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Opinion: paying the Living Wage makes business sense, so what are you waiting for?

October 20, 2012 12:54 PM

By Bharat Mehta in Liberal Democrat Voice

Originally published by East Midlands Liberal Democrats

The Living Wage is something that all the main political parties endorse. According to the Prime Minister it is an idea 'whose time has come'; Nick Clegg is behind it; Ed Miliband praised it at the Labour conference; and Boris Johnson is a staunch supporter of the campaign. It is therefore unfortunate that, for an idea that enjoys such strong cross-party support, to date, the only local councils accredited as Living Wage employers are of one political colour - red.

Figures out this week show that almost 1 in 5 working Londoners are paid below the London Living Wage. As living costs continue to rise and wages stay stagnant, things will get worse.

The Living Wage of £7.20 per hour and the London Living Wage of £8.30 per hour are independently set rates of pay that quantify what's needed to bring people up to a basic standard of living - keeping them just the right side of the poverty line. Day-to-day it will mean a worker being able to afford the tube instead of spending hours travelling to and from work on multiple buses. It does not afford luxuries but it is above the National Minimum Wage of £6.19 per hour.

People tend to understand the moral case for paying the Living Wage but many say there isn't a business case for it, especially in the current climate. Which is why the results of some new and independent research conducted by Queen Mary, University of London - commissioned by Trust for London - are so important. The research shows that there are multiple business benefits of the Living Wage. One of those is reputational - the businesses interviewed found that the reputational effects helped them win new clients.

There was also a positive impact on existing staff with a 25% reduction in staff turnover rates, and over half of employees feeling more loyal and positive about their workplace. This fed through into better attitudes, a real asset in any customer-facing role.

There is, of course, no getting away from the fact that the businesses interviewed as part of research saw an increase in wage costs. However, the costs were often managed down, as the decision to pay the Living Wage led to a reassessment of existing contracts and finding more efficient ways of working. On top of that, the wage bills for those being brought up to the Living Wage made up only a small proportion of the total wage bills of companies.

Moreover, the research shows that if London firms paid the Living Wage then government would save almost £1bn a year because of an increased tax base and reduced welfare spending. This backs up the IFS study that found paying the Living Wage across the UK would save the government over £10bn.

Finally, there is great irony behind citing the economic climate as a reason for not paying the Living Wage. We know that if low paid workers get a bit more in income then they tend to spend a high proportion of it rather than save it. If all low paid workers were brought up to the Living Wage then more goods and services would be bought, injecting money directly into the economy and oiling its wheels.

The Living Wage is an idea whose time has come. But ideas alone do not help people get out of poverty. It is up to employers and politicians to actually do something; given the obvious moral case, and the multiple benefits of paying the Living Wage, there can be few excuses for complacency.

* Bharat Mehta OBE is Chief Executive of the independent charitable foundation Trust for London.