Burgess COMMENTARY

Peter Burgess

Minimum wage ... Opinion ... I’m paying my staff a real living wage – not George Osborne’s version

The government tinkers with terminology but ignores the real problem: that pricing and profit margins are locked into a low-wage framework

Parkfoot garage ... Parkfoot garage at West Malling in Kent pays the living wage to its staff. Photograph: Martin Whitlock for the Guardian

Running a service station is more complex than it looks. At Parkfoot garage, at West Malling in Kent (of which I am a director) we employ more than 30 staff at a business that never closes.

The heart of the operation is no longer the self-service petrol pumps, nor even the automated car washes, but a large shop that combines off-licence, butcher (employing four), florist, baker, hot food counter, general grocer, newsagent and tobacconist.

Keeping all this going 24 hours a day requires commitment and flexibility. The company needs staff who will stay, learn their trade and adopt its service-led values.

The company has been paying the living wage for several years, and our motivation is twofold. First, it provides the staff with a real benefit – they realise how well off they are, in comparative terms. In an industry where the minimum wage is the norm, paying the living wage significantly improves their standard of living. They feel valued and they give us commitment in return. Most importantly, they stay. Many have been with Parkfoot for 10 years or more.

The second reason is more subtle but arguably more significant, in the broader picture. As owners of the business, we receive both remuneration for our own work and the benefit of the profits that the business generates. The market approach to profit is to maximise income while spending as little as possible in the process. But when much the biggest item of spending is staff wages, this poses an ethical dilemma. As owners we don’t know, in absolute terms, how much of the business’s proceeds belong to us and how much to our workforce. And even when we think we know, we don’t necessarily agree.

The living wage provides a framework for answering this question. It has the great advantage over the minimum wage of referencing what people actually need to live on rather than an economist’s concept of “what the market can bear”.

So when the new rate was announced, last November, there was never any question that the company would stick with a commitment it had made for commercial as well as ethical reasons. On reading the small print, however, it began to emerge that the decision wasn’t quite as straightforward as it seemed.

The problem was this. Although the new headline rate for the living wage outside London was £7.85, which is well above the statutory minimum of £6.50, the supporting documentation revealed that a wage reflecting “actual minimum living costs” outside London should actually be £9.20.

The living wage is not set at this level because it is capped at 2% above average pay rises. “If the income needed to sustain a minimum acceptable standard of living rises much faster than average earnings,” the report says, “there will be limits to how far it is acceptable for employers to increase wages for the lowest earners to meet their increased needs”.

Butcher at Parkfoot ... Many of Parkfoot’s employees are with them long term. Photograph: Martin Whitlock for the Guardian

This discovery was challenging. The ethical goalposts had shifted rapidly and unexpectedly. Over several years the living wage had fallen behind. On the other hand, the required 20% increase from the previous living wage of £7.65 would blow a hole in the company’s business plan. After some discussion the board agreed to make up part of the shortfall, with a view to further progress in future years.

The question, however, has not gone away: why should it be it unachievable to pay a wage reflecting “actual minimum living costs”? The answer flows down through a supply chain in which pricing and profit margins, whether for petrol or breakfast cereals, are locked into a low-wage framework. Deals available from suppliers reflect their perception of what a retailer will accept, a perception that assumes that low wages are being paid. If wages are to rise significantly, they have to rise across the board. Every business plan needs to take it for granted that employees will receive a wage that they and their family can actually live on.

In view of this, the chancellor’s “living wage” announcement in the budget should be good news. To add to the minimum wage (£6.50), the living wage (£7.85), and “what the living wage really should be” (£9.20), we now have a new, government-defined living wage, set at £9 by 2020. But this is not enough to provide an acceptable standard of living even today.

Viewed as an increase to the national minimum, the government’s proposal is nonetheless a welcome start. A living wage, however, it is clearly not – and the distinction is important. For, by co-opting the terminology of the living wage, Mr Osborne diverts attention away from the real Living Wage campaign, muddying the ethical waters still further and providing cover for businesses to continue to pay less than they should.