Opinion: It’s time for Liberal Democrats to embrace the Living Wage

Earlier this month was Living Wage Week which was the first ever UK-wide week devoted to highlighting the need for employees to receive a wage they can live on.

The week saw the campaign generate much publicity, starting with Boris Johnson announcing an increased rate of the London Living Wage to £8.55 an hour (compared to its national rate of £7.45) and Ed Milliband pledging to extend its implementation through Government contracts.

More Liberal Democrats need to learn why the campaign for greater take up of the Living Wage is so important.  While we have praised those employers that have voluntarily adopted it, in reality our own record of activity is not so great. Too often highlighting our record on reducing income tax for the low paid is almost an excuse for not doing more to tackle low pay itself.

Now of course reducing income tax on the low paid is a positive step. Why take tax away from those that aren’t even paid enough to live on?  It also has to be said that curbing public transport fares is important, as fares take up a disproportionate share of the income of those on the lowest paid.  Ensuring we maintain affordable housing is also critical.

However, is this really enough? Too many people are doing jobs which fall far short of providing an income that they can reasonably live on. Far from being able to live independently, they often have to rely on benefits to top up their incomes.

The Living Wage is an idea that has now been championed for over a decade and some of the employers that were first to adopt it are increasingly becoming aware that it has much wider benefits.

If staff are paid about £1.50 to £2 per hour more than the minimum wage they will normally feel greater loyalty and commitment to their employer.  Other benefits include reduced turnover and a reduction in absenteeism

A growing number of local authorities and other public organisations, such as some universities, have adopted the Living Wage. From the private sector there are also a number of companies on board as well. It is also worth noting that some charities and voluntary sector organisations are signed up, as is it has to be said the Labour Party.  We now need to get our own house in order.

It is time that far more local authorities, schools, NHS trusts and major private sector employees took a lead on this issue.  Major hotel chains and retailers on the high street also need to take up the policy.  Above all else, central government departments need to examine their own record and start to engage with the practicalities of becoming Living Wage employers.

In 21st century Britain no company should be profiting from the exploitation of its staff through the paying of poverty wages – and no local authority or other public body should seek to balance its books in this way, let alone a government department.

It is time that Liberal Democrats in government (local as well as national) stopped doing little more than just congratulating any company or organisation that signs up to the Living Wage.  We need to get behind this campaign and ensure more of our fellow citizens feel valued at the workplace and are economically independent.

What better way to start boosting demand in our stagnant economy than by boosting the income of the hard-working poor?

* Cllr Stephen Knight is a member of the London Assembly and a councillor in Richmond.

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  • Can you clarify whether you mean you would like the National Minimum Wage to rise to the rates suggested by the Living Wage campaign or would just like more campaigning for companies to voluntarily take it up?

    I think the piece suggests the former but doesn’t actually confirm it at any point.

  • Stuart Wheatcroft 20th Nov '12 - 12:47pm

    I’m not against promoting the living wage (how, though?), but you’re quite wrong to denigrate the importance of raising the income tax threshold. In a time of economic uncertainty, many businesses view raising wages as one of the last things they want to do. It’s not hard to see why: gains in productivity are uncertain, but the financial costs are all too obvious.

    What we can do is stop confiscating so much of what they do pay. There’s something rather hypocritical about politicians preaching about the living wage if they’re not also trying to raise the income tax allowance.

    Raising the income tax threshold gives an immediate boost. It also gives the government the moral authority it needs to promote higher pay: “we’ve done what we can – now you do what you can”.

  • steven raison 20th Nov '12 - 12:48pm

    Time to lead by example. Work with people on minimum wage.other people on more not had pay increase since 2007

  • Grammar Police 20th Nov '12 - 2:56pm

    “Now of course reducing income tax on the low paid is a positive step. Why take tax away from those that aren’t even paid enough to live on?”

    Why indeed? And taking minimum wage earners out of tax and NI would give them more net income than a Living Wage earner who is paying tax.

    It’s not immediately clear to me what you’re suggesting, is it that we should legislate to raise the minimum wage to Living Wage levels?

  • Peter Brooks 20th Nov '12 - 3:06pm

    Errm, if more and more companies embrace the Living Wage then surely one of the main arguments you make in favour of it rather than raising the Tax threshold so no one in minimum wage pays income tax is lost. It will become less special so the increased loyalty, reduced absenteeism etc. will all fade away. I’d rather we concentrated on stopping those on mimimum wage paying tax in the first place rather than paying them a bit more so we can then tax them a bit more.

