One of the major headlines from yesterday’s Budget announcement by Chancellor George Osborne was his introduction of a “living wage”, but in reality the announcement is far less generous than it first appears.
Starting at just £7.20 an hour is a welcome increase to the current minimum wage, and the raise to £9 by 2020 will be very much appreciate by the millions in low-paid work. However, £9 remains below the current living wage in London, before five years of inflation.
Rhys Moore, director of the Living Wage Foundation, commented:
“Is this really a Living Wage? The Living Wage is calculated according to the cost of living whereas the Low Pay Commission calculates a rate according to what the market can bear. Without a change of remit for the Low Pay Commission this is effectively a higher National Minimum Wage and not a Living Wage.”
More importantly, the living wage calculations that set a Living Wage at £7.85 per hour (and £9.25 in London) take into account the current in-work benefits on offer from the state. As the Tories continue with their programme of austerity, cutting billions of pounds from the welfare bill, the living wage will rise, expanding gap between the chancellor’s so-called “living wage” and the actual Living Wage required to live.
According to the Institute for Fiscal Studies (IFS), 13 million UK families will lose an average of £260 a year due to the freeze in working-age benefits, and this fall will need to be offset by raising the living wage.
The chancellor did not offer workers a “Living Wage” in the first Tory budget in 19 years, but instead attempted to redefine the term and has managed to outmanoeuvre Labour by reframing the debate.
While Osborne may not have committed to a real living wage, he has found an effective way of selling an increase in minimum wage to the business community. By offsetting the rise in wages with a reduction in corporation tax, the chancellor has managed to make the increase in pay an easier pill to swallow for businesses, argues Kathleen Brooks, Research Director at CityIndex:
“The surprise increase in the living wage included in the Budget may have caused concern for businesses, however, the cut in corporation tax and reduction in national insurance for small businesses should cushion the blow.
“A £9 hour increase in the living wage may have surprised some, coming from the first Conservative government for nearly 20 years, however, this was a well constructed budget, which seems well balanced.
“For example, the living wage increase was balanced by the cut to corporation taxes, while the sharp cut to the welfare budget and working tax credits were balanced by an increase in the living wage, and raising the threholds of the minimum and higher tax brackets.”
1 Comment
Hi,
To define a living wage and implement it another thing. Mr. Osborne is wallowing in mud, at the moment not quicksand.