The announcement in the Autumn Budget for an increase in the National Living Wage, from £7.50 an hour to £7.83 an hour, will be welcomed by many as a boost to the lower paid – this 4.4% increase will supposedly see full-time workers on the National Living Wage earn around £600 more per year.

We should be cautious to celebrate however, and recognise the limitations of this gesture. The National Living Wage applies universally, with no regard for the higher cost of living in London, and importantly, is age discriminated, applying in law only to those over the age of 25. Younger workers continue to receive the much lower National Minimum Wage introduced by the Labour government in 1997, with rates set by the Low Pay Commission.

The government’s move in the Autumn Budget to raise the National Living Wage therefore, merely perpetuates the discrimination that adult workers under the age of 25 already face by being subject to the National Minimum Wage. There is a real risk that adult workers under the age of 25 will fall further behind, raising the prospect of enduring poverty among the young.

Pushing young workers into a poverty spiral

Stagnating wage levels under the National Minimum Wage, combined with increased costs of hiring the over 25s under the National Living Wage, spell real issues ahead for young UK workers. As employers absorb the higher costs implied by the National Living Wage we have already seen some companies reducing benefits and overtime, thereby driving down overall wage levels (Marks and Spencer, for example, and B&Q). By 2020, the OBR expects 7% of the UK workforce to be on the National Living Wage, suggesting it will become the default rate at which workers are getting permanently stuck. As a result, there is emerging evidence that we are pushing younger people towards working in the gig economy.

Despite recent fresh calls from MPs to crack down on the exploitation of workers in the gig economy, companies operating in this space continue to treat workers as self-employed, denying them statutory benefits. This includes a failure to guarantee even National Minimum Wage pay. If we have created an environment where businesses are pushing young workers into areas of the economy that cannot offer even the basics of what is necessary to live with dignity, then the young will get ever deeper into a spiral of in-work poverty and insecurity which they cannot climb out of.

The lack of ability for either statutory initiative to provide an adequate solution to in work poverty is why EdenTree is an advocate of the Living Wage movement. The Living Wage is calculated on a basket of goods that reflect how people actually live rather than what the market can economically bear. It includes food, housing, heating and money needed to buy discretionary items. It reflects the needs of real people in households in every part of the UK.

Hidden victims

Begun in 2001 as a citizens’ campaign for fair wages, the Living Wage movement has flourished into a national network of responsible businesses committed to paying a minimum hourly wage necessary to provide housing, food and other basic needs for an individual and their family. This ‘minimum necessary’ was first set in 2005 with endorsements from the Mayor of London in particular, with a London and national rate applicable to all workers and contractors over the age of 18.

It is sobering to remember that 21% of all those in UK employment earn less than the voluntary Living Wage, equating to 5.5m people. These are the people who will suffer under the inadequacy of the National Living Wage and the National Minimum Wage, and it is worth pointing out that it will disproportionately affect women (26% of all women in general employment versus 16% for men). The hidden victims of in work poverty are children with two-thirds of child poverty occurring in families with a parent or guardian in work.

The incidence of in work poverty is among the most disheartening and pernicious of modern phenomena and we view the Living Wage as the natural pursuit of social justice for low paid workers. There is also a strong business case; employers adopting the Living Wage report enhanced staff morale, motivation and productivity, with improved retention and reduced absenteeism. It also sets a high bar of leadership and demonstrative responsibility for an employer.

Grass roots support

From grass roots origins, the Living Wage has grown to encompass 3,600 employers with around 150,000 workers receiving the enhanced hourly wage. Just over a third of FTSE 100 companies have become accredited Living Wage employers affecting 15,000 low-paid staff. A further 12 FTSE 100 companies apply the standard but have not yet pursued formal accreditation. It is, perhaps, one of the most successful grass roots campaigns of recent times.

As part of our 2018 corporate engagement strategy, we will renew efforts to nudge FTSE 100 companies towards accreditation, and will for the first time integrate it holistically into our UK proxy voting policy as part of our overarching approach to assessing remuneration.

We do not underestimate the challenges which some companies face in applying the Living Wage; by and large FTSE 100 companies that have already accredited do not represent those industries with the most significant numbers of lower paid staff, e.g. retail, care, service and hospitality. Nevertheless, the success of the Living Wage campaign in lifting working families out of in work poverty has to be an aspiration worth pursuing so that a ‘fair day’s work always deserves a fair day’s pay.’

Neville White is head of SRI policy and research at EdenTree Investment Management