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Will London-based companies still need to pay extra to attract the best accountancy, tax, treasury and legal candidates?
London Weighting has usually been added to salaries because the cost of living and working in the capital is so high. But what happens people stop commuting to the office? Will job seekers still expect to receive a London Weighting?
Whether it is the rent or the price of a pint, London is a phenomenally expensive city to live and work in. It’s okay if you are one of the lucky ones earning the big bucks in the Square Mile, but this represents a tiny percentage of the population. London is also home to nurses, teachers, fire-fighters, accounts assistants, cleaners and bartenders. On an average UK wage, London is simply too expensive.
It’s not a new problem. It was way back in 1920 when London Weighting was introduced for civil servants, with the rate being set by a special London Pay Board. It was recognised that without some support, London would struggle to keep its key essential workers.
Today, many London-based public sector jobs receive a uniform supplement. For instance, current NHS salaries in Inner London are increased by 20% of basic salary, subject to a minimum payment of £4,473 and a maximum payment of £6,890.
While this may sound generous, a study at the Centre for Research in Social Policy at Loughborough University, calculated that London Weighting needs to be almost £7,700 per year in Inner London to cover the additional minimum cost of living there.
In the private sector, London Weighting varies dramatically, but large employers generally recognise that it is necessary to add a supplement for those living in London, and for those having to fork out the exorbitant train fares when commuting into the city.
While those outside of the capital might bemoan the London Weighting bias, it has always been an inherently sensible solution to keep talent there.
Until, that is, the pandemic threw up an interesting conundrum. What happens when you work from home? If you are not paying for that Brighton-London season ticket, why should you get extra? Should home working spell the end of London Weighting?
Suggesting that London Weighting should be axed for remote workers is not a straightforward question. If a key worker lives in London, the rent isn’t going to drop with a change of work circumstance.
And, the new normal is unlikely to be a binary choice between office or home working. Many people will move to hybrid working, with time split between home and the workplace.
So, what is fair? We recently ran a poll on our LinkedIn page.
We asked: If someone works for a London-based business but works at home, should a ‘London Weighting’ be added to their salary?
While the votes were split fairly equally between several scenarios, only 17% answered with a flat ‘No’ to some form of London Weighting.
Few agreed with the hardline view of Ross Clark, writing for The Spectator who asserts:
‘People who work principally from home do not need a salary with a London Weighting. If they continue to live in London, it will be for their own social, cultural or family reasons, not because they have to.’
More tend to agree with the conclusion of Professor Donald Hirsch at the Centre for Research in Social Policy at Loughborough University: ‘Many modestly paid workers in London are unable to afford a basic standard of living.’
In any case, the cutting of a previously agreed London Weighting agreement could be legally problematic. One money advice site points out that: ‘Removing London Weighting from an employee’s wage would technically represent a change in the terms and conditions of their contract, unless there’s a specific term allowing the employer to make such a change.’
Legal concerns aside, it is certainly tempting for a business to drop location-based supplements. And some major players are considering such a move.
Last May, with the rush to home working, Facebook broached the idea of shaving off some of their costs. It announced that it would allow most employees to work from home permanently – but there was a price. It declared it would adjust the salaries of those who relocated to areas with a lower cost of living.
Facebook is based in Palo Alto, in the affluent San Francisco Bay Area, and the cost of living has clearly been factored in when salaries were calculated. The question is how would Facebook know if a remote worker relocated? Would the business spy on its own workers?
Clearly worried about his own workers taking advantage, Chief Executive Mark Zuckerberg warned staff via a video message: ‘We’ll adjust salary to your location. There’ll be severe ramifications for people who are not honest about this.’ Charming!
The future of London and city weighting
London Weighting will become less prevalent, but it will not disappear overnight.
For a start, home working will not apply to many public sector professionals such as nurses, doctors, the police and the fire service. Teachers can work from home with virtual learning, but the government is keen for schools to remain open wherever possible.
Where London Weighting is most at risk is with traditionally office-based roles, which can easily be performed at home with decent broadband. However, with many employers preferring employees to spend at least some days in the office, for collaboration and to encourage innovation, the issue will not disappear.
For the private sector, London Weighting is vital for recruitment and staff retention. As society reopens, many sectors are expecting to see a shortage of skilled candidates. It may not be the best time to drop such a scheme.
Those companies that remove popular benefits such as London Weighting may well pay the price with unfilled vacancies and a chronic skills gap.
Ed Moore is a Senior Consultant in the Tax Division at Harvey John.
Ed knows and appreciates the complexity of direct tax and works closely with clients and candidates alike to ensure all requirements are met.
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