Scottish Living Wage Campaign response to the Procurement Reform Bill consultation. November 2012

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1 Scottish Living Wage Campaign response to the Procurement Reform Bill consultation. November 2012 The Scottish Living Wage Campaign (SLWC) is led by the Poverty Alliance and the STUC and supported by the Church of Scotland, Unison, Unite, GMB, PCS, Oxfam and the Child Poverty Action Group. The campaign has played a key role in establishing the principle of a Living Wage in Scotland and has welcomed the introduction of the Living Wage in parts of the public sector. The Scottish Living Wage is 7.20 and calculated using a methodology 1 developed by the Living Wage Foundation and the Centre for Research in Social Policy at Loughborough University who produce the Minimum Income Standard (MIS). The Living Wage will be uprated on 5 th November Key Points The Scottish Government should use the Procurement Reform Bill to amend the Public Contracts (Scotland) Regulations 2006 to require that the living wage is a part of any contracting authorities bid for a public sector contract. The Scottish Government should seek to influence the European Commission to remove any perceived barriers in EU Directives that prevent the inclusion of the living wage in procurement. The Scottish Government should establish a Living Wage Unit to advise on, promote and oversee the living wage in the public sector and in procurement. The Scottish Government should, in partnership with stakeholders, develop and produce a Code of Practice on promoting the living wage in procurement. 1 Hirsch, D & Moore, R (2011) The Living Wage in the UK Building on Success. Citizens UK, The Centre for Research in Social Policy, the Living Wage Foundation.

2 1. The Living Wage in Procurement the Living Wage Campaign s view The SLWC is pleased to submit evidence to the Procurement Reform Bill consultation. We welcome that fact that the Scottish Government are seeking views on the living wage in the context of procurement. This is a recognition that paying a living wage has a role to play in supporting low paid workers whether this is in the private or public sectors. Whilst we acknowledge the questions set out in the annex of the consultation paper we are disappointed that the Scottish Government takes the view that it is not possible to use the Bill to mandate payment of the living wage through procurement activity. Whilst there are clearly legal obstacles to including the living wage in procurement processes for public sector contracts we believe that where there is the political will to do so this can be achieved. We were encouraged that in relation to amending regulation 39 of the Public Contracts (Scotland) Regulations 2006 to enable a requirement that all contracting authorities stipulate payment of the living wage the Cabinet Secretary for Finance and Sustainable Growth told the Scottish Parliament s Local Government and Regeneration Committee Inquiry that (there is) a strong argument for that. As I said to the committee, I support the living wage and believe that it should be applied if it can be deployed in a sustainable way. There is undoubtedly a legislative vehicle that could be used to require contractors who are responsible for undertaking public sector contracts to pay a living wage. 2 Since this evidence the Scottish Government has received a reply to a letter from then Cabinet Secretary for Infrastructure and Capital Investment to the European Commission which leads them to conclude that it is not possible require contractors to pay their employees a living wage as part of a public procurement process. Whilst we recognise that this provides a challenge to the Scottish Government we believe that as the legislative vehicle exists to mandate the living wage in procurement the Scottish Government should use the Procurement Reform Bill to amend the Public Contracts (Scotland) Regulations 2006 to require that the living wage is a part of any contracting authorities bid for a public sector contract. This is similar to the approach John Park is proposing for his Living Wage (Scotland) Bill 3, which we support. At the same time we recognise that this is not the Scottish Governments intention. They have however indicated that including the living wage in contracts is something they would be willing to do. As such we would urge Scottish Ministers to make representations to European Commissioners to consider changing directives to remove any barriers to including the living wage as part of the procurement process. 2 Local Government and Regeneration Committee (Dec 2011) evidence from John Swinney MSP Cabinet Secretary for Finance and Sustainable Growth Col