  • I get very worried when people, with the best intentions, start talking about removing people from tax. Remove people from tax and you separate them further from the social contract. They can feel that they have no investment in society, no ownership of government. We are already hearing the right wing voices of deserving and underserving poor of those who contribute and those who just take. Removing people from tax leads to more social division and an excuse for discrimination and the social exclusion of the poor from the right to participate. Far better to drive forward the living wage and subsidise businesses directly rather than through subsidized wages in the form of working benefits. The effect on society of a person working to earn say £1000 receiving no benefits and paying tax and being left with £700 is far better than one being paid £400 paying no tax and getting £300 in benefits. The first empowers the person with a sense that he has earned his position and rights, the second comes loaded with the psychological negativity of benefits.

  • People should earn a wage they can live on. The living wage produces advantages to the worker, to the employer, and to the state finances, but it is primarily a question of morals and fairness.

    Employers find improved motivation and performance, and lower leaver and absentee rates amongst staff. Peter – this is because the employee is not run ragged, exhausted and half starved by living in poverty. Therefore legislating for the living wage will result in greater and improved performance across the UK.

    DaveW makes an excellent point – a fair wage is one that includes a normal contribution to your society, generating a sense of ownership of government, rights and belonging to society – and therefore greater democratic engagement.

    Good news from Bristol Mark. The living wage will help those who work part time, and we should also remember that working-age adults without dependent children form the largest group living in the deepest poverty. Out of work benefits are wholly inadequate to meet living costs and need to be urgently increased.

  • Has anyone made any suggestions about what happens when employers (such as mine – a very small business) can’t afford to pay £7.45 an hour to each employee?

    I’d love a pay rise but in reality if the minimum wage was raised to that level, someone would be fired.

  • Stephen Knight 20th Nov '12 - 11:00pm

    To respond to some of the differing comments above:

    There are a lot of ways to promote and support the Living Wage campaign – starting with councils we directly control. We can equally campaign on this issue where we are in opposition.

    The Living Wage is a voluntary initiative and the campaign’s promoters are not suggesting the statutory minimum wage should be increased to the Living Wage level, but rather that employers should be encouraged into better practice, especially large employers. However, if one accepts the ethical case that employees should be paid at least a living wage (and I do) then clearly it would be difficult to justify the statutory national minimum wage being set at a lower level and I would support a significant increase in the statutory level.

    Of course there is also a separate issue of ensuring that the statutory minimum wage (at whatever level it is set) is properly enforced (and there are some employers who break the law and don’t even pay this level).

    And to respond to Peter Brooks, I don’t see taking low income people out of income tax and the adoption of Living Wage as an ‘either or’ situation. The truth is that the lowest paid already pay a low proportion of their income in income tax, so reducing their tax bill, whilst welcome, is not going to lift their income that significantly. What they need is a higher income to start with.

    Tackling poverty incomes involves a belt and braces approach and I think both policies (and indeed a number of other measures) are needed. If anyone doubts the imperative to tackle poverty wages, I visited one of London’s 38 food banks today – up from 6 just four years ago and was told that some of those coming for food parcels were in low paid jobs but still couldn’t afford to feed their children on what they could earn.

    To CP I would simply ask, should companies really be able to profit out of paying exploitative level of pay? I don’t believe there are many businesses that are employing staff that they don’t need, so I doubt that raising minimum pay would result in many redundancies. For example, I doubt too many offices would stop employing a cleaner, just because that had to pay them an extra £1 an hour.

  • Stephen Knight 21st Nov '12 - 8:43am

    Sorry my last point was addressed to ‘Nicola’ not ‘CP’.

  • Stephen :
    This comment by Peter Brooks, is I feel, is the most accurate in summing up the illogic of what is happening at present.
    “I’d rather we concentrated on stopping those on mimimum wage paying tax in the first place rather than paying them a bit more so we can then tax them a bit more.”
    Beyond that I’m not sure I fully understand what the Living Wage constitutes, in actual take home pay. For example is £7.45 the after tax figure or pre tax figure. How many hours per week (at the Living Wage rate), would constitute a person’s actual living income?
    Example of confusion : A small double glazing firm paying his employees £7.45 x 40 hour week, is effectively paying a salary of about £14,300 per year. However that employee will be paying tax at 20% over (say a future personal allowance of £10,000), of £860 tax per year. So by definition, the employee is (now), £860, short of a living wage. Following the logic the glazing company will have to stump up £860 per year (more than the living wage), to truly bring his employee up to, a living wage.
    Am I missing something?

