Low Pay Commission Consultation on the National Minimum Wage

Dear Colleagues

Changes to Statutory Annual Leave Entitlement

The National Union of Rail, Maritime and Transport workers (RMT) organises over 80,000 members and negotiates on their behalf with over 150 employers across all sectors of the transport industry. The RMT is very pleased to contribute to the Low Pay Commission consultation on the National Minimum Wage rate for 2009/10 because of our experience in organising and campaigning on behalf of the very lowest paid workers.

The National Minimum Wage (NMW) is an essential legal safeguard in preventing extreme exploitation of workers and ensuring the lowest paid do receive an annual pay increase. It has offered most critical assistance to women and ethnic minorities who are proportionally over-represented in low paid work.

In the course of this paper and drawing upon our organising experience, we will argue that the National Minimum Wage must be set at a significantly higher level to ensure that all workers are kept out of poverty; that the regulations must be extended to all seafarers serving in UK territorial waters to help safeguard UK jobs and that the age-related NMW rates should be abolished and the full adult rate be paid from 16 (until the school leaving age is raised to 17 in 2013 and 18 in 2015).

Finally, we join with the LPC in expressing concern that its key pay data source, the Annual Survey of Hours and Earnings (ASHE), has been undermined and we call for the 20% cut to the sample of ASHE, initiated by the Office for National Statistics, to be reversed.

RMT experience organising the lowest paid
A key feature of the railways in recent years has been the growth of sub-contracting, where services are outsourced to the lowest bidder. In low-skilled roles, such as the rail cleaning, catering and security sectors, these pressures have markedly depressed wages of employees (and kept them low) and removed from them even the most basic of employment conditions which are commonplace throughout the industry for directly employed labour. If the NMW was not in existence, wages would be even lower.

The RMT has gained a real understanding of the experience of workers at the ‘sharp end’ of paid employment and developed inventive ways of organisation and campaigning. We are clear that it is the act of contracting out services which enshrines low pay. Putting services out to tender and awarding them to the lowest bidder means that it is natural for interested parties to rigorously examine all costs, including staff wages and conditions of service and strip away what they can. Contracting out will therefore trap cleaners or caterers in low wage, poor conditions jobs. The RMT has told train operators that they are complicit in the exploitation of the low paid and demanded that they bring all contracted out services back in-house.

We succeeded in persuading ScotRail to take out-sourced catering work back in-house, which led to dramatic increases in rates of pay and established basic employment conditions for the first time for those affected.

Since 2003, each RMT pay submission has argued for extra protection for our lowest paid members in the form of a minimum flat rate increase, whilst the salaries of the other grades are improved by the agreed percentage increase. As Appendix 1 shows, transport operators have accepted the validity of our argument and conceded significant flat rate increases. The highest flat-rate increase to date has been the guaranteed £1,280 improvement at London Overground in 2008 (other grades salaries were improved by 4.4%).

In the last few years, our industrial and campaigning work has centred on securing a fair ‘living wage’ for our lowest paid members, based around the pioneering work of the Greater London Authority Economics Unit. Its figure of £7.45 per hour identified for London (although no similar specific figure was attached to our claims at firms outside the Capital) is seen by the GLA as guaranteeing a low cost but acceptable standard of living for a typical family and it budgets for an adequate level of warmth and shelter, a healthy palatable diet, social integration and avoidance of chronic stress for earners and their dependents.

A living wage of £7.45 per hour formed the rallying cry of the 700 RMT cleaners working for sub-contractors on the London Underground. Struggling to live on NMW-level wages (many needed to take two jobs just to survive), they held two historic periods of strike action in a dispute (voting for strike action by a margin of 125-to-1 in favour) in their fight for decent wages and fair conditions of service. In a victory, they succeeded in winning their target rate of £7.45 per hour. Their campaign for 28 days holiday, sick pay, decent pensions and travel facilities and an end to ‘third-party’ sackings continues. 50 MPs in Parliament signed an Early Day Motion in support of our members.

RMT cleaners faced intimidation from managers during the dispute and the startling exploitation revealed, is endemic at NMW employers. A common complaint amongst our cleaning members across the contractors working on London Underground was that they did not have a pay anniversary; that their company might grant an increase only when it wished to. Of the worst examples, a group of individuals at one Company had not received a pay increase for 4 years. They had joined under TUPE and were paid £6.20 an hour and were likely only to get a pay rise when the NMW increased to beyond that level. Low paid members at another company had been waiting 3 years for an increase.

