In a hugely beneficial move that’s likely to improve the lives of at least 75% of the 385,000 Security Industry Authority-licensed personnel operating within the regulated private security sector, Chancellor George Osborne is set to introduce the National Living Wage for workers aged 25 and over.
As part of the Summer 2015 Budget delivered yesterday to an expectant House of Commons, the Chancellor of the Exchequer also provided security companies with welcome news of a proposed cut to corporation tax in tandem with an increase in the employment allowance.
Further, George Osborne revealed that smaller firms’ National Insurance (NI) contributions will fall. The £3,000 employment allowance means that smaller security businesses can now hire four members of staff on the National Living Wage rate and pay no NI.
Announced towards the end of Osborne’s Budget speech, the National Living Wage rate of £9.00 per hour will be introduced in 2020, but is set to commence at the £7.20 per hour mark from April next year.
The National Minimum Wage is set at £6.50 per hour but will rise to £6.70 per hour, as recommended by the Low Pay Commission back in March.
“Let’s be clear what the Living Wage means for the low paid in our country,” urged the Chancellor. “Two and a half million people will receive a direct pay rise. Those currently earning the National Minimum Wage will see their pay rise by over a third during this Parliament. That represents a cash increase of over £5,000 per annum for a full-time worker. In total, it’s expected that six million people will see their pay increase as a consequence.”
Response from the security sector
The security sector has not been slow to respond to the Chancellor’s announcements. Stuart Lodge, CEO at Lodge Service, stated: “We at Lodge Service welcome the Chancellor’s introduction of the Living Wage. Indeed, we believe that this should be the minimum standard for the security sector. Over many years now, we’ve been fortunate to work in partnership with a number of progressive clients who recognise our position. A higher investment in staff and their wages does in fact help to reduce costs in terms of lower staff churn while at the same time helping to deliver higher levels of commitment and service.”
Lodge went on to comment: “I believe this announcement from the Treasury and the embracing of the Living Wage will make security solutions buyers sit up and examine their strategies with regards to why and how they buy more specialised and licensed labour services, not to mention what they receive for their spend with regard to quality and Return on Investment. They will either be forced to buy less but at a higher quality level or procure differently and make better use of technology in order to boost productivity.”
Also welcoming the Chancellor’s Budget statements, Justin Bentley – CEO at the International Professional Security Association – explained: “The Government’s announcement around increasing the National Minimum Wage for 25 year-olds and above to a rate that’s a Living Wage is long overdue. It means that, over the next few years, a great many security officers will no longer have to work abnormally long hours in order to make a living.”
That said, Bentley added: “However, it’s disappointing that this move has to be forced through by legislation rather than clients recognising the valuable role undertaken by security officers and voluntarily being determined to pay contract rates that provide proper remuneration for the services provided.”
Bobby Logue, publisher of www.infologue.com, said: “There are many issues that remain to be addressed in the private security sector, among them the much-needed introduction of regulated business licensing for the private security sector, severe contract margin erosion, low wages, long hours and generally poor standards of training. These are just some of the factors that contribute towards a security sector license churn rate that’s currently in excess of 50% on an annual basis.”
Logue continued: “The introduction of a National Living Wage is a small step towards the professionalisation of front line security personnel. That said, it’s my belief that the Chancellor has missed a trick in setting the National Living Wage threshold at the age of 25. The security business sector needs an infusion of young blood and this would have encouraged that process.”
In conclusion, Logue commented: “There will be challenges for companies operating in the private security sector when it comes to recovering the full wages from their clients. It’s fair to say that ever-decreasing margins have created a certain amount of financial instability within the sector. That being the case, it’s unlikely that security companies can afford to absorb a portion of the National Living Wage.”
Views of the wider business community
The CBI’s director general John Cridland said: “The CBI supports a higher skilled, higher wage economy, but legislating for a Living Wage doesn’t reflect businesses’ ability to pay. This is taking a big gamble that the labour market can absorb year-on-year increases of an average of 6%.”
