Why It Adds Up To Pay The London Living Wage

By Cllr. Peter Carpenter

The London Living Wage is an independently set level of pay designed to reflect the substantially higher costs of living in London than in the country as a whole. Currently it stands at £8.55 per hour compared with £6.19 per hour for the national minimum wage. Peter Carpenter

Labour believes that there are substantial benefits to be derived for both the Council and the economy as a whole from the incorporation of the London Living Wage into its pay policy.

From an economic viewpoint one of the best ways of reducing in-work benefits is to increase in working wages. For every additional pound in wages a low paid worker receives, the state receives:

• 12p in Employer’s National Insurance
• 12p in Employee’s National Insurance
• 20p in Standard Rate Income Tax
• 20p in VAT as low paid employees will of necessity spend most of their income – that’s 64p

And if the worker receives in-work benefits, such as housing benefit – as most of them do – the state will benefit from a withdrawal rate of some 65p in the pound. That’s a total of £1.29 for every extra pound earned. Or to put it another way, for every extra billion that is paid to the low paid, the deficit is reduced by some £1.3 billion.

There are those who say that they support the London Living Wage, but that at a time of austerity we cannot afford to introduce it. Quite the reverse is true. At a time of austerity we need to get growth into the economy. Growth is driven by consumption, and if we increase the wages of the low paid, they will spend it.

Increasing the wages of the low paid also provides an incentive for business to drive up productivity, and productivity growth leads to growth in the economy as a whole.

Turning specifically to Wandsworth Council, our lowest paid employee is currently paid just over £15,000 per annum, only slightly below the London Living Wage. So the costs of implementing the London Living Wage are relatively modest – something over £100,000. This could be accommodated within the current 1% provision for salary increases in 2013/14, by skewing increases towards the lowest paid.

For the Council’s contracted-out services, the costs are more substantial, estimated at over £6 million per year.

However, most of our contracts are multi-year, so our proposal is to include the payment of the London Living Wage as one of the non-financial factors in future Most Economically Attractive contract evaluations as contracts come up for renewal. This approach means that any costs of introducing the London Living wage will be spread over a number of years.

For those contracts where hourly payments are currently substantially below the London Living Wage, it would also be possible to phase in the London Living Wage over several years, to mitigate any cost impact.

We estimate that the combination of these two approaches will result in contracts that at re-tender are no more expensive than current contracts.

The London Living Wage is increasingly being adopted by both public and private sector organisations across London. I do not think that the Mayor of London has adopted the London Living Wage because he is a revolutionary socialist, nor, I suspect, is the Big Four accountancy firm KPMG.

The reason they have adopted it, is because it makes economic sense for them. KPMG has said specifically that the costs of introducing the London Living Wage to its contracted out services, like messengers, security and cleaning, have been offset by the benefits of lower absenteeism, and lower staff turnover, resulting in lower training costs.

Wandsworth Council should introduce the London Living Wage.

  • It will help reduce the deficit and grow the economy.
  • It will lift some of our most poorly paid workers out of poverty.
  • It will demonstrate that the Council is a socially responsible employer – and it need not cost the Council a penny in new money.