Flashback to Living Wage

Living Wage rate

Flashback to Living Wage

By Charlotte Argyle, 17 December 2012

As of December 2012, the average London worker can expect to enjoy a wage of £33,816 compared to that of their Northern neighbour, where in Manchester for example the average is £26,242.

If you go on to look at the median hourly rate for London, it is £10.13 and further investigation shows that if you take the median hourly rate by years experience, you would need 5-9 more years within that sector to reach anywhere close to the proposed £8.55 ‘living wage’ figure.

At a time of reported low growth, the living wage can be described as nothing more than another bureaucratic bid to stifle SME and start-up growth. It is a measure which positively favours those larger, established employers, who can absorb the cost into their bulging P&L. It is no secret that a national minimum wage was introduced to the UK in 1999, which was set at 46% of median wage and currently stands at £6.19 PH. This national standard had a positive effect of increasing bottom worker pay by 5% but with this new bid, which dictates that the altruistic or right wage is £8.55 per hour in London and £7.45 nationally, I can see no positives.

If nothing else, in a time of widespread austerity and where on average over 70 cash-starved businesses failed each day in 2012, this measure acts as another barrier to entry for start-ups, which takes no account for the types of labour being performed nor the individual circumstances of the worker, their dependants or outgoings. Instead it presents a crippling blanket cost to the employer, which can be ill afforded and will cost London employers an extra £4.5m over the next 12 months. This may sound great for London’s lowest paid and those businesses whom can afford it, but this equates to a disproportionately low amount per head per year and does not serve to actually increase employment or real living standards.

Unsurprisingly, this topic has widespread support from both the BBC and the Milibands. Ed is even going as far as proposing public procurement contracts only go to employers adherent to this measure, thus creating yet another pernicious hurdle for SME growth to overcome and something which could even contravene EU procurement laws.

I am in total agreement with Adam Smith Institute Senior Fellow, Tim Worstall, when he writes in The Times: ‘How to get a proper living: don’t tax…’ Here he calls for non taxation of the low paid workforce; if nothing else this has major implications for mobilising those of benefit dependency back into work and even more so for our welfare bill.

Sam Bowman, ASI, further supports this view with some interesting statistics: the pre-tax earnings of a worker on the minimum wage (£12,875 per annum) are almost as high as the post-tax earnings of a worker on the living wage (£13,069.32 per annum). As such there is a clear common sense approach to creating a so called living wage…lower taxation.

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