The battle at Boots

Michael Taft: Sometimes, something happens that takes your breath away. The chain store Boots is engaged in a deplorable assault on their employees’ wages and working conditions – employees who are some of the lowest paid in the economy. Not only that, it constitutes an assault upon other enterprises, the Exchequer and the Irish economy.

Let’s do some background. Over the summer Boots and the representatives of their employees – Mandate – met on a number of occasions to discuss a range of cost saving measures. In particular, management demanded:

• 15.5% wage reduction at the top scale of pay from €14.20 to €12 per hour
• 25% reduction in public holiday pay
• 25% reduction in Sunday Premiums
• Increased flexibility in weekend work for full time staff

Unsurprisingly, the negotiations didn’t go too well, especially given that Boots is a profitable enterprise. Mandate requested the company attend the Labour Relations Commission (LRC) to sort matters out. Suddenly, in August, Boots management wrote to the union stating that unless Mandate accepted the new pay and working conditions, Boots would terminate all existing collective agreements negotiated with the union over the past fifteen years. In addition, the management stated they would not attend the LRC. This action certainly wasn’t intended to build an atmosphere for constructive dialogue.

Eventually, management relented and attended the LRC with Mandate in October. However, such was their attitude, they might as well not. All they were prepared to do was remove the threat to the collective agreements if the union unconditionally accepted the new conditions of employment in full.

Currently, Mandate is balloting Boots employees for industrial action. The ballots will be counted on November 6th – ICTU’s National Day of Action.

It doesn’t get much worse than this. A full-time 39-hour per week employee at the top of the scale earns €28,800 – about 30 percent below the average industrial wage. Boots management is demanding a pay cut of nearly €4,500 a year. That’s savage. But Boots management isn’t just targeting those at the top of the scale – they’re demanding 25 percent cuts in holiday and Sunday pay for all employees.
This isn’t a company in trouble. In 2008, the Irish division in Boots earned €20 million in 2008 with current cash reserves in excess of €70 million. Worldwide, Alliance Boots posted an EBITDA of over £1 billion in March this year (that’s trading profit before depreciation and amortisation) while their underlying profit – excluding finance costs – is a healthy £236 million.

Okay, but what now? How has the recession and the decline in consumer spending affected Boots? Probably not much. The CSO’s Retail Sales Index shows all businesses suffering a drop of 7.5 percent in sales (from a 2005 base year). But sales in the Pharmaceuticals & Cosmetic Articles group have actually increased by 17.1 percent – the biggest increase of any retail grouping. That doesn’t’ necessarily mean that Boots turnover or profits have increased by that amount. But since it is a major player in this grouping, we shouldn’t be too surprised to see them staying relatively dry in this recessionary storm.

To be fair to Boots (which is owned by a private equity firm), they’re not just having a go at their own employees. They have recently withdrawn from the Ethical Trading Initiative, which was established 10 years ago to tackle the use of sweatshops in the developing world (members include, Tesco, Sainsbury's and Marks & Spencer to name a few). A Boots spokesperson explained their decision this way:

‘The reasoning for this is because it (the Ethical Trading Initiative) only concentrates on labour standards and at Boots we focus on all aspects of sustainability, with labour standards only one aspect of many that we need to consider.’

Yeah, sure, whatever.

The treatment of employees is bad enough – it rightly offends most people’s sense of justice and fair play. The issues, however, spill out of the workplace and into the larger economy. For instance, Boots is not just attacking its workforce – its attacking the Exchequer.

A full-time employee on the top of the scale is paying a little over €4,700 in income tax, PRSI and levies. In addition, employers’ pay a little over €2,900 in PRSI. The total benefit to the Exchequer is about €7,650.

If, however, Boots succeeds in cutting wages at the top of the scale, the benefit to the Exchequer falls by over €2,700. Even including the potential increase in corporate tax revenue (if Boots pays at the nominal 12.5 percent; it should be pointed out the real effective tax rate, when allowances and reliefs are included, is less), the net loss to the Exchequer would be over €2,100 for each Boots worker in this category. Now calculate the tax loss (and this doesn't count lost VAT revenue from reduced spending) from the full range of pay cuts that are being demanded from the 900+ employees in the chain.

The owners of Boots gets the gain; the workers – both in Boots and throughout the economy – take the pain.

And it doesn’t stop there. Staying with the full time Boots worker at the top of the pay scale, her/his disposable income would fall by nearly €40 per week. If we accept that most of this money would have been spent (those on low and average incomes have a higher propensity to spend, unlike those on higher incomes who have a higher propensity to save), then that’s money not flowing to the proverbial local shops.

Businesses reliant upon selling goods and services into the domestic economy will suffer a loss of turnover. Many of these businesses are genuinely in trouble. This decline in sales will hit them even harder with all the consequences this may hold: lower profits tax, reduced wages and/or hours, job losses: this is the deflationary process set in train by Boots. It’s not just their own workers who get slammed, it’s not just the Exchequer that gets hit – other businesses, their owners and workers, also suffer.

[Note: this is just one more example of why those economists who claim that wage cuts will automatically increase employment are wrong. The actions of Boots management is not about saving jobs, never mind creating more. It’s about enhancing profits for a private equity firm.]

That’s why the looming battle at Boots is not just a fight that only concerns those who work there. It’s our battle as well. It’s not just about ‘an injury to one is an injury to all’. This is a battle over public finances, this is a battle over economic growth, this is a battle over all our living standards.

That’s why, if the employees at Boots vote to take industrial action, they deserve our fullest support.

If you want to help create public support for the Boots workers – and hopefully force management to step back from their damaging course of action before it comes to industrial action – please spread the word.

You can circulate this e-card from Mandate to family, friends and work colleagues.
Cross-posted from Notes on the Front.

Tagged with: Wage Cuts

Michael Taft     @notesonthefront

Michael Taft is an economic analyst and trade unionist. He is author of the Notes of the Front blog and a member of the TASC Economists’ Network.