David Ainsworth: Increasing the minimum wage is welcome but could create problems for charities

The sector must have conversations with funders so more can be invested in core costs

David Ainsworth
David Ainsworth

At this week’s Conservative Party conference, Sajid Javid, the Chancellor of the Exchequer, outlined a proposal that the charity sector can get squarely behind: an increase in the minimum rate of pay to £10.50 an hour.

Charity leaders have had much to quarrel with from this government’s approach, but this step is the right one. It is one of a suite of measures to decrease inequality in this country: more housing, more healthcare, more benefits, more security for workers.

I’ve previously expressed support for the idea of a universal basic income for everyone, paid whatever your personal circumstances. It is not official Charity Finance Group policy, but it is an idea worth examining.

Having said that, if this government ever gets around to introducing it the change would create a big problem for charities, because the existing funding of our sector comes with the minimum wage baked right into it.

More than a quarter of charity staff are on low incomes, compared with 21 per cent of staff in the country overall, according to a report by the Living Wage Foundation. It is not an acceptable situation, but it is also hard to change.

Charities are not keen to pay low wages, by any stretch of the imagination, but it’s a problem we often encounter, partly because so many bodies are themselves struggling to keep the lights on, but more commonly because their contracts and grants do not really provide enough money to deliver their services to the level they would like, and they are driven into the false economy of having to employ people at less than they are really worth.

The problem is particularly acute in areas such as social care, where local government is struggling to find enough money to meet its obligations. In truth, any area where funding comes from local government is likely to face this problem.

Our Finance Count benchmarking study in 2017 found that many charities were already making a loss on providing contracts, so the margin for absorbing any further cost was simply non-existent.

A particularly clear example of this is the litigation about whether care workers who are required to sleep at their place of work should be paid the minimum wage for the time they are asleep.

The case itself has gone back and forth, with some arguments on both sides, but the real problem was the resistance of local authorities to increase wages to pay for the new system, and the total inability of charities to meet either the costs going forward or the sizeable back-pay bill without government support.

Understandably, government has been very reluctant to have this conversation with the sector. In the era of austerity, finding money to pay for this stuff has been very hard.

This next increase will force a re-examination.

Charities’ staff costs will rise by well over inflation and, if this fact is not met with a funding increase, it will eat into the amount that goes to beneficiaries.

A sector already torn between looking after staff properly and looking after service users properly will be forced to make even harder choices.

Local authorities, which are in the same position and are simply passing on their own pain to charities, will be forced to make the same choices.

One option if you put up pay, of course, is to stop taxing jobs.

Over recent years the government has raised employers’ national insurance, a tax on salaries, while lowering corporation tax, a tax on shareholders.

Because charities pay the former but not the latter, the net effect has been to enrich shareholders in large companies at the expense of staff and charities.

We do not have precise statistics on the tax charities pay, but a rough calculation suggests that the national insurance bill for charities has doubled in real terms since the start of the century.

More broadly, it means we need to bite the bullet, all of us, and have a long talk about the low-cost attitude that prevails in our sector, which prevents us properly resourcing our staff for the job that needs to be done and investing properly in the back-office systems that offer them the support they need.

The CFG has for years made the case that we need to invest more in core costs if we want to make our sector the best it can be, and part of that is ensuring we have the resources for proper staff development.

In the long run, the constant fudging and over-economising will cost us money, not save it.

We – charities – must be willing to pay people what they are worth, and we must make the case to our funders that we are allowed to do so. Otherwise we risk permanently failing to deliver the difference we can make.

The increase in the living wage is an opportunity to make sure we have that conversation.

David Ainsworth is sector specialist at the Charity Finance Group

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