Member Article

Living wage could save Treasury £2bn a year

Introducing a living wage across the UK would save the Treasury £2bn a year, the IPPR say.

A study from the Resolution Foundation and IPPR suggests that a living wage would add around £6.5bn to the gross annual earnings of the country’s employees.

It is suggested the Treasury would collect more than half of the initial financial gains in the form of higher income tax payments and national insurance contributions, as well as through lower spending on benefits and tax credits.

Wage costs would increase by more than £1.3bn, and the forthcoming report acknowledges that immediate introduction of a universal living wage might not be feasible.

As a start, the report will recommend, all Whitehall departments and London boroughs should pay their staff at least the living wage by April 2015, and “explore” the costs of paying sub-contracted staff the same rate.

London weighting on pay packets means most public sector workers already earn at or above the London living wage, and therefore introducing the living wage for all staff in the capital would cost less.

So far six London boroughs are accredited living wage employers, including Lewisham, Islington, Camden, Lambeth, Hounslow and Southwark.

Kayte Lawton, IPPR Senior Research Fellow, said: “At a time when typical wages have flatlined but prices have continued rising, concerted action to drive up levels of pay for low earners is an essential component in the improvement of living standards.

“As a first step, making sure that all council staff in London are paid at least the living wage wouldn’t cost very much but would be an important symbol of political leadership. Councils in other parts of the country, like Glasgow and Newcastle, have shown that the living wage can be affordable even though the costs are higher.”

IPPR say five million people are paid less than the living wage, three million of whom are women. More than 85% have permanent contracts.

Matthew Pennycook, Senior Analyst at the Resolution Foundation, added: “There are significant overall public savings to be made from paying a living wage, on top of the beneficial effects it would have on reducing working poverty. Public-sector employers are well-placed to expand the living wage and to set an example which the private sector can follow.”

The highest proportion of workers earning less than a living wage is in the North East, at 375,000; closely followed by Yorkshire and Humber.

This was posted in Bdaily's Members' News section by Tom Keighley .