Local councils around the country should have the power to set their own living wages
Amongst the most significant oversights of Alistair Darling's 2010 budget was the chance to redefine what it means to have a national minimum wage. Currently our minimum wage acts as a ‘poverty wage,' paying £5.80 per hour for those above the age of 22, £4.83 for an 18-21y.o. This means a 22y.o. working a 37.5 hour week will earn £217.50 per week. This weekly wage prevents them from receiving housing benefits. The same 22y.o. is excluded from working tax credit (until the age of 25) and if they live in a house of more than one working adult, they cannot claim any council tax reduction.
For 2007/08, the poverty line (60% of median income) has been calculated at £115 for a single adult with no dependants - after income tax, council tax and housing costs have been deducted. In London, rental prices typically exceed £100 per week. Then on top of rent consider income tax, council tax, and utility bills. Research by the Living Wage Unit at the GLA has highlighted that:
"Someone paid less than about £6.65 an hour will be living in poverty, even after benefits and tax credits are taken into account. This means that in London you need an hourly wage rate of 16 per cent above the National Minimum Wage (NMW) rate of £5.73 just to take you above the poverty level.”
In 2007/08, thirteen and a half million British people lived below the poverty line. This figure has increased by one and half million over the last three years and is higher than it was at the start of the 1980s. And the Cabinet Office's State of the Nation Report states that the discrepancy in income inequality in the UK is larger now than at any time since 1961, with social mobility more restricted than in the USA, Germany, France, Sweden and Spain, amongst others.
If we are genuinely to move the debate around worklessness beyond the antiquated arguments and gross clichés of ‘lazy benefit scroungers,' we must provide a greater, fairer, and more respectable incentives to work and remain working.
Iain Duncan Smith, the coalition's Secretary of State for Work and Pensions, has shown both an understanding of this situation and an inclination to act, stating that:
"We must not underestimate the challenge ahead. One of the biggest problems is that for too many people work simply does not pay. For some people, the move from welfare into work means they face losing more than 95 pence for every additional £1 they earn. As a result, the poor are being taxed at an effective tax rate that far exceeds the wealthy. We have in effect taken away the reward and left people with the risk. That must and will change.”
However, the coalition government is proposing further benefits in the form of tax credits in order to make work pay. Surely a far more effective and cost efficient means of doing so would be to target wages. On Tuesday, George Osborne will announce the coalition's Emergency Budget - perhaps instead of just cutting public services, public sector wages, and raising taxes, he could revisit the minimum wage.
In March of this year, the Labour Government announced an increase to £5.93 for the minimum wage and a lowering of the qualifying age to 21. Yet, this does not mark an audacious attempt to resolve the issue that the Living Wage Unit have laid bare, it's merely another token gesture. And, whilst the Liberal Democrat's demand to increase taxable income to over £10k certainly does help, it still falls short of confronting the actual issue.
One means of breaking the persistence of, and recent downward trend in, the poverty cycle is the introduction of a locally set living wage above the national minimum wage. Calculating a single minimum wage for a country of 60m plus is bound to be too general, as disparities between regional economies will inevitably penalise many. Individuals living on the current minimum wage in more affluent areas pay a significantly larger proportion of their income towards basics such as rent, groceries and travel than individuals in less affluent areas.
This has been the basic premise of the highly successful campaign for the London Living Wage, championed by London Citizens. Boris Johnson has said of a living wage of £6.65, which is commonly conceived level of as the poverty threshold, that it “provides no margin to meet the kind of day-to-day challenges those of us who are better off can afford to take in our stride.” As such, London's voluntary living wage has been set 15 per cent above this “poverty threshold wage.”
We can move towards locally set living wage levels by empowering councils to set and enforce their own living wage. This would marginalise the national minimum wage but not dismiss it, as it should be retained as a reference and would continue to ensure a basic standard of living. A locally set living wage would be sensitive to the affluence, demographic composition and the electorate's concerns in each locality.
Enabling elected councils to calculate and adopt their own living wage would calibrate the local incentive to work and would, as closely as possible, be responsive to periods of economic fluctuation within each given area. Ultimately, the level of the real living wage would be democratically accountable, a feature which has already made London's mayoral elections more engaging. In other words, as the electorate, we would all have to directly face our responsibility for either subjecting individuals to a poverty wage or for lifting them out of poverty and improving their entire well-being.
Fundamentally, this proposition enables the targeting of a basic wage for each locality. The strength of a minimum wage is that it applies to everyone, but it must also be case sensitive. A locally set living wage can target, retaining the national minimum wage will guarantee.