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Agenda Item No. 10

 

The Vale of Glamorgan Council

 

Scrutiny Committee (Corporate Resources) -10 December 2013

 

Report of the Managing Director

 

The Living Wage

 

Purpose of the Report

1.         To inform Members of the implications of the Living Wage.

Recommendation

1.         That Members consider the issues and implications set out in the report.

Reasons for the Recommendation

1.         To help Members understand the full implications of implementing the Living Wage and the concerns about doing so in the current financial climate.

2.         To comply with a request for consideration from Councillor Bertin.

Background

2.         Councillor Bertin submitted a request for this Committee to consider the adoption by the Council of the Living Wage from 1st April 2014. This is attached at Appendix A.

3.         The Living Wage is an hourly rate set independently by the Greater London Authority and Centre for Research in Social Policy at Loughborough University for the rest of the UK. The Living Wage is calculated according to the basic cost of living in the UK.

4.         In 2005, following a series of successful Living Wage campaigns and growing interest from employers, the Greater London Authority established the Living Wage Unit to calculate the London Living Wage. The Living Wage campaign has since grown into a national movement.

5.         The Centre for Research in Social Policy (CRSP) funded by the Joseph Rowntree Foundation began calculating a UK wide Minimum Income Standard (MIS) figure. The MIS is an average across the whole of the UK, and does not reflect the variation in the cost of living inside and outside of London.

6.         In 2011 Citizens UK brought together grass roots campaigners and leading employers from across the UK, working closely with colleagues on the Scottish Living Wage Campaign, to agree a standard model, calculated by the CRSP, for setting the UK Living Wage outside of London.

7.         Citizens UK is an alliance of local Community Organising groups in London, Birmingham, Cardiff, Milton Keynes and Nottingham. Citizens UK brings together churches, mosques and synagogues; schools, colleges and universities; unions, think-tanks and housing associations; GP surgeries, charities and migrant groups.

8.         At the same time, following consultation with campaigners, employers who support the Living Wage and HR specialists, Citizens UK launched the Living Wage Foundation and Living Wage Employer mark.

Relevant Issues and Options

9.         Members will be aware that the Living Wage is entirely voluntary. In Wales there are 16 Employers currently accredited with the Living Wage Foundation including one local authority (see Appendix B).

10.      There are also two other known Councils in Wales who are paying staff currently in accordance with the Living Wage but have not committed to the wider and ongoing requirements as set out in the Living Wage Foundation.

11.      To be accredited as an official Living Wage Employer an organisation must satisfy a number of criteria:-

·           To pay all of its staff at least the Living Wage (currently £7.65 per hour which equates to £14,759 for an employee working 37 hours per week).

·           To commit that within six months of the annual updating of the Living Wage (at present each November) its pay levels will be up-rated accordingly.

·           To demonstrate progress towards requiring contractors to adopt the Living Wage within the life of existing contracts or;

·           To have a plan in place to include Living Wage provisions to be included as a basis for the renewal of existing contracts or in new contracts.

12.      Members will be aware of the objectives of the Living Wage and particularly in relation to addressing low pay and in-work poverty. The Living Wage Foundation also refer to the following benefits for employees including: -

·           Improved quality of work of staff

·           Improved loyalty and customer service

·           Reduced absenteeism

·           Improved retention rates

·           Consumer awareness of employer's ethical commitment.

13.      The above benefits are cited in the Citizens UK document "Living Wage: A Guide for Employers" and are based on a survey of the beliefs and perceptions of those accredited Living Wage employers.

14.      The above are clearly positive business benefits and particularly relevant at present where public sector employers are searching for additional engagement and capacity from a workforce that is diminishing in number.

15.      Pay is inevitably one of a number of very basic sources of employee motivation and would normally be seen to contribute (amongst a range of other factors including the provision of good leadership, training opportunities and a safe working environment) to the achievement of some of benefits as set out in paragraph 12 above.

16.      A direct link between the implementation of the Living Wage (in isolation from the other contributory factors) and the achievement of the benefits set out in paragraph 12, is hard to confirm and would need to be tested through a broader evidence base. 

17.      The adoption of the Living Wage by the Council, as a large public sector employer would potentially be seen as providing a strong lead to other local employers (and others across Wales). It is clear that, as such an employer we have a responsibility to set a good example in the provision of decent terms and conditions of employment.

18.      In a guidance note from the Local Government Association (November 2013) the future concerns about recruitment and retention rates at the lower grade levels are raised. The note points to the increasing number of flexible lower-skilled jobs within the UK economy which, it is argued, are often paid more than Councils are able to offer. The note is included in a list of background papers at the end of this report

19.      The note warns of complacency given "the fact that the austerity programme will continue to hit Council budgets long after the rest of the economy has recovered". The note of caution within the guidance note does need to be balanced against the fact that, at present we are not experiencing recruitment and retention difficulties in the occupational areas concerned.

