One of the key battlegrounds on which the 2015 General Election will be fought is living costs, especially for those on low and low-to-middle incomes. With times tough and the cost of many basic items essential for living having outpaced wage inflation for a decade (according to the most comprehensive study of the subject, led by the Resolution Foundation but with considerable input from business and other organisations) – and with no money left in the public purse – answers are not easy.
The Liberal Democrats have, rightly, chosen to address this by a range of measures, and the key steps are both up for debate at Glasgow. The proposal to raise the threshold at which income tax is paid further – to £12,500 in time – is helpful, if very challenging given a cost of over £10 billion at a time of great pressure on the public purse. That same reason is why the more redistributive measure of increasing the National Insurance threshold has not been attempted at this point.
The more radical step, however, is the move to embrace the Living Wage movement, however tentatively. The Balanced Working Life paper calls for a commission to establish a Living Wage, and effectively calls for the public sector to embrace it. However, accompanying this have been calls from some on the right of the Liberal Democrats that it should not be supported or should be treated with caution, as even its proponents believe it would cost 160,000 jobs to implement. Others still confuse the measure with the tax and National Insurance reforms above.
Is there any truth in this? Well, I pressed some of those making this claim for a supporting reference. Eventually, one of those who had privately made these claims pointed me to a paper jointly produced by the IPPR and Resolution Foundation, ‘Beyond the Bottom Line’. As with the ‘Gaining for Growth’ report, it is well worth a read. For a start, it sets out how a living wage may be calculated, and how many people it might affect. It also makes clear that as well as assisting those on low wages to earn more [to the tune of £6.5 billion, targeted to the 4 million lowest-paid workers: an effect at least as dramatic as the proposed Income Tax increase], introducing a living wage would make a significant contribution to the public purse, not just increasing revenue through tax and National Insurance but also reducing expenditure on tax credits.
And what, exactly, does it say on the effects of the living wage on employment? This:-
Modelling an extreme scenario in which the living wage is guaranteed to all private sector employees in the UK we find that while four million workers would see their pay rise, overall labour demand would fall by 160,000. The effects would be larger among younger workers and in certain sectors, particularly retail and hospitality. This is an extreme ‘worst case scenario’ (a similar model would have predicted job losses from the National Minimum Wage (NMW), which we now know did not happen) but it confirms that we should not legislate for a statutory living wage, an option which, in any case, few living wage activists advocate.
My underlining is for emphasis. In fact, the sector-based approach advocated in ‘Gaining from Growth’ is probably the most pragmatic option at present, still benefiting significant numbers of lower-paid workers, but at minimum risk to jobs, and no cost to the public purse.
By contrast, what the proposal going to Glasgow does not do is address the private sector. Bizarrely, it leaves it almost untouched. It focuses instead on the public sector, the costs and effects of which are rather less certain (although early evidence from its implementation in London, under a Conservative administration – please note – is that its effects are benign).
I have tabled an amendment to the otherwise excellent Balanced Working Life paper to strengthen Liberal Democrat commitments to helping those working hard on low wages. I hope it will be supported: the facts are in its favour.
The Balanced Working Life paper will be debated at 3 pm on Saturday.
* Gareth Epps is co-Chair of the Social Liberal Forum and a member of FPC and FCC.