Mike Kelly, head of Living Wage at KPMG, has also voiced his opinions on the new National Living Wage. “The new compulsory National Living Wage is very welcome news for more than two million of the working poor who will receive a significant pay rise. Enshrining the Living Wage in regulation is a brave move. By 2020 the National Living Wage will reach 60 per cent of median earnings. For those employers who are concerned at whether the increased payroll costs will be fully offset by reduced corporation tax and National Insurance contributions, our experience has seen lower absence, increased productivity and a more engaged workforce.”
Also commenting on the new National Living Wage, John Harding (employment tax partner at PwC) urged: “This is great news for the 1.4 million people currently on the National Minimum Wage. Over the course of a year, they will broadly see a 10% pay increase as they move to the new Living Wage. Businesses do need to prepare for the significant increase in staff costs, particularly as this will pre-date the reductions in corporate tax by a year. Employers should also be aware of the likelihood of short-term wage inflation among hourly paid workers due to the rises.”
Harding added: “Although this increase will only affect the over 25s, they do make up a significant proportion of employees who are either on or just above the current National Minimum Wage. As this will add to costs and make employing extra people less affordable, we will need to wait and see whether these measures will have the impact the Chancellor would like to witness in terms of job creation.”
Living Wage Foundation has its say
Rhys Moore, director of the Living Wage Foundation, has also responded to the Budget announcement.
“We’re delighted that the announcement made in the Budget will see over 2.5 million workers receive a much-needed pay rise,” asserted Moore. “This is a massive victory for Citizens UK and those communities, workers and business leaders who’ve campaigned for a Living Wage since 2001. We agree with the Chancellor that work should be the surest way out of poverty.”
In parallel, Moore has also suggested that the announcement does raise several important questions.
“Is this really a Living Wage? The Living Wage is calculated according to the cost of living whereas the Low Pay Commission calculates a rate according to what the market can bear. Without a change of remit for the Low Pay Commission, this is effectively a higher National Minimum Wage and not a Living Wage.”
Moore continued: “Second, what about London? We’ve been working with the Mayor of London for seven years now and there’s a London Living Wage rate that recognises the higher costs in the capital. That rate currently stands at £9.15 per hour. These changes will not help the 586,000 people for whom even the 2020 rate announced today would not be enough to live on even now.”
Importantly, Moore mentioned the “two million under-25s who are not covered” by the Chancellor’s plans. “To make sure workers in London and those under 25 do not lose out, we’re now calling on employers to join the group of 1,600 organisations that have already chosen to become voluntary Living Wage employers.”
According to Moore, the Living Wage Foundation, members of Citizens UK and the 1,600 accredited Living Wage employers are now “looking forward to an early meeting with the Chancellor” in order to address these questions and “help the millions of workers who deserve a pay rise”.
Apprenticeships and national security
Further good news for the private security sector comes with the Chancellor’s announcement that three million new apprenticeships will be created by 2020 thanks to a levy on larger employers.
According to George Osborne, those companies in the security sector wholly committed to training will be able to “get back more than they put in”.
The CBI’s John Cridland added: “Companies want to play their part in training more apprentices but an apprentice levy is a blunt tool. A volunteer army is always better than conscription, but the CBI will work with the Government to make the best effect of this measure. Delivering higher wages can only be done sustainably by boosting productivity. Bringing politics into the Low Pay Commission is a bad idea.”
In terms of national security, the Chancellor outlined: “We recognise that, in the modern world, the threats we face do not distinguish between different Whitehall budgets – and nor should we. Today, I commit additional resources to the defence and security of the realm. I will guarantee a real increase in the defence budget every year and, on top of that, create a joint security fund of £1.5 billion per annum by the end of the Parliament.”
Osborne explained: “The Armed Services will have to demonstrate they are delivering real efficiency while the Strategic Defence and Security Review will allocate the money in the most effective way. I’m also protecting our overall counter-terrorism effort.”