On Saturday, Adam Corlett outlined his concern that how the Living Wage is calculated could cause problematic increases over the next few years. He raises some valid issues. However, the Living Wage has been designed so that it cannot rise uncontrollably, and in reality it is likely to rise much less, relative to general pay, than Adam is suggesting.
The Living Wage’s growing popularity shows so many employers have been willing to take on the commitment to pay enough for a decent living standard, even though times are tough. With average living standards going down, this reflects a widespread moral view that workers struggling most on low pay need protection.
Nevertheless, in devising a sustainable formula for calculating it, the Centre for Research in Social Policy (CRSP) recognised that it must reflect the economic pressures facing employers in giving workers a socially just standard of living.
As Adam Corlett says, this means that in the next few years, the Living Wage is likely to increase faster than general wages. But it would be hard to argue that any time the living wage goes up faster than general pay is problematic. The point of the living wage is that it reflects what is happening to living costs, and these will not always move identically to pay rates. Sometimes (as in long periods of growth), living costs increase more slowly than average earnings; it is only recently that the opposite has occurred.
It is true that when the ’applied rate‘ is catching up with where the living wage should really be (the ’reference‘ rate), the living wage will be determined by what is happening to earnings (through the ’cap‘ formula). But this doesn’t mean the link with living costs has been broken. Seen longer-term, it is the recent increase in living costs above earnings growth that will cause the living wage to grow faster than average earnings, but to provide some stability, the cap has caused this increase to be postponed.
Moreover, Adam’s projections of high cumulative increases over the next six years are likely to overstate reality, in two important ways.
First of all, one in three people currently earning below the present ’reference‘ rate of the living wage, £8.80, does not mean that future increases will require pay rises for a third of employees. If, as is likely, earnings rise faster than living costs in the coming years, when the Living Wage gets to where it should be, earnings too will have risen substantially in real terms.
Second, significant new Government help with childcare costs will lower the ’reference‘ level of the Living Wage substantially. From 2016 support will halve what low -earning families working full time on the living wage level would need to contribute to childcare – today that would reduce the £8.80 figure to £7.70.
Beyond technicalities, what we see is that the living costs squeeze has been particularly painful for working families on low wages. Living wage employers see they have a part to play in addressing this. All political parties are also committed to addressing the rapidly rising cost of childcare.
We cannot predict accurately what will happen to the living wage. But what we can say is that it offers the opportunity for government – not least Liberal Democrats –and employers to play complementary roles in making work pay enough for families to live on.
* Donald Hirsch is Director of the Centre for Research in Social Policy, who calculate the annual Living Wage rate for the Living Wage Foundation.