A living wage?

In yesterday’s Budget, Chancellor George Osborne announced a new ‘living wage’. I’ve read several commentaries today that are highly critical of this initiative, most particularly a note from John Veit Wilson who sees it as ‘hijacking’ a different concept.  [I invited John to post his comment on my blog, and it is now the entry next to this one.]

I think the initiative is worth defending. While I regret the idea that people under 25 need less to live on than people over 25, the proposal has three very strong things to be said in its favour:

1. Although the new levels are being introduced only in stages, it offers an immediate increase of more than 10% in the minimum wage for those over 25.
2. The proposed level of the new minimum, by the time it is fully implemented, will be higher than the current recommendations for a living wage (£7.85 per hour), except in London.
3. Setting the proposed level at 60% of the median earnings – it’s on pages 2 and 33 of the Red Book – builds in the prospect of automatic uprating.

60% of median earnings is not generous, but for full-time workers it is about 20% more than the standard income threshold used to identify risk of poverty in the EU.  It wouldn’t end in-work poverty altogether, but it would come close.  It will also benefit women disproportionately.  Is this really something to complain about?

That is not to say that everything else in the Budget is to be approved of.   In March, I reviewed various proposals for how the Conservatives might manage to cut £12 billion: the Chancellor has not actually managed it, but most of the measures that have survived through to implementation are  silly gimmicks (like the benefit cap and suspending Tax Credits for larger families) which will have very little effect on the budget rather than the more serious, and painful, cuts that were being discussed.   Increasing the tapers in Tax Credits from 41% to 48% must exacerbate the poverty trap; cutting Housing Benefits for 18-21 year olds will cause confusion and hardship; and ending mortgage support, limited as it now is, puts owner-occupiers at a critical disadvantage relative to tenants.  The largest savings seem to come from freezing upratings.  However, several figures in the Budget analysis ( pages 73-4 of the Red Book), especially those than depend on the roll-out of Universal Credit, should probably be classed as ‘imaginative’.