Concerns and implications of introducing the Living Wage

20.      Whilst acknowledging the positive benefits of introducing the Living Wage there are, however a number of fundamental concerns. These relate to the affordability of such an initiative in the current economic climate, concerns about the true impact the Living Wage would have on in-work poverty and concerns about the immediate and ongoing impact on our pay structures and the associated vulnerability to new equal pay challenges. These issues are set out below:-

Financial Implications

21.      The Living Wage is announced in November each year, and accredited employers are allowed six months for implementation.  The current rate is £7.65 per hour. Based on a full-time employee working 37 hours per week the Living Wage equates to approximately £14,759 per annum. This falls between incremental point 10 (£14,013) and point 11 (£14,880) of the Council's Single Status Pay Structure as illustrated in the table below:-

Grade

 Grade

Spinal Point

Annual Salary

Hourly Rate

Living Wage Rate

LW Annual Salary

Hourly  increase

 Annual increase

A

 

4

£12,266

£6.36

£7.65

£14,759

£1.29

£2,493

A

 

5

£12,435

£6.45

£7.65

£14,759

£1.20

£2,324

A

B

6

£12,614

£6.54

£7.65

£14,759

£1.11

£2,145

 

B

7

£12,915

£6.69

£7.65

£14,759

£0.96

£1,844

 

B

8

£13,321

£6.90

£7.65

£14,759

£0.75

£1,438

C

B

9

£13,725

£7.11

£7.65

£14,759

£0.54

£1,034

C

 

10

£14,013

£7.26

£7.65

£14,759

£0.39

£746

C

 

11

£14,880

£7.71

n/a

n/a

n/a

n/a

C

 

12

£15,189

£7.87

n/a

n/a

n/a

n/a

C

 

13

£15,598

£8.08

n/a

n/a

n/a

n/a

 

22.      The estimated cost of bringing those council staff (who are paid below the hourly rate of £7.65) up to the current Living Wage rate is set out in the table below:

 

Basic Pay

Pension

NI

Total

 

£000

£000

£000

£000

Corporate

559

71

66

696

Schools

199

27

23

249

Total

758

98

89

945

 

23.      The costs of £945k include payments to staff on permanent, temporary and casual contracts. Implementation of the Living Wage would also require an uplift in the fees paid for agency staff to match the rates paid to employed staff. The additional cost is estimated at £105k, increasing the implementation costs to £1.05m.

24.      The figures in the above table represent the full year effect of implementing the Living Wage based on the current rate of £7.65 per hour (as at November 2013) and the current Single Status pay values (as at November 2013).

25.      The figures do not take into account any prospective pay award for 2014/15, the effect of which would reduce the above costs. As an illustration of this, the full year costs of implementing the Living Wage for 2014/15 (assuming a 1% pay award) would be approximately £972k. This would represent a reduction of £78,000 based on the figures set out in paragraph 23 above.

26.      Members will also be aware, however that the Living Wage is not a fixed amount and will fluctuate over time with changes in the price of goods and inflation. Over the last two years the Living Wage has increased by 6.24% as illustrated in the table below:-

Living Wage

Hourly Rate

Annual Salary

Annual Increase

November 2013

£7.65

£14,759

3.38%

November 2012

£7.40

£14,277

2.78%

November 2011

£7.20

£13,891

 

 

27.      During the period from April 2009 to March 2013 Single Status pay rates were frozen.  In April 2013 there was a 1% pay increase and in October 2013 the lowest spinal point (point 4 - £12,266) was removed from the pay scale. The minimum pay point of the Single Status grading structure is now point 5 (£12,435).

28.      Clearly the calculation of the Living Wage (current and going forward) is outside of the national agreement for Single Status workers. Any funding implications associated with the implementation costs of the Living Wage have not been included in the local government financial settlement.

29.      In addition, Living Wage employers are encouraged to send a communication to every one they do business with encouraging them also to become living wage employers. The accreditation does not require the entire supply chain to pay the living wage, but does apply to contractors delivering services on Council premises.

30.      The impact on the cost of contracts could be considerable albeit difficult to quantify. The LGA guidance note indicates that the Living Wage could potentially have a disproportionate impact on small organisations wishing to bid for contracts with local authority employers.

