1. Governance
November 6, 2015

The London Living Wage isn't enough. It's time for a London Minimum Wage, too

By Kat Hanna

Last Monday, mayor Boris Johnson announced that the London Living Wage had increased, from £9.15 to £9.40.

This higher wage will no doubt play an important role in boosting the incomes of some of London’s most low-paid workers and in improving their quality of life. Recent announcements by large retailers including Aldi and Starbucks that they will pay the London Living Wage are highly encouraging. An increased take-up of the London Living Wage among retailers means that consumers have power than ever in choosing which business to support. Research from Queen Mary University has already shown that paying a London Living Wage could give businesses a competitive edge too.  

Calculated as it is on the basis of living costs, the London Living Wage is one solution to a problem that is growing in London – the increasing number of Londoners in work, but still in poverty. But helping Londoners manage the cost of living is not just about encouraging employers to pay higher wages: it requires reducing their outgoings, including energy, transport and childcare.

In 2014, the Centre for London published Hollow Promise. The report offered an alarming account of the pressures facing ordinary Londoners at a time when living costs have gone up faster in the city than elsewhere, and when earnings have increased more slowly than prices – especially for those in low-to-middle income jobs. 

Housing costs have risen especially fast: building more housing for low-to-middle income earners more affordable must be a priority. Recent research by Shelter has shown that Londoners earning the London Living Wage will still be unable to afford a Starter Home. (Our forthcoming report Fair to Middling looks at provision of housing for Londoners on modest income in more detail.)

So the London Living Wage alone will not help low-paid Londoners. It cannot be expected to fulfil the same function as the Minimum Wage (as it used to be called before the Chancellor’s rebranding in July 2015).

Both the Living Wage and the Minimum Wage are low pay thresholds, but they are calculated differently. The former is calculated on the basis of living costs. The latter is calculated by the Low Pay Commission on the basis of increasing wages for a proportion of low-paid workers while avoiding a detrimental impact on employment.

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London could support a minimum hourly wage of up to £8.00 without job loss

These two different approaches have their benefits. The Living Wage, set as it is in accordance to living costs, is set at both a London level and a national level. The National Minimum Wage makes no such concession to regional differences. Despite the Chancellor’s revision of the methodology of the minimum wage to target 60 per cent of median earnings (as opposed to being set at the correct level to minimise employment loss, as in the past), there is no sign this new approach will take regional differences into account.

Yet the parallel development of the two low pay thresholds means we have ended up with a minimum wage that has been set too low for the capital, and a voluntary Living Wage that has had limited take up from employers. 

So the voluntary London Living Wage should be complemented by a mandatory London Minimum Wage. It is not a question of either/or, but one of ensuring London’s lowest paid workers receive a higher wage while avoiding detrimental effects on London’s employment market.

In September, the Centre for London published London Rising, and gave an estimate of the level at which a London-specific minimum wage could be set at, so that it had the same immediate impact on low-paid London as it currently has for the country as a whole. This estimate was arrived at using the same methodology used by the Low Pay Commission but applying it to the London economy rather than the UK economy. We found that London could support a minimum hourly wage of up to £8.00 without job loss.

The Living Wage Foundation’s announcements recognize that London is different and that London’s low paid face far higher living costs. It is time for national policy to do the same.

Kat Hanna is research manager at the Centre for London think tank.

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