Why I am supporting @TonyRobinsonOBE’s petition for a #LivingWage and fair payment terms

Two simple ways for national and local government to boost the UK economy.

If you were at the East Anglia SME Business Forum (#EASMEBF) in Dunston Hall on Thursday 7 Nov (or at similar events earlier this year), you might well have heard me sounding off (to those who would listen) about how the UK government should boost the economy with two simple (and ultimately self-funding) measures: prompt payment of invoices and a Living Wage. Thankfully I am not the only one making these suggestions – and the calls are coming from across the political spectrum, including from many supporters of the free market (like me).

Pay up on time

The first was to ensure that all government departments and government supported organisations (Quangos and such), whether local or national, paid all their suppliers’ invoices within 72 hours.  There are two reasons for this – one moral and the other economic.

The moral case is that these suppliers have provided the goods and services as agreed and should not be left waiting for payment. Government (unlike private enterprise) does not have to worry about cash flow – it can always fund its payments out of borrowing or revenue. Society (all of us) should not be riding on the backs of people who supply it with goods and services (many of us).

The economic case is that cash flow is the big killer of businesses – particularly micro-businesses and Small and Medium Sized Enterprises (SMEs). So by paying all suppliers faster, the government makes it less likely that those companies (or their suppliers) will have cash flow problems. This would mean fewer companies going into administration, which leaves creditors out of pocket and employees out of work. A more reliable cash flow might also make it easier for some companies to borrow to fund expansion – so boosting growth.

Fair pay for a fair days work

My second point was that all levels of government should ensure that everyone working for the state (whether directly or on contract) is paid a Living Wage (currently put at £7.65 an hour by the Living Wage Foundation) rather than just a subsistence minimum wage (of just £6.31 an hour). Again, there are good moral and economic grounds for this.

The moral justification is that we all benefit from the work of these people and they are often among the most vulnerable in society (many a product of shortcomings in our state education system). We should at least treat them with the decency and respect we’d want for ourselves. We (society) should not be riding on the backs of the weakest, simply because they lack the means to negotiate more equitable rates of pay for themselves.

It also makes good economic sense to pay the lowest paid a Living Wage (which, let’s face it, is still pitifully low). For a start, it would reduce the amount they have to claim in working tax credits and other complex benefits that are costly to administer. People would also be able to plan their lives more effectively, including spending more time with their children, which would mean fewer chaotic and failing families (with all their associated social costs).

According to KPMG, which supports the Living Wage, some 21% of Britain’s 25m workers are paid less than the Living Wage. Of these, some 891,000 would are on the minimum wage. Increasing their pay to £7.65 an hour would make them some £2,500 a year better off.

KPMG UK (which has paid the Living Wage, as a minimum, to all directly employed staff and those employed by its sub-contractors and suppliers since 2006) reports that employee turnover among its contracted cleaning staff has “more than halved since paying the Living Wage.” There is also good evidence to show that paying the Living Wage increases productivity by boosting morale and reducing levels of employee sickness caused by the stress of working multiple jobs just to make ends meet. “Paying the Living Wage is not only morally right,” says Boris Johnson (Mayor of London), “but makes good business sense too.”

Currently, QE is supporting the economy but, in the words of a leading hedge fund manager, it is the “biggest redistribution of wealth from the middle class and the poor to the rich ever.” Paying the poorest workers a Living Wage would help (in a very small way) to redress this. It would also enable them both to save and to spend more, both of which would help boost the economy (since saving is used to fund investment elsewhere) and increase tax revenues.

The government (local and national) should require these things of its suppliers – as part of those suppliers Corporate Social Responsibility (#CSR) commitments – something that many companies seem to go on about, without really understanding what social responsibility means. Apparently the European Commission has clearly stated that applying such socially responsible conditions to public sector contracts, particularly relating to paying the Living Wage, is fine provided they are not discriminatory – so there is nothing stopping this, except a lack of political will.

Now there’s a petition

So I was delighted on Saturday 9 November to see, on twitter, that @TonyRobinsonOBE has started a petition urging the UK government to pay its bills on time and pay the Living Wage as a minimum. But he went further, he urged the government to use its powers of negotiation (rather than legislation) to persuade all government suppliers to commit to paying all invoices within 30 days and all employees the Living Wage as a minimum, if they want to win government contracts in future. In other words, make those bidding for such lucrative contracts “an offer they cannot refuse.”

This approach appeals to me because it is using government as a force for good – setting the agenda/leading by example whatever you like to call it – without going down the complex (and anti-free market) route of legislation. It also doesn’t force an increase in costs on the very smallest companies, which sometimes struggle to employ people on the minimum wage as they start to expand. And it doesn’t deter companies from doing business in the UK (since they don’t have to apply for government contracts if they don’t want to or can’t make them pay on these terms).

Socially Responsible Investment (#SRI)

I am also pleased to see that Socially Responsible Investors, such as CCLA, are now considering a Living Wage as an important factor for their ethical investments.  The more private investors who can put pressure on their SRI fund managers to do this the better. In time, we might hope to see paying a Living Wage as an integral part of all Corporate Social Responsibility (#CSR) policies. So please sign Tony’s petition today and help improve the lives of millions of people.

@HuwSayer

@Business_Write

Plucking geese – some musings

A Frenchman (whose name escapes me) once said something like: “A good tax system is one that plucks the goose with the minimum of squawking.” My suggestion is that we should leave the corporate goose its feathers.

Consider that this is an economically active goose. She will certainly pay rents and taxes (on land, on property and on labour in the form of wages) in the country where she lives. She will pay consumption tax on the grain she eats and she will pay sales tax on the value of the eggs she lays.

Better yet, whether she is a stockmarket listed or privately owned goose, she will pay a share of her profits from the sale of her eggs to investors. They will in turn invest the income in other geese, so creating more jobs. Or they will pay tax on it when they spend it.

She might also reinvest some of her profits in R&D, creating bigger, better, healthier eggs. The grain growers will employ more people to serve grain to the hungry goose and will pay consumption tax on their inputs. While the consumers of eggs will spend money on the equipment necessary to prepare eggs in numerous ways.

All in all the goose will pay its way several times over during its lifetime without needing to shed a single feather. And when it gets old and inefficient a corporate fox raider will buy the carcass and break it up to sell for glue, gravy and duvets.

Currently companies in many countries find it is easier (cheaper) to squeeze more out of a smaller workforce than to recruit flexible workers to take some of the strain. That is partly because many states seem to regard business as another arm of social security. It is also because most states think seem to think taxing the creators of jobs and wealth is just as efficient as taxing earnings and consumption (even though consumption taxes are harder to avoid and encourage much needed saving).

If governments (of whatever political persuasion) really want a thriving economy, with job creation and wider prosperity, they would do well to scrap corporation altogether, and other taxes hindering start-ups. At the very least, they should cut employment taxes so as to reduce the marginal costs of employing more people (while also reducing the pressure on existing employees). Currently they seem intent on strangling every goose they can find – sometimes before they have hatched.

If the UK does not do this someone else will and they will gain a huge advantage.

Note: this is a revised version of a comment I originally posted on the Economist website in  May 2010.