Implications for current pay structure

31.      Members will be aware that the Council introduced a new pay structure with effect from 1st March 2012 as part of a Single Status/Job Evaluation Collective Agreement. The job evaluation process produces a score for each job which, in turn determines which of the eleven grades is applicable. The new structure is set out below:-

GRADE

POINTS RANGE

                                HOURLY RATES      

Grade A

from 0 to 249

 £6.36

  £6.45

  £6.54

 

 

 

Grade B

from 250 to 289

 £6.54

  £6.69

  £6.90

 £7.11

 

 

Grade C

from 290 to 326

 £7.11

  £7.26

  £7.71

 £7.87

 £8.08

 

Grade D

from 327 to 357

 £8.08

  £8.23

  £8.40

 £8.61

 £8.81

 

Grade E

from 358 to 400

 £8.81

  £8.98

  £9.32

 £9.66

 £10.01

 

Grade F

from 401 to 444

 £10.01

  £10.27

  £10.57

 £10.92

 £11.27

 £11.63

Grade G

from 445 to 481

 £11.63

  £12.02

  £12.41

 £12.90

 £13.33

 £13.76

Grade H

from 482 to 527

 £13.76

  £14.16

  £14.58

 £14.99

 £15.31

 £15.71

Grade I

from 528 to 577

 £15.71

  £16.15

  £16.62

 £17.17

 £17.62

 £18.09

Grade J

from 578 to 627

 £18.09

  £18.55

  £19.01

 £19.48

 £19.92

 

Grade K

from 628

 £19.92

  £20.40

  £20.86

 £21.33

 £21.79

 

 

32.      Implementation of the Living Wage would mean that all jobs scoring from 0 to 289 on grades A and B would be paid at same the rate of £7.65 per hour regardless of the applicable  job evaluation score.  Jobs scoring between 289 and 326, on grade C would receive a minimum of £7.65 per hour, with incremental progression to £8.08.

33.      This would have a significant impact on grade differentials in many of our front facing services. It would mean for example that a Cook (on Grade C) would potentially be receiving the same pay rate as a Kitchen Assistant (on Grade A) and a supervisor (on Grade C) would be receiving the same rate as a general labourer (on grade A).

34.      If, as is likely, the Living Wage continues to increase at a faster rate than Single Status pay, then this anomaly would increase and the existing Single Status pay structure would become increasingly unsustainable.

35.      The implementation of the Living Wage would affect 522 permanent/temporary jobs corporately and 526 such jobs in schools on point 10 or below. A summary of this is set out in the following table:- 

 

Corporate

Schools

Total

Grade

Jobs

FTE

Jobs

FTE

Jobs

FTE

 

 

 

 

 

 

 

Grade A

378

179.47

166

25.09

544

204.56

Grade B

82

  49.01

344

66.48

426

115.49

Grade C

53

  26.77

1

  0.68

54

  27.45

Misc Grades

9

    6.24

15

  6.50

24

  12.74

TOTAL

522

261.49

526

98.75

1048

360.24

 

 

36.      The gender profile in relation to the above mentioned jobs is as follows:

 

Corporate

Schools

Total

Gender

Jobs

FTE

Jobs

FTE

Jobs

%

FTE

%

 

 

 

 

 

 

 

 

 

Male

149

105.74

  30

  7.94

  179

  17%

113.68

32%

Female

373

155.75

496

90.81

  869

  83%

246.56

68%

TOTAL

522

261.49

526

98.75

1048

100%

360.24

100%

 

37.      There are also a further 502 casual jobs within the Council (and in schools) which would be effected by the introduction of the Living Wage.  The gender spilt for such jobs is 415 (82.67%) female, 87 (17.33%) Male.

The Living Wage and Equal Pay

38.      The issues of equal pay and the Living Wage are summarised in the LGA guidance note at referred to in the background papers. The guidance indicates that the introduction of the Living Wage should not, in normal circumstances, give rise to equal pay claims providing it is implemented consistently across the Council.

39.      Such implementation could result in groups of staff being paid the same rate of pay for work of different evaluated values and grades. Despite the concerns about the erosion of grade differentials (as set out on paragraph 33) there would, however be no difference in pay and therefore no less favourable treatment on which an equal pay claim could be based.

40.      Despite the assurance in paragraph 38 above, the guidance does stress the need for consistency of implementation and particularly ensuring that Governing Bodies of all  schools "sign up" to implementation within their own school. This would be particularly important given the fact that a greater proportion of women are employed in schools. Inconsistency of implementation of the Living Wage could, therefore increase vulnerability to equal pay claims.

41.      Members will appreciate the journey the Council has gone through over recent years to mitigate risks of equal pay. In view of this, it is seen as important for the Council to maintain the existing pay and grading structure, matched to the job evaluation scoring mechanism in order to minimise the risk of any future challenges.

42.      Some Authorities that have implemented the Living Wage have sought to mitigate their equal pay risks by paying the Living Wage as a clearly identifiable supplement rather than being incorporated into the basic hourly rate for the job.

