PROTECTING THE FAMILIES OF LOW-INCOME WORKERS FROM THE COST OF LIVING CRISIS

As infation bites, charities have been overwhelmed with demand from working families who cannot afford the soaring cost of food and heating. Charity asset manager CCLA is spearheading an investor coalition pushing large employers to boost wages for low-income employees. Dr Martin Buttle, CCLA’s Better Work lead, tells us more about the initiative.

The cost of living crisis is affecting millions of people across the UK. As the charity sector knows only too well, the highest rate of infation in decades means huge diffculty for working families who are struggling to put food on the table and heat the house.

The not-for-proft sector is pulling out the stops to protect some of our most vulnerable people, many of whom are themselves key workers in the public and private sector. There is huge demand for services provided by willing hands at food and warm banks, as well as free fnancial and advisory services.

But the system is creaking. There are 4.8 million workers whose wages are currently below the cost of living, and that fgure is set to rise to 5.1 million this year, equivalent to one in fve of all jobs.1

At this crucial time, the business and fnance sector needs to step up. As the UK’s largest investment management company for the third sector, CCLA’s main endeavour is to provide charities with steady funding for their mission. But over and above that role, it is clear we can do more to support those who deal with families facing hardship in our communities every day by acting as a catalyst for change.

For that reason, we decided to rally like-minded asset managers and institutions to help. Collectively, we are urging the blue-chip companies in which we invest – the UK’s largest employers –to shield their lowest paid workers from the cost of living crisis.

“The idea that there are employed people who do not earn enough to support themselves, to eat healthily and have a safe and warm environment in which to live, is morally wrong and fnancially unsustainable,” said CCLA’s chief executive Peter Hugh Smith back in September 2022, when we launched a special cost of living initiative. “Millions of working people are facing a very hard winter and UK businesses should be vigilant in ensuring that their lowest paid are protected through the winter months.”

The crisis has health and economic impacts which will be felt for years to come. As a responsible investor, we feel duty bound to engage companies on pay and work standards in the UK and around the world. This is part of our Better Work engagement strategy.

As payroll providers for lower income families, UK businesses are pivotal in this poverty crunch. We decided to push to infuence the remuneration decisions at the 100 largest publicly listed employers.

In September, CCLA and the Church Investors Group wrote to those frms –FTSE companies, broadly speaking – to ask them what they were doing to ensure their lowest paid workers are protected.

We told them we would vote against the chair of any remuneration committee that was not an accredited Living Wage employer in the upcoming 2023 AGM season. As one relatively small investment management frm, we knew we could not infuence big business by acting alone. But we could use our unique role as a catalyst, as we do on pressing issues, to rally others in the investment sector who were also likely to be concerned.

In October, we coordinated a public investor statement on the cost of living, signed by 17 investors with collective assets under management and advisory of £3.2 trillion. 2 They included mainstream asset management frms, such as Aviva and Legal & General Investment Management and some charitable foundations, such as the Jesuits in Britain, demonstrating the breadth of fnance sector frms worried about the spread of poverty.

Across the UK, those who earn little are stretched to breaking point. Low wage households spend a larger proportion of their income on energy and food, which means higher prices hit them harder. In January 2022 there were already an estimated 4.8 million workers whose wages were below the cost of living, according to the Living Wage Foundation. Of these, 42% said they were regularly missing meals for fnancial reasons and more than half used food banks regularly. 3

Since that report, living costs continue to spiral. Many families face bleak choices such as whether to ‘heat or eat’.

While wholesale energy prices are now beginning to fall, they are set to rise again in the near future as a price cap disappears. And there are signs of longerterm damage, such as a huge mental health impact, already estimated to cost the UK private sector between £53bn and £56bn in 2020-21. 4

The government has a primary role in protecting people and has responded with £58bn in household cost of living support in 2022-23. But this has not prevented a 3% real-term decrease in median household incomes. With real-term typical household incomes not returning to pre-pandemic levels (2019-20) until 2027-28, recovery is set to be slow. 5 More must be done to redress in-work poverty by those with the power to do so: employers.

Of the 100 companies we wrote to, we received 60 responses across multiple sectors representing 3.5 million people employed in total with a combined market capitalisation of £1.4 trillion.

One-quarter of those frms confrmed they are accredited Living Wage employers, with six more saying they use the Living Wage as a benchmark but are not accredited.

Beyond that, responses in general were vague or weak, with a lack of specifcs on what, if any, pay rises have been offered to staff, whether or not they are annual revisions or special measures, or what other fnancial support is available. Some companies stated they had provided their employees with an uplift in pay, but it was not clear whether this was in response to the crisis or part of an annual pay review.

To cite some good news, NatWest Group decided to make a permanent 4% (average £1,000) annual increase to wages for those earning under £32,000. But in at least one other instance, one company’s level of pay for its low-paid workers still remained below the Living Wage even after a signifcant hike. Banks seemed to be providing the broadest response, with HSBC providing oneoff bonuses to 17,000 staff and Lloyds Banking Group providing bonuses to 63,000 staff.

Largely speaking, however, the response has been disappointing. “The overall percentage of those that have indicated they are providing extra measures of support for their own low-paid employees is astonishingly low (28%),” said Peter Hugh Smith. “We really have to ask the question: Why aren’t they doing more?”

Consequently, we are now pursuing more concerted and generalised measures from our investee companies. Mindful that sometimes such engagement takes more persistence, we wrote again to the largest 100 companies in March 2023 to ask for an update and to monitor progress.

We will also be refecting on the lessons learnt in our voting during proxy season and may vote against the election of the chair of the renumeration committee in businesses whose response has been insuffcient.

CCLA Investment Management Limited is authorised and regulated by The Financial Conduct Authority.

1 Living Wage Foundation forecast

2 ACTIAM, Aviva Investors, Brunel Pension Partnership, Castlefeld, Cardano Group, CCLA Investment Management, Edentree Investment Management, Federated Hermes, Friends Provident Foundation, Islington Pension Fund, Jesuits in Britain, Joseph Rowntree Foundation, Legal and General Investment Management, PensionBee, PIRC, Strathclyde Pension Fund and Trust for London

3 Living Wage Foundation ‘Life on Low Pay’ livingwage.org.uk/life-low-pay-2022

4 Deloitte (2022) Mental Health and Employers available at: Poor mental health costs UK employers up to £56 billion a year | Deloitte UK – www2. deloitte.com/uk/en/pages/press-releases/articles/ poor-mental-health-costs-uk-employers-up-topound-56-billion-a-year.html

5 Resolution Foundation Living-Standards Outlook 2023 resolutionfoundation.org/app/uploads/2023/01/ Living-Standards-Outlook-2023.pdf