Teresa Pearce MP: A Living Wage

Written by Teresa Pearce MP Sunday, 05 August 2012 18:01
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A Living Wage, By Teresa Pearce MP

Teresa Pearce MP was born in the northwest and moved to London with her family in the late 1960s. She has lived in the Erith area for around thirty years and has two grown up daughters. Before becoming an MP Teresa worked for the Inland Revenue and as a Senior Manager at PricewaterhouseCoopers specialising in tax investigations. She has extensive knowledge of the UK tax system and is an expert on the National Minimum Wage. Teresa has been a local Councillor for Erith and a school governor at both Castillon Primary in Thamesmead and Townley Grammar in Bexleyheath.

Imagine if one of the vastly profitable large chains of supermarkets had their electricity bills paid by the taxpayer, or maybe their advertising costs were greatly subsidised by the general public. The same general public that they make their massive profits from.


I would expect a massive public outcry at the unfairness of it. However week in week out such companies do get an enormous subsidy to help with one of their major overheads, staffing costs.  This is because many employees in these large and successful companies are paid only the minimum wage. And because the current minimum wage is not a living wage, nearly everyone on it has to claim tax credits to be able to make ends meet. Those tax credits are funded by the taxpayer.


That means that the public purse has to subsidise the low paid employees of many of our household name large stores and fast food outlets so they make their high profits rather than paying a living wage.


I believe that everyone should be paid a decent wage for a day’s work. It is a simple vision based on fairness and my belief that the national minimum wage needs to be replaced by a realistic living wage. The national minimum wage at the moment is not enough for workers, and especially those with children, to live on. Because of this we have big levels of state subsidy through working and child tax credits to bump up the incomes of people in low-paying jobs. I am not against tax credits, but I think more people need to understand that in many sectors the taxpayer is subsidising the wage bill of some of the biggest employers. 


I recently researched job advertisements for some of the big supermarkets, where the hourly pay is below the Living Wage or London Living Wage. As an example I’ll use one job I found, advertised at around £6.54 per hour, although that is by no means the lowest hourly rate of the jobs I saw advertised. Many other retail or customer service jobs offer wages at a similar level, with permanent, part-time and full-time hours covered.


Say you are employed on a full time wage of £6.54 an hour; then your annual salary works out at £13,603 before tax and £11,676 after tax (tax based on a single adult aged 18-65 working 40 hours per week 52 weeks a year). There are various scenarios in which this worker and his or her partner will try to make ends meet, but the most common require some level of state subsidy to make up for the fact that the national minimum wage is not enough to live on.


If this supermarket worker has a partner who is not working, they will be in receipt of £4,539 in benefits excluding tax credits. This takes the combined income for the family to £18,100. If they have a child then they are also entitled to a maximum of £4,200 in child tax credits, bringing their pre-tax income to £22,300, around £21,000 after tax. With average housing costs around £8,500 a year, transport costs of £3,000 and fuel, maintenance, electricity and council costs in the combined region of £4,200; life is already a struggle for families on the minimum wage even before childcare, food and clothing costs are taken into account.


We need a national living wage to put an end to this deeply unfair situation where we are all subsidising poverty pay and the profits of big companies. The living wage is currently calculated at £7.20 an hour outside London and £8.30 in London to allow a worker to provide their family with the essentials of life. It should be adopted sooner rather than later. It is not too much to ask that workers at the bottom of the income ladder should at least be able to make ends meet.


I realise that there will be many who object to what I am saying. They will say I am anti-business. I am not. But I am anti exploitation, and if you are a business that depends on cheap labour whilst making massive profits for your shareholders, then there should be a mechanism whereby the numbers of minimum wage jobs are reported to HMRC and a profit levy is charged via the tax system to refund some of the subsidy. There is an argument for helping small firms or those who provide a public necessary service, but I really do not believe that supermarkets and retail giants, who are making billions a year, deserve or warrant state subsidy.


People will say I am anti jobs. Nonsense. I would ask you to consider the proposition that the next time one of these firms press releases that they are creating 5,000 jobs, what they really mean is they are creating increased profits whilst you and I pay part of the staffing cost for those 5,000 jobs. If you are operating a business in a modern European democracy, then the people working for you and helping make  you that profit should surely be earning enough to be able to live in that modern European democracy without relying on state benefits.


People will say I am anti free market on the basis that if employers are forced to pay decent wages, they will go out of business. But we don’t really have a free market when companies need to be subsidised by the benefits system, and where institutions such as banks are not allowed to fail because of the effect on the UK economy. Or when private companies, contracted by Governments to provide services, fail and have to be propped up financially, to ensure essential services are protected. Companies taking the profit without ever bearing the risk. Hardly a free or fair market.


I personally think that profitable employers who can't afford to pay living wages or who depend on cheap labour are not the business model we should be building the recovery on.


We need a proper, clear, informed discussion about this and the public needs to understand the level to which these companies are helped by public funds. Let’s stop calling them “wealth creators” and start calling them state subsidised industries. If we are serious about making work pay then the first step is getting those making the profits to pay the wage bill of their own workers. The workers, who are often the true unsung wealth creators.


Taken from The Red Book


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