Living Wage makes more sense than topping up through welfare

The Low Pay Commission’s proposal announced today encouraging the government to pay the living wage to direct employees and encouraging businesses to adopt the living wage is something we can all get behind.

Living wage ‘should go to one million more workers’

I fully suppor this proposal.  I think encouraging companies to pay the living wage is a sensible option, and perhaps could even be encouraged through corporation tax credits.  Concerns over employment were unfounded with the introduction of the minimum wage, and I believe, as the Low Pay Commission does, that these concerns are unfounded for the living wage.

There will inevitably be some companies that the impact on costs will require an increase in prices to remain profitable. Whilst we should be aware of the impact on consumers and inflation, we should consider that we increasingly feel uncomfortable about cheap products being produced by cheap labour in the Far East. We should feel no differently about

Paying a living wage up front makes more sense to me than topping up income through Working Tax Credits, or benefits. There is also a huge psychological benefit of giving workers a sense that they are being valued for the work they do and that they are not dependent on welfare. This is particular the case in an age when Labour and the Tories are hell bent on demonising anyone on welfare, even if they are in work, disabled or elderly.

One issue discussed which is of concerns is whether there will be a ratchet effect to maintain pay differences between pay grades in an organisation. For example, a supervisor will get paid more than one of their staff, but if the staff get a rise to the living wage, the supervisor may not be earning significantly more and there will be a pressure to increase their wages as well. This may then cascade up the management chain.

There needs to be some in depth analysis to understand whether this will be an issue, and the Low Pay Commission seems to have concluded that it will not.

Where I do have a concern is the caveats for some industries, where it is felt that the living wage will have a significant impact on profitability, and hence the recommendation that the Living Wage be advisory, not mandated for private companies. I worry that this will mean that the targetted 1 million to move onto the Living Wage will be the low hanging fruit – those that are earning above the minimum wage, but below the living wage and who will not need much of a rise to bring them on the living wage.

There is a risk that those who are struggling the most on the minimum wage will be left without a rise and a gap develops between them and those on the living wage. Our focus should always be on those that are least well off.

That is why I am delighted that the Lib Dems have delivered those on the minimum wage a £800 tax cut and why we are committed to ensuring that they pay no income tax at all. What is deeply disappointing is the welfare cuts that the Tories have imposed on the least well off who are now bearing a greater share of the burden of recovery than most other groups except the very wealthy.

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