The Living Wage – political football or real aspiration

Posted by Josh Conibear in Credit Crunch on 14 November 2013 - Josh worked as a Credit Analyst at checkmyfile until 2014

Ed Miliband is proposing that employers should pay workers the living wage, as opposed to the minimum wage.

”I am talking about people battling to do the right thing and struggling and struggling. Hard, honest work, in supermarkets, on building sites, in call centres. Working harder, for longer, for less. We have a low pay emergency in this country.”

So what’s the plan? In short, if Labour wins the next election, Mr Miliband has pledged to give employers a 12 month tax break worth up to £1000 for each worker they agree to increase to a 'living wage'.

He says that for every extra pound employers pay up to the living wage, the Government saves almost 50p on lower tax credits and benefits. The cost of this policy would therefore be funded by the money saved on lower benefit payments, as well as higher tax and National Insurance revenues.

The concept of the living wage has deep historical roots, first conceived in the nineteenth century by the Liberal Party, then largely put to one side until the turn of the current century, when it began to acquire support from politicians of all hues. Ken Livingstone, the Labour Mayor of London, quickly adopted the cause following a public campaign, and Boris Johnson, the subsequent Conservative Mayor of London picked up the baton for the cause. Prime Minister David Cameron has described the living wage as “an ideas whose time has come.”

The living wage is nationally £7.65 an hour and in London, £8.80. The rate takes into account the average costs of housing, council tax, transport and food. Unlike the minimum wage, which is currently is £6.31 for those aged 21 and over, the living wage has no legal force. It is paid by employers on a voluntary basis and is a recognised sign of good employment practice.

It is often reported that more than 5.2 million people in the UK are paid less than the living wage, meaning that one in five workers are paid less than the living wage.

Bob Crow, the leader of the RMT railway union, dismissed Mr Milliband’s pledge as a "cop out" and has called for a raise in the statutory minimum wage, a proposal backed by several Labour members . Fiona Twycross, a Labour London Assembly member, warns that, at the current rate of progress, it will take "450 years for all workers to be paid a living wage in London".

The CBI – representing employers’ views - praised the Labour leader for making the living wage a voluntary scheme rather than mandatory but warned that not all employers could afford to pay it. The Conservative party condemned the plans as unaffordable and unworkable, and pointed out that even Ed Balls, Labour's shadow chancellor, has been previously against the idea when it was first raised by Mr Miliband in the 2010 Labour leadership contest. Mr Balls said at the time that the policy would require "a substantial extra cost either to the Exchequer or to business".

Matthew Bolton of Citizens UK – the organisation that first began campaigning for the living wage in 2001 – called on employers to "stop and think" about workers being pushed into poverty.

Whatever the outcome of the next election, there are many similarities in the arguments being heard now and those heard when the minimum wage was legislated. Once the living wage becomes law, whenever that may be, most people will forget the rhetoric and will believe that it is only right and proper to define and pay a realistic living wage.

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