Event Report: The role of business in reducing UK poverty

Posted on 13 May 2016 under News, Working with Business

by Caroline Hartnell

What is the role of business in reducing UK poverty? This was the question before a meeting hosted by the All Party Parliamentary Group on Poverty (APPG) and the Webb Memorial Trust at Portcullis House, Palace of Westminster on 3 May.

Why is the APPG focusing on business? Encouraging businesses to pay employees more could get people out of the poverty trap, aid staff retention and increase customer satisfaction, said Kevin Hollinrake MP, opening the meeting. Often people dip in and out of poverty – if employers were more supportive of employees at difficult times, they could enable them to work better. ‘Not so much duvet days as a hardship fund for people in hard times.’ Could we develop a toolkit, enable employers to recognize when employees are in difficulties? While keen to stress the need to maintain a dynamic economy and keep a balance between businesses and employees, Hollinrake suggested businesses could be helped to understand how they can address poverty.

Is there a business case for reducing poverty?

‘The business of business is business,’ as Milton Friedman famously said. The traditional view is that businesses provide employment, create the goods and services we need, and pay taxes that support public services (though the questionable tax practices of some businesses is contributing to the pressure on business to fulfil social responsibilities). But is this enough? Poverty is no longer simply a matter of unemployment: at the UK level one in nine people are in poverty and more than half of these have at least one person in the household in employment. Business could potentially help to alleviate poverty, for example by improving employee benefits, increasing wages and ensuring worker representation on remuneration committees.

But this may seem like a burden or a drag on profits. So the key question is: is there a business case for taking action on poverty in the UK? The question we should be asking is not ‘what can business do to reduce poverty?’ but ‘what can reducing poverty do for business?’ Which was precisely the question addressed by Peter Kenway of the New Policy Institute (NPI).

Why are employers voluntarily paying the living wage?

The NPI and Poverty Alliance have carried out in-depth interviews with 20 employers in Scotland who are paying the living wage, Kenway reported. The aim: to find out why they are voluntarily doing this. What do employers think about poverty? What emerged from the study was that for these employers tackling poverty was not the primary purpose in paying the living wage. Few if any had thought of it in those terms. While they were comfortable discussing poverty as something ‘out there’ in the community, to be dealt with through CSR activities such as mentoring in schools, they weren’t comfortable with the idea of links between poverty and their core business activity. Being a poverty employer is clearly stigmatizing.

Kenway’s conclusion: if you want to talk to employers about poverty, it’s better to use different language, terms like fairness and staff wellbeing. Employers talked about fairness, but this is not just altruism: they also talked about the wider value to their business. For very small employers starting out, deciding to pay the living wage differentiates them from the low-wage sector, shows them as exercising leadership. It creates a positive image with employees and customers. The living wage is understood and approved of by the public; it is a standard which businesses can sign up to and thereby improve their image. An employer in a remote community will hope that paying the living wage will encourage the work force to stay. So this is self-interest with a wider remit – not just cost minimization.

The living wage at Abbeyfield

The Abbeyfield Society was the first national social care organization to pay the living wage, said interim CEO Bob Tindall. Although it’s a charity not a commercial organization, Abbeyfield needs to run like a business. It has a responsibility to be robust and viable if it is to have a sustainable future. In November 2013 the decision was taken to become a living wage employer in April 2014. The care sector is a low-paying sector, so why did they do it? If you want your employees to stay, said Tindall, you have to pay them well, train them and develop their careers. People who are valued make better carers.

It cost around £1 million to implement. Was it worth it? The employees are happy of course. And the costs of recruitment and training are lower because of lower turnover. It has also meant a significant reduction in the use of agency staff, which is one third more expensive. For residents this means they see the same person rather than a string of different people. Abbeyfield did it partly because of its ethos and partly out of self-interest, and the need for a sustainable workforce.

There is a risk that paying more won’t encourage staff to stay, Tindall acknowledged. That’s why it’s important to make staff feel valued in other ways, like offering training beyond the required 12-week induction.

Getting round the poverty premium

Tina Hallett, a partner at PwC, talked about the unfairness of what is referred to as the poverty premium. This means that the poorer you are, the more you pay for goods and services. If you live in a sink estate, car insurance will be higher. If you can’t use direct debit, goods and services cost more. You are more likely to be charged when withdrawing money from an ATM in a poor area. You can’t access the best deals, for example three for the price of two supermarket deals, because you can’t afford the outlay. Some aspects are behavioural, like people choosing a pre-paid energy card as it allows you to manage your money.

What can businesses do about this? Hallett has been focusing on this for the last two years – as a PwC partner, she has ‘great access to decisionmakers’. Businesses should look at how the way they do business affects the poor, she said. She held workshops, talked to banks, energy companies and telecoms providers, and found a ‘huge appetite to move things forward’ (she had to turn people away from workshops).
One suggestion that came out of all this was a kitemark for businesses that have assessed whether their goods and services are fair to the poor. They have linked with Citizens UK to work on ideas.

Another idea was a national payroll savings scheme to address the high cost of credit and lack of access to financial services that poor people experience. One in three families couldn’t survive a £300 emergency without borrowing money, Hallett said, let alone a funeral, for which the average cost is now £3,400.