3 This response also sets out the SLWC view on encouraging contractors to pay a living wage and on the pressing need for co-ordination of the Scottish Government s living wage policy. 2. Background The Living Wage has gathered increasing prominence in Scotland mainly in the public sector. Since 2008 an increasing number of low paid workers have benefited from the Scottish Living Wage. The Labour Party, SNP and Greens opted to support the Living Wage to differing degrees in their manifestos for the 2011 Scottish Parliament elections. The Scottish Government introduced the Living Wage for directly employed staff, staff in its agencies and the NHS. In local government 24 local authorities have adopted the Living Wage. This has generally been as a result of local negotiation as there is currently no requirement that local authorities should pay the Living Wage. The SLWC estimate well over 15,000 workers in the public sector have benefited from the adoption of Living Wage policies. Despite this progress there is much still to be done. Recent Research by KPMG shows that 390,000(18%) Scottish workers are paid less than the current living wage of There has been limited progress in Scotland in including the Living Wage in public sector procurement a key lever for ensuring that workers in the private and voluntary sectors benefit from the Living Wage. 3. The Benefits of a Living Wage The SLWC believes that the Living Wage benefits employers, employees, communities and the economy more generally. This is particularly the case when household budgets are under pressure with rising energy and food bills and a downward pressure on wages generally. Whilst the rhetoric continues to be about making work pay the reality is that low pay, reductions in the adequacy of terms and conditions, a lack of affordable childcare and the likelihood of increased conditionality and sanctions around benefits are likely to make work unaffordable for many. It should be recognised that a Living Wage is not a panacea. Nevertheless in the context set out above it does at least tip the scales somewhat in favour of hard pressed individuals and families and has a vital role in protecting those on very low incomes. There is evidence that employers benefit from paying a Living Wage. The Greater London Authority (GLA) commissioned an independent report into the business benefits of implementing a London Living Wage. The study concluded that there were significant benefits for employers in terms of worker s morale and motivation, lower rates of absenteeism and sick rates, evidence of enhanced quality of work. In addition there were benefits in relation to recruitment and retention of staff. Employers reported: 4 KPMG (October 2012) Current Trends in Household Finance and Structural Analysis of Hourly Wages

4 Significantly lower rates of staff turnover Substantial cost savings on recruitment and induction training Employees more likely to stay with the organisation Increased tenure of workers and continuity of workforce 5 More recently the Trust for London produced an analysis of the London Living Wage which showed that: Over half of employees (54%) felt more positive about their workplace once the LW was introduced and 52% felt more loyal. Staff leaving rates fell by 25%. Almost a third (32%) of workers felt it benefitted their family life by allowing them to do things like spend more time with family. Almost 4 in 10 (38%) workers reported financial benefits such as being able to buy more goods and save more 6. Paying a Living Wage should also benefit local communities and economies. People living on a low income are more likely to spend in their local area. A report by Unison, the New Economics Foundation and Staffordshire University looking at the income of care workers in Stoke on Trent found that: By combining survey evidence on care workers spending in local businesses with estimates of local business spending in the local economy, we calculated a local economy multiplier for care workers income of This means that for every 1 of additional income paid to public-sector care workers the local economy benefits by an additional 0.63 of income creation. (Or for every 1 of additional income paid to private-sector care workers under a fair wages policy the local economy would benefit by an additional 0.63 of income creation.) This multiplier of 1.63 is in line with other studies" 7 A Scottish Government analysis of paying the Living Wage (at that time 7.00 per hour) found that compared to the minimum wage and after taking tax, national insurance and benefits into account different household types saw their income increase from between 9 and 18 per cent 8. It is clear that paying a Living Wage can benefit employers, employees, communities and the economy. The evidence presented here largely relates to developments in England, The SLWC believes that these benefits will apply equally in Scotland as they do elsewhere. 5 GLA Economics (2009) An indendent study of the business benefits of implementing a Living Wage policy in London. London Economics. 6 Trust for London (October 2012) Costs and Benefits of a Living Wage. London. 7 Jackson I & Pugh G (2005) The regeneration effects of fair wages: The economic benefits to Stoke on Trent of closing the gap between private and public sector pay for residential care work. Staffordshire University for Unison 8 Scottish Government (2010) Low Pay and Income Inequality in Scotland

