Is this how a Living Wage might work under Labour?

January 20, 2013 12:45 pm

There’s an interesting report from IPPR and the Resolution Foundation out today (“Beyond the Bottom Line“) that outlines a way in which the Living Wage could be rolled out across the country. As the Observer explained it:

“the creation of “living wage” zones in which a proportion of savings that accrue to the Treasury as a result of the living wage being paid by local public sector employers would be fed back to those local authorities to encourage spreading the living wage into the private sector.

The report suggests that under these “living wage City Deals” local authorities would get the cash on condition that they agreed to work with local businesses to increase wages to living wage levels. Companies could use the money to help them cushion the impact of raising wages or to fund training

The blueprint also says all listed companies should make public how many of their staff are paid below the living wage.”

The report has been welcomed by the party (who called it an “extremely valuable contribution”) which is perhaps unsurprising, as IPPR and the Resolution are both highly regarded by the leader’s office (and by Jon Cruddas too – the authors of this report Kayte Lawton and Matthew Pennycook both contributed to his recent LabourList pamphlet). There’s certainly plenty in the report that is worth flagging up. Having spent a bit of time leafing through it today, here are a few quick thoughts:

A living wage is affordable – The report suggests that a statutory living wage (which I’ve argued for before) would be risky as it could cause job losses - particularly for young low-skilled workers (I still think it’s a good idea, but that’s an argument for another day). It is nonetheless clear that we can have far more extensive Living Wage coverage without any economic damage. The report shows economic costs are surprisingly low and that lots of employers could absorb the cost in various ways.
The government would make billions from a living wage – More coverage for the living wage would benefit the government in the form of higher tax, NI and lower tax credit spending. In total, the government could receive £2.2 billion if the living wage was paid across the board.
The Living Wage is a public sector phenomenon – It needs to break into the private sector where the bulk of low-paid workers are, because otherwise it’s limited (as has been the case in the US).
The Government must tread carefully – the report suggests that political parties need to be careful about government’s role in implementing the Living Wage because the grassroots, community organising aspect of some Living Wage campaigns is a real strength (I wouldn’t disagree – but I still think legislation is necessary, again, an argument for another day). With that in mind, the policy proposals outlined in the report are explicitly geared towards ways in which the state can help and support the campaign rather than the state legislating for everything.
The report chimes with much of Ed Miliband’s thinking around the Living Wage – especially the need for coercion of businesses rather than legislation. With that in mind, I’d be surprised if this report isn’t on the Labour leader’s desk as a blueprint for how the party can implement a Living Wage both in office and from opposition.
  • Chris Davies

    Am I being really stupid here? If public sector employers all pay the living wage (as they should, as should private sector employers) then this will cost the treasury more money in higher wages than it will get back in the form of higher tax. Yes, once the private sector pays a living wage then I see the savings, but not until then. Without compulsion (a proper minimum wage), is this not just a massive spending commitment?

    • Quiet_Sceptic

      No I think you’re right.

      The tax-take/benefit reduction effect reduces the cost to the public sector as a whole but there’s still an increase in cost which isn’t fully off-set. There’s an example in the report (Box 6) where for a council paying an extra £1 in wages, 35p goes direct to the employee, the bulk of the remainder goes back to the Treasury as tax, NICs and reduced benefits with some increased pension costs. So the extra £1 of pay, only costs ~40p but it’s still an extra 40p which needs funding from extra taxes.

  • JoeDM

    Yet more regulation and red tape !!!

  • Quiet_Sceptic

    To quote the report “The main beneficiary of the living wage is the Treasury.”

    Now if we really believe in the living wage; that people really do need that bare minimum income to live, then why aren’t we pushing to align the tax system and the tax free allowance to lift the low paid out of tax? Letting them take home more of their income and ensure they keep every extra £1 they earn up to the living wage minimum?

    It would also reduce the cost to employers of paying a living wage, the £7.45/hr is before tax, cut the tax and you cut the wage required.

  • Monkey_Bach

    Here’s a thought: Why not reward people on compulsory Job Guarantee schemes with a living wage while temporarily seconded onto such schemes? If Labour is serious about a living wage shouldn’t a Labour government set a good example to private and public sector employers as far as paying temporary, short-contract employees goes? Eeek.

  • telemachus

    Most competitive business in Britain already pay
    living wages. It is in the low-skilled, service areas of the economy that the
    problem largely lies.
    So we nned to marshall the public to shame these businesses which after all interact with us to move to living wages
    A media attack on Starbucks came up trumps for the treasury

  • MarkHoulbrook

    Mark before anything works under Labour. One Nation labour has to cut through to the mainstream of British society. This would of course include Ed Milibands back yard. Since 2009 there has been an English Democrat Mayor at the helm of Doncaster Council. Ed Miliband was elected in 2005, Caroline Flint in 1997 and Rosie Winterton in 1997 I think. This is in a Labour heartland. This is grassroot Labour territory. If you cant have a One Nation Local Community how do expect Labour voters and supporters to grasp Jon Cruddas rhetoric on a One Nation Society.

  • jaime taurosangastre candelas

    This seems very sensible, particularly if the businesses are protected from the extra costs by some reduction in the taxes they pay. Everyone in Britain working today should receive a living wage for the hours they work. The Minimum Wage should be the Living Wage (but that also means regional pay is necessary).

    And importantly, the JSA should be raised to nearer to the NMW. I understand the brutal arithmetic the tories argue about making work “pay” over benefits, but this brutalism is too far. The vast majority of JSA claimants do not choose to be so, and deserve our support, not brutality and blame. Perhaps “some” may choose to receive JSA and use their time to make extra money with the E-Bay or undeclared work “on the black”, but I think very few do. I can’t imagine many would choose JSA over work.

    At present, JSA of £71 = £1.89 over the nominal 37.5 hour week. When pregnant mothers are receiving £135 a week and have a guaranteed job when they choose to return to work, it is cruel that JSA is so minimal.

  • MonkeyBot5000

    Surely the minimum wage should be enough to live on. If the living wage is higher than the minimum wage, then the minimum wage is not high enough and any half-decent politician from a party that purports to represent average working people would be calling for a rise in the minimum wage. Instead, the plan is to bribe businesses into paying people more by handing them a subsidy.

    The minimum wage should also be equal to the personal tax allowance. That way, you take the low paid out of taxation, reduce the amount the government wastes each year by giving back tax credits and also cut the cost to businesses of taking on staff in those entry level jobs as they wouldn’t have to pay the NI anymore.

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