings, higher worker morale and therefore improved productivity, and an enhanced corporate reputation in the marketplace. Wendy Cuthbert, head of UK corporate real estate services for Barclays, has said that since the company adopted the living wage in 2007 catering staff retention rates have increased to 77%, compared to an industry norm of 54%, and the rates for cleaning staff have increased to 92%, compared to the industry average of just 35%. She has commented:

“Now when we train our staff we know that the money isn’t being wasted. They don’t want to leave and they no longer have to do two jobs just to survive...Employers need to look at the whole cost of employment not just the cost-per-hour. We don’t understand why more companies don’t do this.”

Guy Stallard, head of facilities at KPMG, has stated:

“We’ve found that paying the Living Wage is a smart business move as increasing wages has reduced staff turnover and absenteeism, whilst productivity and professionalism have subsequently increased.”

I have a number of questions for the Minister. On Government policy, the Minister in the other place, the one who did not resign yesterday, the noble Lord Gardiner of Kimble, has confirmed that the

“Government back the idea of a living wage and we encourage businesses, where possible, to take it up.”—[Official Report, House of Lords, 8 November 2012; Vol. 740, c. 1092.]

Can the Minister confirm that that is still the case and that it is Government policy, despite the comments from his Back Benchers this afternoon?

[Kwasi Kwarteng]

No one has an issue with individual companies deciding to pay the living wage. That is entirely how a market should work.

[Mr Wright]

Let me come on to that in my questions to the Minister.

How is that encouragement that was mentioned by the Government in the other place manifesting itself in tangible and practical action? What are the Government actually doing to encourage businesses to consider becoming living wage employers? What meetings has the Minister had with businesses and business organisations to discuss the matter? Has he met with colleagues across Government, such as the Secretary of State for Communities and Local Government, to ascertain how organisations in other sectors have successfully implemented a living wage? Has he, or have his officials, met with Citizens UK, for example, to discuss what practical steps can be taken? Citizens UK is an organisation that is doing an awful lot of work in relation to the living wage campaign. Has the Minister considered a promotional campaign, sponsored by his Department, to raise awareness about the issue with businesses? Has he considered amending corporate governance rules, to ensure that large listed companies can report specifically on whether they have paid the living wage, as a means of encouraging take-up by larger companies?

The Prime Minister has said:

“Where government leads, others will follow”,

and business will legitimately look to the Government to see whether their actions match their rhetoric. As I understand it, and as has been said, the Department for Work and Pensions is the only Department that has announced that it will pay the London living wage, although two others, the Cabinet Office and the Ministry of Justice, might follow suit. Could the Minister inform the House how many Departments plan to pay the living wage, and when? Given that the Minister is in the Department for Business, Innovation and Skills, and another Minister has said that the Government will encourage businesses to take up the living wage, does the Minister’s own Department have any plans to ensure that all its employees and contracted workers are paid the living wage? What work is he doing with non-departmental public bodies sponsored by his Department to look into the possibility of their becoming living wage employers too?

I raised earlier the issue of research and the collection of evidence on the savings to the public purse and the positive impact on business. Has the Minister commissioned any research into the effect of the living wage, including the possible social, economic and business impacts?

One of the most powerful levers at the Government’s disposal is not regulation or legislation but procurement, and that has been mentioned a number of times in the debate today. My right hon. Friend the Leader of the Opposition has suggested that Departments could give preferential treatment to contractors who pay the living wage. My understanding is that No. 10 quickly dismissed my right hon. Friend’s suggestion, stating that such a move would breach EU procurement rules. The European Commission, however, has explicitly stated:

“Living-wage conditions may be included in the contract performance clauses of a public procurement contract ‘provided they are not directly or indirectly discriminatory and are indicated in the contract notice or in the contract documents’.”

There is no problem or obstacle in European law, so will the Minister confirm that what the European Commission said is already the case? In that light, will he outline the actions he will take to ensure that employers who pay the living wage are considered favourably in public procurement?

The living wage is an important social and economic lever in which everyone has a stake, people in work have a more dignified and higher standard of living than would otherwise be the case and prosperity is better and more fairly shared. I hope that the Minister will outline how he will advance the introduction of a living wage across businesses and across society more generally.