5 4. The Living Wage in Procurement Mandating the Living Wage Including a Living Wage provision in public sector contracts is a crucial element in ensuring that increasing numbers of workers are protected by a Living Wage. Such provisions are central to demonstrating that the public sector is leading on the spread of the Living Wage in Scotland and that no public money spent on wages is paid as poverty pay. The EU Public Procurement Directive implemented in the UK in January 2006 makes explicit the scope to take social and environmental issues into account at the relevant stages of the procurement process. The Directive allows a contracting authority to use award criteria aiming to meet social requirements. The Scottish Government should then use the Procurement Reform Bill to amend the Public Contracts (Scotland) Regulations 2006 to require that the living wage is a part of any contracting authorities bid for a public sector contract. The SLWC are aware of the arguments against the inclusion of a Living Wage provision in public sector contracts but note that these are largely technical and despite recent advice somewhat inconclusive. Procurement policy, whilst obviously influenced by European legislation, is a devolved matter. There is therefore a role for the Scottish Government in determining how best to include a meaningful Living Wage provision in contracts. In addition we would urge the Scottish Government to give serious consideration to the proposals set out in John Park MSP s members Bill consultation. Examples Elsewhere There are examples in the public sector in London of where procurement has been used to promote social objectives in general and the Living Wage has been included as part of this. The London Mayor reports that the Living Wage has been implemented in in a number of support services contracts totaling 5.5m across the GLA group, leading to almost 400 staff realising the associated benefits. The GLA introduced the London Living Wage provisions into its catering and cleaning contracts at City Hall in 2005 and As part of their tenders for these contracts, bidders were required to indicate whether they would accept a London Living Wage clause as part of the contract, including ensuring that other employment conditions were not reduced as a result of paying a Living Wage. This proved to be a successful approach 9. 9 The Mayor of London (2005) Responsible Procurement Report

6 Lewisham Council includes the provision of a London Living Wage in service contracts awarded by the authority to help ensure that the outsourcing of services or contracting with external providers does not drive down the rates of pay for members of staff employed by companies to work on Lewisham contracts 10. We believe that where there is a political will to include the living wage in public sector procurement processes it has been shown that this can be done. Authorities in London, and in particular, the Greater London Authority have successfully used contracting to ensure low paid workers are paid the living wage. The Scottish Government has shown a great deal of leadership in terms of its own directly employed staff and can take this further through procurement. 5. Encouraging the Living Wage The consultation seeks views on the practicalities and potential impacts of promoting payment of the living wage through procurement activity. Beyond our belief that the most effective way to ensure that the living wage is used in procurement is to mandate it, the SLWC views on the questions are set out below: To what extent, in what form and at what stage should contractors be encouraged through procurement processes to pay a living wage? The living wage should be mentioned at the earliest possible stage in the contracting process. There have been examples of contractors being asked at the prequalifying stage whether they would be prepared to pay a living wage as part of the contract. Given it is likely that all public bodies will be living wage employers for directly employed staff by April 2013 it should be possible for them to make a case to contractors at the PQQ stage that whilst they, the contractor, will not be scored on whether they are prepared to pay a living wage the contracting body are a living wage employer who are keen to promote it in all of their dealings as a public body. Whilst there would then be no requirement on the contractor to include the living wage in the contract they would be fully aware that the contracting body was promoting a living wage. Would it be appropriate to promote payment of the living wage in all public contracts or only contracts of a certain type or of a certain value? The SLWC believes that the living wage should be promoted as part of all public contracts. The key aim of the living wage is to ensure that no worker is required to survive on poverty wages. In addition it is our view that public money should not be used to pay poverty pay but to be set at a level which allows an acceptable standard of living. Low pay is prevalent across a range of employment sectors, mainly in retail and hospitality and with particular pockets in social care. If the promotion of the living wage in contracts was in any way selective there is the potential for low paid workers 10 Lewisham Council (2011) Public Accounts Committee: In-depth Review Scoping Paper: Fairness in the Council s budget, procurement and employment policies