Wider concerns in relation to the impact of the Living Wage on Low Pay

43.      Members will be aware that there remains some doubt about the timing of implementing the Living Wage and the true impact it will have in reducing poverty. Such concerns are included in a number of research papers, some of which are included in the background papers to this report.

44.      Although setting out the moral and social case for the adoption of a Living Wage the research papers raise some concerns about the timing of implementation (given the current financial climate) and that, in isolation the introduction of the Living Wage in Wales may not provide an effective way of tackling poverty. 

45.      The main issues of concern include:-

·           The possibility that increases in incomes of low-paid working households (as a result of the Living Wage) may be actually diminished by a reduction in tax benefits the households would otherwise receive. The payment of the Living Wage could take an employee over an earnings threshold meaning that they may lose entitlement to current benefits. This loss could be greater than the gain from the Living Wage and hence the employee could be worse off.

·           The concern that the Living Wage may be poorly targeted. It is suggested that in Wales (in 2011) some 85% of workers in low paid jobs were not in poor households and therefore the impact of the initiative on poverty may be diluted.

·           The concern that the Living Wage will have a negative impact on employment and public services. The research papers make the straightforward point that higher wages (as a result of the implementation of the Living Wage) would mean a reduction in spending in other areas. It is suggested that this would mean lower levels of public service which would, in turn would result in greater unemployment.

46.      Members will also be aware that the Living Wage focuses solely on the value of basic hourly pay rates. It does not take into account the other "non pay" benefits (generous sick pay schemes and high levels of employer pension contributions) which remain a significant element of local authority terms and conditions.

47.      The positive impact of these "non pay" benefits in relation to reducing the effects of poverty clearly need to be considered as part of a debate around the Living Wage.

48.      In view of the above Members may wish to consider the appropriateness and timing of implementing the Living Wage given current budgetary pressures.  In relation to the timing issue, implementation may be considered more appropriate at a point where the local government financial settlement includes the necessary funding for the full and ongoing consequences of implementing the Living Wage.

Resource Implications (Financial and Employment)

49.      The resource implications in relation to the implementation of the Living Wage are set out in paragraphs 21 to 42 above.

Sustainability and Climate Change Implications

50.      On the basis of the issues set out above, it would be difficult sustain a financial commitment to the longer term implementations of the Living Wage in the current financial climate. This is particularly the case given the anticipated reductions in the local government financial settlement and projected increases in the cost of living.

51.      The Living Wage is linked to the Minimum Income Standard and cost of living, whereas the pay rates for local government employees are negotiated nationally, taking account of available finance.

Legal Implications (to Include Human Rights Implications)

52.      The accreditation for the Living Wage is confirmed by a signed licence between the Living Wage Foundation and the employer.  This is a legally binding document. There is a requirement to pay all directly employed staff the Living Wage and have a plan in place for contracted staff to receive the Living Wage. 

Crime and Disorder Implications

53.      None.

Equal Opportunities Implications (to include Welsh Language issues)

54.      The application of the Living Wage can help address issues around low pay and potentially also help reduce the gender pay gap. The gender impact (as set out in paragraph 36) shows that low pay affects jobs filled by female employees more than it affects male employees. However, low paid workers are entitled to claim in-work benefits which is also a relevant consideration.

55.      It is suggested, however, that the adoption of the Living Wage will not, in itself help to tackle the issue of occupational segregation (i.e. encouraging women to apply for jobs predominantly occupied men and vice-versa). The adverse impact on grade differentials, as set out in paragraph 33, could also serve to dissuade employees from applying for higher graded and higher skilled positions.

56.      Whilst the payment of a Living Wage, as a supplement may reduce the potential for equal pay claims it would need to be implemented consistently for corporate and schools staff to help further mitigate such claims.

Corporate/Service Objectives

57.      To ensure that Council services are supported by the appointment, retention and deployment of skilled, flexible and engaged employees.

Policy Framework and Budget

58.      This is a matter for Executive decision by Cabinet

Consultation (including Ward Member Consultation)

59.      Ward members have not been consulted as the issue does not affect individual wards.

Relevant Scrutiny Committee

60.      Corporate Resources

Background Papers

Living Wage: A Guide for Employers - The Living Wage Foundation

The Living Wage - Local Government Association (2013)

Living Wage in Wale: Exploratory Study - Swansea University/SERC

The Possible Impacts of Introducing a Living Wage in Wales - K&A Services (2011)

 

Contact Officer

Reuben Bergman - Head of HR

Clive Teague - Head of Financial Services

 

Officers Consulted

Operational Manager - Human Resources

Operational Manager - Finance & Systems

Employment Lawyer - Legal Services

 

Responsible Officer:

Sian Davies - Managing Director

 

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