Focusing on the ‘better’ employers

It is naive to have great expectations that employers will voluntarily do a great deal for workers in this economy, said John Philpott of The Jobs Economist. Government is trying to push the onus on to employers as it cuts back, but in his view regulation will be needed if we are to get the sort of workforce we’d like.

So what can we hope for? A report he wrote for the Joseph Rowntree Foundation looking at how employers regard in-work poverty found employers to be a heterogeneous group with diverse business models. While some businesses treat employees as valuable assets to be nurtured and invested in, many others have ‘low-cost’ business models that see human resources to be employed at the least possible cost and dispensed with easily. With this model, there is no point in motivating staff because turnover isn’t an issue: if someone leaves, you can replace them – sadly the supply of labour willing to work in this way is greater than ever. Staff are low-skilled, and no progression needed. If they pay the living wage, they will cut back on other parts of the pay packet. So there isn’t much chance of getting this group to change; the best hope is working with the ‘better sort’ of employer.

One step is for employers to identify employees as individuals not a group and to see what help they need – an echo of Kevin Hollinrake’s suggestion that employers should be more supportive of employees at difficult times. This could mean help with childcare, or with overcoming temporary financial difficulties; obtaining training to give people greater mobility in the labour market; or helping with home pressures.

Continuing role for the public sector

Cameron Tait of The Fabian Society talked about businesses reducing poverty through the work they do and a growing body of evidence that investing in staff can lead to greater productivity. The signals from all parties are that government has less money to spend and businesses will have to play a greater role in reducing poverty in future. Introduction of the living wage is a key labour market intervention. Ikea is paying a living wage, increasing staff skills and involving staff in decision-making – and reporting lower staff turnover and greater customer satisfaction as a result. US companies like Costco are recognizing that investing in staff is investing in business, with increased staff retention helping to make businesses more competitive.

But not all employers in the retail sector are taking this approach – Boots has just announced that it will no longer pay staff for lunch breaks. In any case business can’t
do this alone. This is why the public sector will remain part of the picture, able to target resources to where they’re most needed. Tackling low pay has a comparatively small effect compared to increasing child benefit or reforming the tax system, said Tait.

The importance of flexible hiring

Clare Ludlow of the Timewise Foundation focused on developing part-time and flexible working opportunities. According to a recently commissioned report on flexible hiring), 46 per cent of the UK workforce want to work flexibly. This includes people otherwise left out of the labour market – parents, people with disabilities, people returning to work after a gap, older people. Only 6 per cent of jobs ads (over £20,000 FTE) offer flexible or part-time working options, which makes it very hard for a mother needing to balance work and children. As a result 1.9 million people are hanging on to jobs that underutilize their skills. This is creating a bottleneck in the labour market, because people will trade pay for flexibility.

What is needed, said Ludlow, is to encourage employers to advertise jobs as flexible – could a job be part-time, a jobshare, termtime only? Could it be opened up to more people? If businesses can think of jobs not being full-time, they can offer opportunities to help people out of poverty. People helped by the Timewise Foundation have on average increased household income by £5,500 a year, and there is a strong business case for flexible hiring.

Government should lead the way by example, said Ludlow, with councils leading and influencing local businesses in the way they recruit workers. She talked about ‘compatible flexibility’. Entry-level jobs are often flexible and part-time, but more senior jobs tend to be flexible for the company not the staff. ‘We need to find the balance between individual needs and the needs of the business.’ Flexibility is even more important to people than pay, Cameron Tait agreed.

A range of questions

When it came to questions from the audience, a wide range of topics came up. The first question came from a self-described ‘one-nation conservative’, who was keen to emphasize the role unemployment plays in poverty. He suggested a ‘big society fund’ in which richer people could invest to finance start-ups and job creation. ‘Don’t we need better methods of financing?’

Big Issue founder John Bird stressed the role of social business, with all profits going back into the business rather than to shareholders. His dream: the complete transformation of business so we have social Amazons and social Tescos. ‘We can’t leave it to the big guys. Consumer power could create a new form of business, social business, providing the same services.’

What about local economic growth, keeping money within communities, recycling, etc, asked one audience member. How do we train people who have lost jobs and want to go back to work, asked another.

What are the implications of the move towards high-pay, high-tech roles for the future world of work, asked yet another. In response, Cameron Tait drew attention to the geographical inequalities occurring as a result. ‘Where are these jobs growing?’

A note of caution

Final comments from speakers drew forth some notes of caution as well as reiteration of good ideas. Wealth is not fairly distributed across society, said John Philpott. We are increasingly flooded with people willing to take low-paid jobs, and low-paying employers in communities where there are few options can offer whatever terms they choose. ‘We need to address this.’ There has been much talk of flexible working, but 10-15 per cent of bad employers are in the game of flexibility for the wrong reasons, he said. The fact that students and older people with other income sources are prepared to work on zero hours contracts means others are forced to take them.

Business has had an easy time since the power of the unions was broken in the mid-1980s, said Peter Kenway. New Labour asked nothing of business. Now we need to find ways of getting business to do more, working with the better companies. Business has a responsibility to ensure work pays and can give employees a good standard of living. Businesses are sensitive to social media and hate a bad social media story, he pointed out. Everything in the workplace is potentially public. ‘Don’t talk about partnership, talk about putting on pressure.’


Caroline Hartnell is a freelance writer and editor. She was editor of Alliance magazine from 1998 to 2015. Contact: carolinehartnell@gmail.com