The living wage – currently set at £8.55 in London – represents a voluntary commitment by employers to pay a wage that is sufficient to keep people out of working poverty. It is higher than the National Minimum Wage (NMW), which employers are legally obliged to pay.
Economists at the Greater London Assembly are responsible for calculating the amount necessary for a living wage. The £8.55 figure is a sum which is reduced to take into account means-tested benefits.
The UK Living Wage Campaign was launched in 2001 by London Citizens – a registered charity founded by two Eastender parents – and since then, the Living Wage has received cross-party support, with backing from both left-wing and right-wing press and politicians from Ken Livingstone to Boris Johnson. Nearly 300 employers have now signed up.
But that support is now under threat.
Vince Cable, Business Secretary, has warned of job losses if the Living Wage was to be made compulsory. He argues that raising the threshold at which people pay tax does more to help alleviate working poverty.
The question should be, why we can’t lift more people out of income tax and pay them a sufficient wage?
As it stands, those employers paying workers less than the living wage are being subsidised by the taxpayer in the form of tax credits and benefits for the poorest of the capital’s workers.
Yet more fundamentally, the living wage has been shown to bring benefits to both workers and businesses – one of the reasons for its swathes of support across the political spectrum.
Workers earning the Living Wage have been found to enjoy better mental health and morale. Crucially, employers have found that paying the Living Wage has led to rises in productivity and better retention rates, leading to a cut in hiring costs.
Whilst concerns about unintended inflationary and unemployment effects must be considered, a time traveller going back to the late 1990s would find the same arguments were made against the introduction of NMW.
They proved false. Neither unemployment nor inflation rose as a result of workers receiving a basic level of pay for their service.
Recent weeks have seen the importance of the cost of living take political centre stage. The pressure on politicians to act will grow as the 2015 election grows closer, but that on companies is also increasing.
That political pressure, coupled with the benefits brought to both employers and workers by the Living Wage, means that companies in London and elsewhere who can afford to pay their workers enough to live, not just to survive, must do so. ‘Profit’ might not be a dirty word; ‘poverty’ certainly is.
The fight for a Living Wage is not yet won. Yet those London employers who pay a fair wage to those people without whom their companies couldn’t function, can proudly claim to be leading the way.
Image by PaulSteinJC courtesy of Flickr