September 2010

Scottish Living Wage Q and A

A Labour Government in Scotland will have to make tough decisions to cut spending,
but supporting a living wage shows the values that will inform our decisions. We are
on the side of working families, determined to tackle poverty and for a fairer society.

There are almost half a million workers in Scotland earning less than £7 an hour. This
policy has the potential to improve the lives of tens of thousands of families across
Scotland and provide a much needed boost to the economy.

What is the Scottish Living Wage?

A “living wage” can be defined as the level of income needed to provide an acceptable
standard of living in Britain to ensure good health, adequate child development and
social inclusion. It is different from the minimum wage, which is the legal minimum an
employer can pay its workers.

The Scottish Living Wage Campaign has set a figure of £7.15 per hour as the living
wage for Scotland for 2010/11. Labour believes this should be the guaranteed minimum
for all public sector employees in devolved areas. It would increase the net earnings of
the lowest paid workers by almost £2,000 per year.

A Labour Government in Scotland would ensure that workers in the private sector also
benefitted by building it into contracts with its suppliers and seek to encourage wider
uptake in the private and voluntary sector developing a Scottish Living Wage Employer
Award.

How many people in Scotland currently earn less than £7.15 per hour?

The Annual Survey of Hours and Earnings suggests that around 456,000 people in
Scotland currently earn less than the Scottish Living Wage of £7.15 per hour. This
includes approximately 20,000 public sector workers in devolved areas, such as the
NHS and local government.

For example, according to the Scottish Government approximately 4,500 employees in

NHS Scotland are expected to earn less than £7.15 per hour in 2010-11. These are
predominantly catering staff, cleaners and porters on the lowest point of the Agenda for
Change pay scale, which is currently £6.98 per hour.

What would be the benefits to employees of a Scottish Living Wage?

The Labour Party is rightly proud of the introduction of the National Minimum Wage, in
the face of fierce opposition from the Tories and indifference from the SNP. But recent
figures have shown that the majority of children living in poverty in the UK have at least
one parent in paid employment.

The message from this is clear; low paid, transient, unskilled work is not sufficient to lift
people out of poverty. Introducing a Scottish Living Wage of £7.15 per hour will help
remove barriers to employment by making work pay and help us to tackle in-work
poverty.

Won’t any salary increases be cancelled out by reductions in tax credits?

No. Individual circumstances will vary, but any reduction in tax credits as a result of the
Living Wage will be significantly outweighed by the increase in salary. For example, a
couple with one parent working 35 hours per week and two school age children would
see a net increase of £737 per year. A single person with no children working 40 hours
a week would enjoy a net increase of £1,938 per year.

The living wage does not necessarily mean that its recipients no longer receive benefits
and credits, it simply ensures that they are not dependent on them to reach certain
minimum living standards. In addition, only those employees working more than 16
hours per week are entitled to claim Working Tax Credit. A Living Wage would therefore
be of particular benefit to part-time workers who rely solely on wages for their income.

How will the Scottish Living Wage boost the economy?

The introduction of a Scottish Living Wage would boost the economy by increasing the
spending power of low paid workers. A study by Staffordshire Business School
calculated the economic impact on Stoke-on-Trent of contracting out their home care
service. The study concluded that for every £1 an hour more paid to a public sector care
worker, £1.63 was injected into the local economy. On an annual basis this would have
provided Stoke-on-Trent with an additional £1.5 million in income. If the same multiplier
is applied to Scotland then the introduction of a Scottish Living Wage would inject over
£32 million into the Scottish economy. This figure would increase substantially if private
sector employers also adopted the living wage.

What are the benefits to business of a Scottish Living Wage?

In addition to the clear social and economic benefits for Scotland, the payment of a
Living Wage can also have a positive impact on value for money and service delivery of
contracts. A study conducted for the University of London found that contractors in
London who have implemented the London Living Wage identified benefits including;

- easier recruitment and retention

- reduced recruitment costs
- higher quality staff
- better attendance
- better productivity, motivation and loyalty
 - better quality of service.

How much would the policy cost?

The Annual Survey of Hours and Earnings suggests that 20,000 public sector workers
in Scotland in devolved areas earn less than £7.15 per hour. Independent research from
Spice suggests that increasing the wages of these employees to the level of the
Scottish Living Wage would cost approximately £20 million.

However, the Scottish Living Wage would also produce significant savings for
employers through better attendance, easier retention of staff and reduced recruitment
costs. Scottish Labour believes that the policy can therefore be introduced in a cost
neutral way from existing budgets.

For example, when Glasgow City Council introduced its living wage policy last year it
required them to increase the wages of 681 staff then earning less than £7 per hour.
Their lowest rate is now £7.33 per hour. This cost up to £1.2 million, which was paid for
through increased attendance.

It is also worth pointing out that a BBC investigation found the total remuneration for
3,415 senior public-sector workers earning more than £100,000 is £445 million. Senior
Scottish officials are the best paid in the UK. If they were all to take a 5% pay cut it
would produce a saving of £22 million – enough to fund a living wage.

How would a Labour Government in Scotland persuade other employers to pay

the Scottish Living Wage?

The Scottish Government spends approximately £8 billion per annum on procurement.

There is therefore considerable scope for extending Living Wage uptake beyond public
sector employees by promoting the policy through procurement strategy.

In order to promote awareness of the Living Wage and encourage suppliers to consider
their own employment practices, the Scottish Government should amend its
procurement strategy to include specific reference to the Living Wage. This would have
the effect of saying that all levels of Government should take into account whether or
not suppliers will pay the Living Wage when considering tenders. This would be
particularly relevant in awarding contracts where pay rates have historically been low
(e.g. catering and cleaning).

Guidance from the European Union suggests that a public sector organisation can
adopt a living wage policy stipulating that quality and good value depend on good
employment practices. Recital 33 of the EU Procurement Directive on Public Services
and Utilities states that contracts can be awarded on the basis of “most economically
advantageous tender”, not just the lowest price. The European Court of Justice in the
Helsinki Concordia Bus case (c-513199) decided that “factors which are not purely
economic may influence the value of a tender from the point of view of the contracting
authority”. A Living Wage question has been added to all Glasgow City Council
contracts and those relating to the 2014 Commonwealth Games for which they are
responsible.

A Scottish Living Wage Employer Award should also be developed and awarded to any
employer in the public, private or third sector who can demonstrate that they are
providing employees with a minimum of £7.15 an hour and related benefits such as paid
leave, sick pay and free access to a trade union. A constantly updated list of all
employers who receive the award would be publicly displayed on the Scottish
Government website.

How will the Scottish Living Wage be calculated in future years?

The Scottish Living Wage should be reviewed on an annual basis to ensure that it
cntinues to provide an appropriate level of pay. Scottish Labour will consider
establishing an independent body, or commissioning an organisation such as the
Rowntree Trust, to make an annual recommendation to the Scottish Government.