The popular perception may be that it is only small firms that say that they can only afford to pay the NMW. However, in the experience of this Union the NMW is widely used by profitable larger, even multi-national companies as the London Underground cleaning contractors’ case study shows. In its own words, ISS is one of the world’s largest Facility Service providers employing more than 460,000 people in 50 countries across Europe, Asia, South America, North America, and Australia. ISS Holding A/S Results for the first half of 2008, published on 29th August 2008 show that both revenue and operating profit increased by 10% in the relative to the same period in 2007. Revenue amounted to DKK 33,734 million (£3.7bn) and operating profit amounted to DKK 1,860 million (£202.8m). Group CEO Jørgen Lindegaard said, “ISS once again recorded strong and stable financial performance... Furthermore, we are very pleased that we can continue to grow as planned…”.

In the UK, ISS for the year to 31st December 2006 (the latest figures available from Companies House), reported total sales of £11.5m (increasing from £8.67m in 2005), a post-tax retained profit of £8.3m and it paid a dividend of £2.5m.

The contrasting experiences of low paid ISS cleaners and ISS directors is stark. At ISS UK total directors’ remuneration for 2006 was £2.7m (increasing from £2.4m for the previous year). In 2006 the highest paid director earned £1,158,000, increasing from £930,000 the previous year.

It is the same with the other cleaning contractors operating on London Underground including ICS (Derichebourg ICS Multiservices). The Derichebourg Group is established in 31 countries on 4 continents and its headquarters is in Paris. Group results for the 6 months to 31st March 2008 showed an increase in sales to €1.343bn. The financial report for UK Derichebourg Multiservices Ltd for the year ending 30th September 2007 showed total sales of £34.4m (an increase of 29% on the previous year), a pre-tax of £3.1m and a retained profit £3m.

These are profitable companies, which can afford to pay decent (‘living’) wages to cleaners. Importantly, they see real potential for future growth and can therefore sustain a significant increase in the NMW. We note that the 2008 LPC report found no negative effect of the NMW to the economy or jobs.

Setting a fair rate for the National Minimum Wage
The RMT is very much of the view that previous LPC recommendations have been too cautious and only by forcing reluctant employers into paying a significantly higher minimum wage will ensure workers are kept above the poverty threshold. The Union is campaigning for the NMW to be set at half male median earnings as soon as possible, building towards the eventual goal of 2/3rds of male median earnings.

The RMT wholeheartedly endorses the TUC argument that a small increase in the 2009 NMW would push the cost of addressing the negative effects of low pay on society, further onto taxpayers.

The LPC will be recommending a rate for 2009 in the climate of huge rises in food prices and utility bills, which proportionally, hit the poorest hardest. Setting the new rate at too low a level would make it even more difficult for the poor to make ends meet. The Commission is likely to gather evidence on the impact of a steep increase in living costs but mention must be made of the fact that over the last year, people’s financial commitments have increased at a much greater rate than inflation and average earnings. Therefore to increase the NMW by RPI or average earnings would not be sufficient; in these times, the poor need greatest assistance. Disposable incomes are at a 17-year low. A March 2008 survey by uSwitch.com – the independent price comparison service – suggested the annual rise in household bills in 2008 would be as high as 9%.

Food prices are accelerating at their fastest rate since records began in 1992, adding £750 to the average family’s shopping bill over the last year. The prices of eggs and butter have risen by more than 30% in the last nine months alone. According to ONS figures, other staples have risen in a similarly dramatic fashion. For example, the price of milk has risen by 19.4%, cheese by 18.7%, beef by 17.6%, potatoes by 16.9% and bread by 16.8%. The wholesale price of rice is up 76% this year and corn prices have risen 29% in the last twelve months. Some individual common grocery items such as pork sausages have risen by as much as 40%.

