Capital Concerns: Poverty in London and the role of business in helping to tackle it

This report from Social Market Foundation (SMF) funded by Trust for London calls attention to the scale of in-work poverty in the UK and London today, what drives it, and the impact it has. It is part of a three-year project which examines perceptions about and experiences of poverty among London’s business community.

Through a survey of London-based employers, it also explores the extent of business awareness of the issue, and what firms are willing to do about it.

In order to help London businesses that want to take action and encourage more businesses to take similar actions, it argues for the development of a new metric that can help incentivise firms to engage in better business practices, which in-turn, can help tackle poverty in the capital.

Poverty in the UK

• There were estimated to be 14.4 million people – including 8.5 million working- age adults and 4.5 million children – in poverty in the UK before the COVID-19 pandemic.
• The events of 2020 and 2021 are expected to have added more than 600,000 working-age adults to the poverty total.

Drivers of in-work poverty in the UK and London

• The phenomenon of in-work poverty has increased significantly in recent years. The percentage of working-age adults in working families in poverty grew from 11.2% in 1996-97 to 14.7% in 2017-18.
• In-work poverty has become particularly acute in London where, for example, the proportion of London households in poverty – where at least one adult works full-time – has risen by 50% in a decade. The data suggests that three-quarters of the children in poverty in the capital – more than half a million – are living in working households.
• This growth has been driven by a range of factors including:
  • • Slower wage growth for poorer workers in the capital compared to those in
      other parts of the country.
    • Substantial numbers of the London workforce being employed in low-wage, low skill occupations, which pay below the “London Living Wage”; many working insufficient and uncertain hours, which makes it harder for families to sustainably “make ends meet”.
    • Poor terms and conditions of employment, including inadequate protections and limited access to additional “workplace benefits” such as occupational sick pay, training and progression opportunities, and the availability of support for mental, physical, and financial well-being, which are associated with an increased risk of poverty.
    • A high cost of living due – in no small part – to housing costs, although transport and other financial factors linked to being in London contribute, too.

The centrality of the employer

• Much of the debate over poverty in the UK and the best way to tackle it has focused on the role of Government. However, one of the unique facets of in- work poverty is the central role of employers, who have a direct influence over key factors that cause or deepen the poverty experienced by poorer working households.
• The most obvious of these factors is wages. However, employers have a degree of control over a number of other determinants such as the quantity and security of the hours their employees work, the in-work benefits available to staff (including sick pay and support for mental and physical health and financial well-being), and the opportunities for training and progression that are offered.
• Importantly, London-based businesses recognise that there is a good deal of poverty in the capital, and that they have a role to play in tackling it:
  • 79% of London employers agree that "poverty is an issue that impacts the people in the capital".
  • 39% estimate that half or more of their workforce are “directly affected” by poverty.
  • 84% say that “in-work poverty (among their own workforces) should be a ("major" or "minor") concern to London businesses”.
• Many London employers (70%) say they are motived to help tackle in-work poverty by taking voluntary measures above and beyond legal minimums – such as paying the National Living Wage.

The reasons why firms should care about in-work poverty

• Among those London businesses that said they were willing to take "voluntary steps above and beyond their leal obligations" to help tackle poverty in the capital, 47% were motivated to do so because it was “right thing to do” i.e. many are “values driven” in their concern for the topic of poverty.
• Although the main motivation for many companies is moral, there are also multiple commercial benefits that accrue to enterprises which take measures that aim to reduce the number of employees that suffer from poverty.

Public opinion on how business should treat workers

• The public tends to prize companies that look after their workers. For example, 65% of the public said that “poor treatment of employees” was the kind of business behaviour that “concerned them”.
• The same proportion of the public said that “staff pay and conditions” should be a key priority for managers in big companies.

The main ESG focus of businesses in the capital

• Despite the concern among many enterprises – of all sizes – about poverty and a professed interest in “taking voluntary steps” to help tackle poverty in the capital (whether that be to help deal with poverty among a company’s own workforce, in areas around their main business operations or in their local supply chain) London employers who are active on Environmental, Social and Governance (ESG) issues tend to prioritise governance and the environment:
  • 97% of larger businesses in the capital say that ESG issues are “important” to their business.
  • 61% of those who say ESG is “important” report that the “environment” is a “focus of their current ESG efforts”.
• The salience of the environment to businesses is reflected in the extensive reporting that firms do, in their annual reports, about environmental matters. Primary research carried out for this report has shown that references to “governance” appear 176 times on average in the most recent annual reports of the FTSE 100 companies, while the “environment” is found – on average – 64 times. Both make far more frequent appearances than the term “poverty”, which is typically mentioned only once in the 2019-20 reports of the UK’s largest companies. Analysis by the University of Lancaster found that around half of FTSE 100 companies did not disclose data on “employee satisfaction” in their annual reports, while more than 8 in 10 failed to publish details of workforce turnover rates and more than 9 in 10 firms did not provide information on the employment status of their workers. The lack of disclosure around workforce issues is further evidence of many larger firms’ disinterest in such topics.

Standards, benchmarks, and accreditations can be valuable tools for firms and investors

• Standards, accreditations, kitemarks, and benchmarks are widely used by London businesses, with just over two-thirds (68%) adhering to at least one ESG related accreditation, kitemark, standard, or benchmark.
• Many of the ESG standards, accreditations, kitemarks and benchmarks that are used, are valued by London businesses. Of the firms adhering to at least one, more than 90% described them as providing at least “some degree of value” to the business.

A new benchmark can help incentivise London businesses – and investors – to prioritise poverty

• One reason why workforce poverty isn’t a topic many businesses focus on – as part of their ESG activities – is because the incentives to encourage that interest are not in-place. External pressure from investors and other stakeholders can help drive the uptake of ethical business practices, but investors for example, also tend to be primarily focused on issues such as the environment. Therefore, its unsurprising that businesses do too.
• Equally, the business case for implementing measures which can directly help reduce in-work poverty, has not always been clear and widely understood. Therefore, the commercial incentives for employers to take action have not played a prominent role in motivating efforts.
• The popularity, among London businesses, of tools such as benchmarks and their acknowledged usefulness makes the development of a poverty-focused one a potentially useful tool that can help encourage business to convert the high degree of interest (among London-based employers) in poverty and the willingness of many to take voluntary steps, into actions.
• Such a tool could help shift the current ESG focus of many businesses towards poverty, by assisting those London firms who say they want to take voluntary steps to help reduce deprivation in the capital, to:
  • Understand specifically, what they can do to help
  • Compare their efforts to those of their peers and identify ways in which they can do more.
• Further, such a tool will “throw light” on the attitudes and actions of individual businesses towards issues of poverty, which investors can utilise when making their investment decisions. Metrics with which investors can make informed decisions will additionally strengthen the incentives for businesses to take action.
• In addition, a metric will help businesses demonstrate to the wider community of stakeholders (e.g. customers) what they are doing to help their own workforces, local areas, and networks of local suppliers.

24 January 2022