  • Stephen Knight 21st Nov '12 - 12:59pm

    John Dunn –

    The Living Wage is set at a rate which takes account of tax rates and benefits available.

    Let’s use your own example of someone working 40 hours a week at the living wage of £7.45 an hour earning £14,300 a year and paying £860 a year in income tax. The same person earning the national minimum wage of £6.19 an hour earns £11,885 a year and pays £377 a year in income tax.

    Clearly, however much we raise the tax threshold, the person on the minimum wage can only benefit by a maximum of£377 a year. The person on the living wage is £1,932 a year better off, even after paying a little more tax.

    I think this illustrated well the fact that lowering tax on the lowest paid is never in itself going to answer the problem of the working poor.

  • Grammar Police 21st Nov '12 - 2:13pm

    Thank you for coming to reply Stephen – but I just want to query your figures.

    In 2012-13 tax year – someone on Living Wage of £7.45ph for a 40 hour week will earn (gross) £15,496 but pays £1478.20 in income tax and £948.48 in National Insurance , leaving £13,069.32 (net), which is the equivalent of a take home pay of £6.28 an hour.

    A person on min wage of £6.19ph for a 40 hour week earns (gross) £12,875.20, pays £954.04 in income tax and £633.98 in NI, leaving £11,287.18 (net) – an equivalent take home pay of £5.43 an hour.

    But we can see how close the gross pay of someone on “minimum” wage and the net pay of someone on a living wage are (9p an hour more on the Living Wage!). The figures above also show that removing minimum wage earners from paying tax and NI completely would pretty much bring them to the same income level as living wage-minus-tax.

  • suppose you go back to the start and define what you mean by the terms you are using.? . ‘Living Wage’ will mean quite different things to different people.
    the Tax threshold should be set at whatever the minimum wage for a ‘working week’ would be, but if you are not able to ‘live’ on minimum wage for a working week, then isn’t it set too low? That’s where we should focus our efforts in terms of fairness, and leave the meaningless phrases with Labour,. We should say that the working week on the minimum wage will BE a living wage by the end of this Parliament, if the wicked Tories would only agree.
    Labour are trying to belittle our efforts on the Tax threshold, and steal the centre ground. We should not jump to their tune.

  • Thank you to Stephen for your response, and to Grammar Police for broadening out the point with better, and more accurate figures than I provided.
    I think this emphasises the point that a blanket statement, that £7.45 is a living wage, doesn’t have enough ‘flesh on the bones’ to make any real sense.
    Peter Brooks made the broader point that folk on such a low income, be it minimum wage, or living wage, probably, ought not be paying any income tax. If a ‘living wage’, equates to (say), £14,500 per year, then I feel it is only sensible to set the initial personal allowance to £14,500. Otherwise (by definition), the government are taxing the low paid, and forcing them to live on an annual sum, that they [government], acknowledge… can’t be ‘lived on’. (Without additional credits and benefits of course).

  • peter:
    For what it’s worth I don’t think there is any party political argument, about the issue at hand here. Indeed, I believe that the solely, LibDem driven policy, to raise the personal allowances, was inspired, and at flagship level, in terms of its value to the little guy (and guy..ess!), on the street.
    But the good work in raising personal allowances, is just not joined up with other issues like minimum (or living), wage, tax credits, benefits etc.
    It may be good for employment prospects at HMRC, and the many benefits agencies, but it doesn’t seem to make a whole lot of sense to take income tax from low income people, thereby, pushing them below the ‘living income’ threshold, only to give them their own money back, in the form of benefits, in order to pull them back up to the ‘living income’ threshold.

  • Ed Shepherd 22nd Nov '12 - 7:44am

    Living Wage is one of the policies that I think the Labour Party will embrace in order to ensure that they win the 2015 general election. The raising of the personal tax threshold is a worthy idea but the benefits of it to the lower paid have been offset by policies such as the VAT rise and the abolition of EMA. Of course, discussion of a Living Wage brings into question the validity of an economic system where most people have to sell their time and effort to others in order to stay alive but that’s not a question any of the four main parties in England will ever want to discuss properly.

  • @ DaveW.
    “Removing people from tax leads to more social division and an excuse for discrimination and the social exclusion of the poor from the right to participate.”

    I find this argument rather unconvincing. I concede that those who are unemployed may very well feel a deep sense of disenfranchisement. But I don’t think this is linked to the fact that they aren’t financing the government through income tax. And with respect to those who are being lifted out of income tax, do you honestly think they will begin to feel a sense of detachment from society? The issue of social cohesion is rather more complex than taxation.

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