Since January 2008, energy suppliers have increased household prices by an average of 43% or £395, pushing dual gas and electricity bills to more than £1,000 a year. Paul Green, Chief Executive of Energyhelpline.com warned that “wholesale energy prices are going to rise for at least two to five years”, implying that domestic bills will also continue to increase. The Energy Efficiency Partnership estimates that each time gas and electricity bills rise by 10%, another 400,000 people are forced into ‘fuel poverty’. The Partnership believes that an incredible 4.4 million households are ‘fuel poor’ and forced to choose between heating their home and providing for their family.

According to industry regulator Ofwat, household water and sewerage bills are to rise by an average of 5.8% in 2008-09 to £330.

The problems of low pay for business
Some elements of the business community will always resist increases in the NMW. Yet the point must be made that low pay actually increases costs for business in the long term because it leads to an extremely high turnover. Firms then have to deal with the cost of advertising, recruiting and training replacement staff. The ISS Group website lists total employee turnover at 55%; 37% of employees have less than 1 year’s seniority. It is difficult to conceive that any employer outside the cleaning sector would be happy with this situation.

Extension of the NMW to seafarers
The Government has previously stressed when applying the NMW, the care taken to ensure that the rate is not set at a level which is too high that it becomes unaffordable and leads to job losses. However, in the maritime sector, the real issue for the RMT is that a crucial loophole permits ship owners to pay foreign seafarers below the NMW whilst serving on ships in UK territorial waters. This means that the wages of UK Ratings can be drastically undercut by cheaper labour leading to the loss of important jobs for UK residents. The LPC has previously highlighted the unfairness of this anomaly.

Civil servants interpreted foreign national seafarer’s entitlement to the NMW to apply only on UK registered ships when they are in port or in internal UK waters as opposed to UK territorial waters. The entitlement could not be applied to foreign seafarers for instance, in UK territorial waters between Scotland and the Shetlands or between UK mainland and the Channel Islands and the Isle of Man. UK resident seafarers receive the NMW in UK territorial waters providing it is flagged in the UK.

The NMW must apply to all ships of any flag, trading solely within UK territorial waters, including the offshore sector and to all UK flagged ships within UK territorial waters. Other legislation such as various taxation measures and the Maritime Working Time Directive are applied to vessels of all flags in UK territorial waters.

The Government must act now to help safeguard UK jobs and stop exploitation of foreign national seafarers and close this loophole. Separately, the RMT is pursuing the current exemption under the Race Relations Act which allows foreign national seafarers to be discriminated against on rates of pay on UK flagged ships.

Abolition of age-related NMW rates
The LPC has previously stated that payment of the full adult NMW rate from 22 rather than 21 is an anomaly which the Government should correct. The RMT sees no moral reason for an artificial age distinction to be made at all; the work is the same so the reward should be too. The full adult rate should be paid from age 16.

One major employer in the rail industry, Select Service Partner (a catering firm supplying the labour to franchises in railway stations including for instance, Mark & Spencer, Caffe Ritazza, Burger King and Upper Crust) pays the full adult NMW rate to employees regardless of age.

Quality of UK Statistics Authority data
The LPC must be able to utilise the most authoritative pay data available in its deliberations. There is a real danger that the 20% cut to the sample of ASHE initiated by the Office of National Statistics, inhibits this careful analysis and judgement. Therefore the RMT joins with the LPC and TUC in calling for the reduction to be reversed.

The introduction and subsequent uplifts in the NMW have proved a vital tool in prohibiting the very worst pay exploitation in our workplaces. Trade unions like RMT have targeted securing extra assistance for the lowest paid in our collective bargaining and organising strategies. We have been successful in a number of areas in campaigning for fair ‘living wages’ for our members.

Only a significantly higher NMW will ensure workers are kept above the poverty threshold. Ultimately, our target rate is 2/3rds of male median earnings and, as a first step towards achieving this goal, the Union calls for a rate of half male median earnings as soon as possible.

The current arrangements for seafarers are wholly unsatisfactory and allow the exploitation of foreign nationals even when engaged on board ships trading in UK territorial waters. The Government must ensure the widest application of the NMW in this area at the earliest opportunity.

The age-based NMW rates are a false division and a single adult rate should be paid from the age of 16 (until the school leaving age is raised to 17 in 2013 and 18 in 2015).

Finally, the reduction in the ASHE sample should be reversed to allow the LPC a more comprehensive set of data for its analysis and recommendation.

download appendix (pdf file)
October 2008