7 to miss out on the benefits a living wage could bring. Adopting a policy of promoting a living wage across all contracts sends out a strong message that the living wage is a central plank of the public sectors approach to equality and fairness. What are the potential benefits and costs associated with promoting payment of the living wage through procurement activity? The potential costs of promoting the living wage through procurement will very much depend on the mechanisms adopted. We suggest particular actions to promote the living wage through procurement activity below. In short, by establishing a Living Wage Unit and a Code of Practice for the living wage in procurement we would imagine that the costs would be negligible. The benefits of promoting the living wage through procurement activity will obviously accrue should employers decide to include the living wage in their contracts. In this case all of the benefits to employees, employers, communities and the wider economy outlined above will apply. A significant benefit to promoting the living wage through procurement is the contribution that this would have to changing the culture of the procurement process to one which puts fairness at the centre. What are the implications for private and voluntary sector suppliers, public bodies and the market? Public bodies who are living wage employers have a crucial role in promoting the living wage. In addition it is our view that they have a duty to do so. There would be an inherent unfairness where a public body pays a living wage to its own staff but did not promote it through its procurement processes. In evidence to the Local Government Committee Inquiry it was clear that a number of authorities were seeking guidance on how to promote the living wage in procurement. We believe that the Scottish Government should show leadership in this area by developing a Code of Practice for the living wage in procurement. Clearly there are implications in terms of cost for private sector employers. Nevertheless there are many employers who apply for public sector contracts who can afford to pay the living wage. They would also see the benefits set out earlier in terms of staff turnover, morale and performance. In terms of the voluntary sector we agree with Community Care Providers Scotland (CCPS) who when talking about poor pay and conditions in the voluntary sector said in their evidence to the Local Government Committee Inquiry: It is our contention that this deterioration in pay and conditions for voluntary sector care and support staff is likely to have consequences for recruitment and retention, workforce development standards and, ultimately, the quality of care and support; and that therefore government support for the Living Wage should not be limited to those workers employed by the public sector but extended to the whole public

8 services workforce. This will require some significant changes to commissioning practice and public procurement regulations 11 At the same time we are conscious of the CCPS view that if there is no change to procurement policy and practice, pay in the social care voluntary sector will continue to fall below the Living Wage threshold, and that this is likely to have consequences for the overall quality of care and support. It is then vital that the issue of the living wage and the benefits of the living wage extends to all Scottish workers and in particular those who provide care and support to our most vulnerable citizens. 6. Mechanisms for Encouraging Promotion of the Living Wage A Living Wage Unit Whether mandating a living wage in public sector procurement processes or producing a robust mechanism for encouraging the living wage in the contracting process there is a need for a more strategic approach with the Scottish Government developing and leading this strategy. The SLWC campaign continues to believe that there is a need for the establishment of a Scottish Living Wage Unit. The unit should be established by Government. As the numbers of workers receiving the Living Wage increases and interest in Living Wage policies grows among workers and employers outside the public sector we believe that a Scottish Living Wage unit would have a key role in a number of respects: A unit would have a role in setting the Living Wage in a Scottish context building on the work of the Centre for Social Policy at Loughborough University and the Living Wage Foundation. The Unit would have a crucial role in advising employers on adopting the Living Wage and could also play a part in the accreditation of Living Wage Policies. Again this could build on work already started in England. The Unit could also have a role in reviewing and advising on the Living Wage in relation to procurement. There is a particular role here depending on whether the living wage is mandated or if there is a code of practice in including the living wage in procurement processes. Promotion of the Living Wage with all employers but particularly in the private sector is essential and could be a part of the work of a Living Wage unit. Mapping low pay in Scotland. Specifically Scottish data on the extent and geography of low pay in Scotland is patchy and inconsistent. A Living Wage unit could have a key role in mapping low pay across all sectors and all parts of Scotland. This would inform not only the development of a Living Wage policy but wider policy social and economic policy. 11 Submission from CCPS to Local Government and Regeneration Committee Inquiry inot the Living Wage in Scotland

9 A Code of Practice for the Promotion of the Living Wage A key role for the Living Wage Unit would be to develop, update and oversee the implementation of a Code of Practice for the promotion of the living wage in procurement. Such a Code would give clear guidance on the legal position in relation to applying the living wage to procurement including setting out good practice as to what can and cannot be done. It could also deal with issues around uprating, working with contractors to ensure living wage compliance and accreditation. The Code could also ensure there was consistency in the application of policies such as section 52 of the Local Government (Scotland) Act where the living wage could be extended to contracts outsourced by a local authority. Applying Section 52 consistently to contracts would ensure that workers brought in to work on an individual contract would require to be paid the living wage. A Code of Practice on promoting the living wage in procurement would be available to all public bodies and send a clear signal that the living wage is central to Scottish public policy. Scottish Living Wage Campaign November 2012 For more information or clarification of any of the points in this response please contact Eddie Follan, Co-ordinator, Scottish Living Wage Campaign eddie.follan@povertyalliance.org

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