The Living Wage is a term which has gained ground in mainstream politics over the past year or so. Ed Miliband has used it in attempts to forge his political identity. Boris Johnson has spokenof his support for the concept and would like to see it introduced in London and David Cameron has said it is an idea whose time has come.
According to the Joseph Rowntree Foundation, a salary of £14,400 is the minimum a single person needs [PDF] for an acceptable standard of living. This figure includes not only the basics in life, but covers what is needed to participate fully in society. This means spending on socialising and modern technology such as an internet connection and a mobile phone. Of course, to advocate this policy begs the obvious question – where will the money come from?
The Institute for Fiscal Studies has shown that companies which pay below the “living wage” cost the taxpayer between £5.9bn and £6.3bn a year. This is because low-paid employees are forced to top up their income with tax credits and benefits, resulting in the Treasury receiving less in tax revenue. Ed Miliband has argued that the heavy cost to taxpayers of subsidising the low-paid could be reduced by between £3.4bn and £4.1bn a year if companies instil the Living Wage and, if firms refuse to offer at least £7.60 they would not be eligible for lower levels of corporation tax. These savings alongside the announcement by the Institute of Directors in recent days that the 2010/11 deficit could undershoot OBR forecast by £10bn could provide the funds for the initiative.
For the long term strategy of the Coalition the Living Wage would be a good thing. Inequality rose under the last government even though spending soared. An attempt to reduce inequality whilst continuing on the overall path of austerity would undermine Labour’s arguments that the government cuts are the main obstacle to economic recovery. The Living Wage would increase the spending of the less well-off whilst reducing their reliance upon benefits, creating jobs and reducing the deficit, whilst providing an answer to those who say the Coalition has no plan for growth.
Politically, this could be an astute move for the Liberal Democrats. The broad support from across the political spectrum is an indication that the campaign would be likely to succeed. A campaign based upon consensus would highlight the role of the Liberal Democrats within the coalition, to unify the more liberal end of the Conservative Party, and to champion the ways in which the state can enable individuals to reach their full potential in an equal and prosperous society The introduction of the Living Wage would steal some of the thunder and purpose from Ed Miliband’s attempts to rejuvenate the Labour Party, as well as be a boost to activists attempting to woo potential voters.