Government suppliers must pay a “living wage” under Labour – procurement implications

Many firms bidding for UK government contracts will have to offer higher wages to their staff after the next election if the Labour Party wins that vote. The Labour leader, Ed Miliband, is expected to announce that to his political party conference this week. Firms will have to offer the so-called “living wage” to staff, which is £7.65 outside London and £8.80 in the capital.

Whilst that is probably not going to affect major government suppliers in the IT or professional services industries for instance, it will have an impact on a whole range of sectors including facilities and building management, social care and waste management. The minimum wage, currently set at £6.31 an hour for the over 21s, is also likely to change and be linked to inflation under Labour's proposals.

Such a move will be contentious, particularly with business, but will I suspect be popular with the majority of voters. Firms pleading that they can’t possibly afford it are going to be hit by some parts of the media, unions and workers pointing out that top management has seen major increases in reward over recent years, way ahead of what the people at the bottom of the tree have received.

And whilst no doubt the economists will point out the dangers of job losses, with workers pricing themselves out of the market (and clearly, there is some truth in that), their arguments will have less force because the dire warnings when the minimum wage was first introduced were not actually borne out by reality when it actually happened.

But it will bring more pressure for public sector organisations and procurement staff in a number of ways. In terms of procurement process, will it be enough for firms to simply declare compliance or will there need to be some checks? If a firm offers more than the minimum, should they receive extra marks in an evaluation process? And what about contracts that are already in place – suppliers will be coming in looking for price increases if their own costs are forced up through legislation. I see a lot of interesting negotiations ahead around that.

The other unintended consequence could be the effect on services in certain market sectors. If overall costs go up in sensitive spend areas such as social care, it may mean hard-pressed councils will end up cutting services, given their budgets are certainly not going to rise in an equivalent manner with continuing austerity through the next parliament certain.

But this is about politics now. Much as I struggle to see Miliband as a Prime Minister (just a personal view there), I do think this is a smart move politically and will go down pretty well in the country. And this will no doubt be the first of many initiatives we will see announced with interesting procurement consequences, between now and election day next May.

Voices (2)

  1. woodbine:

    If your concern is to test the disparity in pay between the top and bottom of companies, set out a fair way to measure it, and then measure it.

    If your aim is to ensure that lowest paid workers get the pay they need to survive, set up an independent body to monitor the cost of living and ascribe a minimum pay which is legislated for.

    If your goal is to get elected…

  2. Dan:

    Does this apply to all the bidders’ staff, or just those delivering the contract? If the latter, what effect would this have on the rest of the workforce?And what if its an overseas firm bidding for the contract?

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