it’s time we stopped subsidising low pay

I saw a statistic recently on the TUC’s Touchstone blog saying that three in every four new housing benefit claims were now being made by people in work. The fact that for so many people, wages are not high enough to meet one of the basic costs of living, should concern us all. Indeed, a recent independent report on low pay by Alan Buckle, former deputy chairman of KPMG International, highlights the extent of the problem.

Some 20 percent of the working population of this country – 5.2 million people – earn less than a living wage. This is an increase of 52% since 2009, affecting women and young people the hardest. Indeed, a third of all women and 40% of 16 to 30 year olds are low paid.

According to the report, the cost to the taxpayer of so many people earning less than a living wage is a massive £3.23 billion in spending on in-work benefits and lost tax revenue. In a society with record numbers of billionaires, and where bankers can make millions in bonuses, this is surely morally wrong and bad for our economy.

The living wage is an amount considered necessary to provide for the basic costs of living. On today’s figures this means an hourly rate of £7.65 (£8.80 for those in London). This compares to the statutory minimum wage of £6.31. According to the Living Wage Foundation, paying a living wage not only helps people provide for themselves and their families, but it brings significant benefits for employers. These include improved quality, reduced absenteeism, and reduced staff turnover.

There is plenty of popular support for the living wage from across the political spectrum. But welcoming it, supporting it, and even promoting it is not, in my view, going to be enough. My understanding is that the Labour Party has proposed a short term tax rebate scheme to help employers move towards the living wage. Welcome as this is, I’m not sure it will bring lasting change. My concern is that a carrot will have only limited effect without a stick to help it along. Labour need to firm up their idea and show how it will work.

The Green Party have a more direct and radical approach, and would make the minimum wage a living wage. This of course would be resisted by some sections of business and attacked by political opponents. But surely it can’t be right to go on carving up this country’s GDP by putting less into people’s pay packets, and effectively subsidising low paying employers through our benefits system?

As we head towards next year’s general election, the left needs to be offering a meaningful alternative. Action on a living wage as part of a broad range of policies to tackle inequality and poverty (including an end to zero hours contracts and enabling an increase in trade union collective bargaining) could help to do this. If we fail then the steady rise in support for parties spouting nationalist and far right rhetoric will surely continue.


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