Is the living wage right for the North East small businesses?

The concept of living wage divides opinion among the region's small businesses, as Tom Keighley finds out

Pupils marching from their school, arriving at the council offices asking for a living wage of £7.65 an hour for all county employees
Pupils marching from their school, arriving at the council offices asking for a living wage of £7.65 an hour for all county employees

Few issue ignite debate in the business world like pay.

In the last 15 years, talk of a living wage has gradually started to feature in that debate, albeit largely centred around larger corporates. Championed by The Living Wage Foundation, the concept is one designed to ensure workers a “basic but acceptable standard of living”.

Late last year the UK’s Living Wage rate was calculated at £7.85 and in London, £9.15.

Not long before that, the Living Wage Commission – led by the Archbishop of York, Dr John Sentamu – delivered the findings of its 12-month inquiry into the future of the concept. It called on private sector employers with the means to pay the living wage.

Among small business in the North East at least, the concept polarises opinion. Even before the Living Wage Foundation started its crusade, shop owners, small consultancies and service providers across the region weighed up the pros and cons of absorbing above minimum wage costs onto their profit and loss accounts.

Alison Wright runs Wooler-based women’s sporting and outdoor clothing retailer Gear for Girls Ltd. She’s enthusiastic about paying her staff the living wage, and has done so for 10 years - long before media hubbub emerged.

She explained: “We’re a small outdoor clothing retail business with a shop and online which accounts for 80% of the business. Despite being in one of the lowest paid parts of the country in Northumberland we pay the living wage, and our lowest paid staff member get £9 per hour.

“I think it’s shocking that businesses shy away from their responsibilities and fail to pay decent levels of pay. I would love to see the minimum wage increased to the living wage as it would make it easier for us to compete with large businesses which seem to be the worst culprits.”

She added: “Your business is only as good as the people you employ. We want staff that are committed and if you’re not paying enough, you’re simply not going to get that from them.”

For most small living wage employers, the staff retention and motivation factor has been the most compelling case for upping pay. Some also believe in its potential to attract the right staff in the first place.

Chris Mills, the director of Newcastle-based asbestos consultancy Venture Compliance, launched his business last year with a commitment to pay his staff at least the minimum wage.

The 11-strong business is an accredited Living Wage Employer – a status granted by the Living Wage Foundation which demands that all contracted staff, such as cleaners and security guards, are also paid the living wage. If not, the business must commit to renewing the existing contracts at the living wage rate.

Mr Mills said: “For us the living wage is about trying to give opportunity to those who might not have otherwise got it. If a single mother is looking at our jobs and has to make the decision between coming to work or staying at home, that little extra can make all the difference.

“The benefits outweigh the negatives, in my opinion.”

In industries where margins are tighter, the living wage benchmark can prove challenging to meet, regardless of the employers’ sentiments.

Hotelier Dave Falconer says he pays staff competitive rates for the area, but would not feel confident in taking a leap into the living wage bracket. Despite an inclination to do so, he says it would mean increasing prices and running the risk of losing trade in a competitive marketplace.

Mr Falconer said: “The living wage should be the minimum wage. The advantage for businesses would be customer demand, driven by increased disposable income. It doesn’t make sense to make it voluntary for business owners because it’s a big expense which goes almost nowhere in terms of stimulating consumption.

“If we did embrace this as a measure to reinvigorate the economy, whilst cutting down on bureaucracy-heavy welfare handouts to those on low wages, we could do it in a determined and robust fashion by giving tax relief to businesses whilst the lag in circulation – people paying off debts – is caught up.

“If the extra costs applied to my competitors then my business wouldn’t become less domestically competitive. However, there is already noticeable disparity between the UK’s prices and a lot of other countries.”

For some, the concept is nothing more than an impracticality. John Gaines runs Darlington-based Christian bookshop Footprints and said: “What a joke this ‘Living Wage’ is. Have we not learnt?

“Everyone’s wages go up as it is not just the junior staff who have a rise. Costs therefore rise and everything goes up in price. As cost of living has gone up, wages must go up, so prices go up, so wages go up – ad infinitum.

“It’s a never ending spiral. If we pay the living wage then we would have to increase prices, making us less competitive – leading to reduced sales, and job losses. Spread that across the whole nation and we would see firms closing and countless jobs lost, or go abroad.

“We already had to lose staff in the recession, we don’t want to have to lose more.”

Tricia Craig is the North East franchisee of drain cleaning brand Metro Rod. For her the living wage is part of a long term strategy – and is considered as a boost to her profit and loss sheet, not a burden.

Ms Craig explained: “I am currently doing a wage restructure and felt that paying people £7.50 per hour for my most basic grades is too little. These people are why my business is successful, so they deserve to be rewarded. For these people on the lowest wage in my company, I have raised the wage to £8.50 per hour.

“Along with other changes I’m making, I know this will take the wage percentage on my P&L up and therefore reduce profit on what I am making now. I truly believe that the measures I am taking will increase my turnover, thereby increasing my profit.”

Similarly stonemasonry expert Colin Yates, who employs eight people through his Stone Tech (Cleveland) Ltd business, points to the ultimate reduction in corporate tax as the wage bill increases.

National research from the Federation of Small Businesses (FSB) shows that 49% of their members pay the Living Wage to all their directly employed staff. Last year’s Living Wage Commission report stopped short of suggesting measures like making public contracts only available to living wage employers, but as the concept’s profile continues to grow, many North East small businesses may find themselves increasingly steered towards its ends.

Ted Salmon, FSB North East regional chairman, said: “Most small businesses will increase pay as confidence continues to grow and when there is more certainty around cash flow. Government should therefore look pro-actively at ways in which pressure on small businesses can be relieved, such as through stemming the rise in business rates and tackling spiralling fuel, utility and rent costs.

“Our research shows that almost 70% of small businesses across the UK are paying their staff the living wage. A further 20% are paid somewhere between the national minimum wage and living wage.

“That being said we think the living wage is an important aspirational goal but should not become a statutory requirement of all businesses. Moving to a statutory living wage would make the National Minimum Wage redundant and risk stoking inflation and driving up unemployment.

“The FSB believes paying each staff member a Living Wage should remain a voluntary decision for employers, agreed on a company by company basis.”

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