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Introduction of living wage 'could save UK billions'

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Introduction of living wage 'could save UK billions'

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Published by Max Salsbury for 24dash.com in Central Government and also in Communities, Finance

Introduction of living wage could 'save UK billions' Introduction of living wage could 'save UK billions'

The introduction of the living wage across the UK could save the UK £billions, a new report argues.

Think tanks IPPR and the Resolution Foundation worked jointly on the analysis that suggests a national living wage could add £6.5 billion to the gross earnings of the UK's workers.

The living wage is calculated as the minimum rate needed to sustain a basic but acceptable standard of living, and is currently set at £7.45 an hour (£8.55 in London).

The report reveals that the Treasury would collect more than half of the initial financial gains from a living wage – around £3.6 billion - in the form of higher income tax payments and national insurance contributions, as well as lower spending on benefits and tax credits.

The think tanks also examined the extra costs to the public purse of paying a living wage to all public sector workers, and calculated that wage costs would increase by more than £1.3 billion – which would leave an overall public saving of more than £2 billion once the Treasury's £3.6 billion windfall was factored in.

Recognising that the lower national minimum wage (currently £6.19) is set by the Low Pay Commission to avoid risking jobs and that an immediate shift to a universal living wage across all sectors may not be feasible, the report also looks at the possible effects of a living wage on labour demand.

The report recommends that all Whitehall departments and London boroughs should pay their staff at least the living wage by April 2015 and explore the costs of paying sub-contracted staff the same rate.

The London weighting means that most public sector workers already earn at or above the London living wage, so introducing the living wage for all staff would cost relatively little in the capital but would set a precedent for others to consider following.

Only six London boroughs currently pay the living wage: Lewisham, Islington, Camden, Lambeth, Hounslow, and Southwark.

Five million people are currently paid less than the living wage, three million of whom are women.

More than three million households contain at least one adult earning less than the living wage.

Kayte Lawton, senior research fellow at IPPR, said: "At a time when typical wages have flatlined but prices have continued rising, concerted action to drive up levels of pay for low earners is an essential component in the improvement of living standards. As a first step, making sure that all council staff in London are paid at least the living wage wouldn’t cost very much but would be an important symbol of political leadership. Councils in other parts of the country, like Glasgow and Newcastle, have shown that the living wage can be affordable even though the costs are higher."

Matthew Pennycook, senior analyst at the Resolution Foundation, said: "There are significant overall public savings to be made from paying a living wage, on top of the beneficial effects it would have on reducing working poverty. Public-sector employers are well-placed to expand the living wage and to set an example which the private sector can follow."

Workers earning less than a living wage across the country:

32% in the North East (375,000 people)
31% in Yorkshire and Humber (714,000 people)
31% in Wales (344,000 people)
30% in the West Midlands (617,000 people)
28% in the East Midlands (552,000 people)
27% in Scotland (623,000 people)
27% in the South West (583,000 people)
25% in the North West (683,000 people)
24% in the East of England (593,000 people)
23% in the South East (843,000 people)
20% in London (581,000 people)

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