Ed Miliband pledges living wage tax breaks for firms

 

Ed Miliband: "Our make-work-pay contracts will raise wages, keep the benefits down"

Some of Britain's lowest-paid workers could get pay rises under plans drawn up by Labour leader Ed Miliband.

If the party wins the next election, Mr Miliband plans to offer firms a 12-month tax break in 2016 if they agree to pay the so-called "living wage".

The pledge was cautiously welcomed by business groups, but there were fears many firms would find it unaffordable.

The government said it encouraged firms to pay their lowest paid staff more provided it did not cost jobs.

The living wage is an informal benchmark based on the amount an individual needs to earn to cover the basic costs of living. It is set at £8.55 an hour in London and £7.45 an hour in the rest of the UK.

The national minimum wage, set by the chancellor, is significantly lower at £6.31 an hour for adults, and £5.03 for those aged 18 to 21.

Under the proposals put forward by Mr Miliband, private firms would be able to claim back about a third of the cost of raising their staff members' wages to the living wage - amounting to £445 a year on average per worker, although it could potentially reach £1,000.

Labour claims the plan will save money because benefit bills would go down and tax revenues would increase.

'Electoral bribery'

But costs to businesses would rise as a result of signing up. And those that do so could only claim the money back for one year.

Analysis

Everyone from London Mayor Boris Johnson to the TUC backs the principle of a "living wage".

Some large firms have already signed up to it voluntarily.

But Ed Miliband is taking the whole thing a stage further by proposing tax breaks for those companies that get on board.

When he first suggested this, in 2010, his then-Labour leadership rival Ed Balls said it could not be done without increasing government borrowing.

Labour say today's proposed scheme is different - and it would pay for itself through reduced benefits and increased tax income.

But the Conservatives have dismissed it as "unworkable" and an election "gimmick".

They used a similar line of attack on Mr Miliband's last big idea - an energy price freeze - without a great deal of success.

The problem for David Cameron may be that voters are too concerned about their own squeezed budgets to worry about whether Labour's sums add up.

Conservative former chancellor Ken Clarke said Mr Miliband's proposals were ill-judged "electoral bribery" that employers and the economy could ill afford.

"It isn't quite free beer for the workers but it is electoral bribery really, and [Mr Miliband] is quite incapable of understanding how a country in an acute financial crisis, with an enormous fiscal deficit, can possibly afford this," said the cabinet minister.

Conservative chairman Grant Shapps added: "Labour got us into a mess with too much borrowing and too much debt and now they're calling for yet more borrowing and more debt."

The government said it encouraged employers to pay above the national minimum wage "when they are profitable and when it's not at expense of jobs".

It said ministers were doing everything they could to "help people on low pay with the cost of living".

The living wage announcement comes ahead of a speech on Tuesday in which Mr Miliband is expected to say that tackling low incomes is key to solving squeezed living standards.

He is expected to warn that Britain risks "an era of growth without prosperity" as wages stagnate while household costs continue to rise.

He will add: "Low wages aren't just bad for working people and their families. They are driving up the social security bill too, as the country has to subsidise more and more low paid jobs with tax credits and benefits.

"So to those who say we can't afford to do anything about wages in our country today: I say we can't afford not to."

Katja Hall, chief policy director for the Confederation of British Industry, said the scheme may help some firms pay more, but many companies simply could not afford it.

"The best way to boost wage growth in the longer term is to build a sustainable recovery and invest in the productivity growth that will boost wages," she said.

The Federation of Small Businesses said it was an "interesting proposition" but said a national insurance exemption next year could help firms increase pay sooner.

Commuters The number of people paid less than the living wage grew from 4.8 million to 5.2 million in the last 12 months, according to KPMG

The Living Wage Foundation, which encourages companies to set wages which reflect the cost of living, said paying the higher rates was necessary.

The Foundation, which was set up by community group Citizens UK, runs the long-running living wage campaign backed by charities, trade unions and businesses for the introduction of a living wage.

Rhys Moore, the group's director, said: "With working poverty on the rise, paying a living wage is becoming a must for every responsible employer.

'Poverty pay'

"We are working with businesses across the UK to help them do the right thing, so that from the chief executive to the cleaner, hard work pays."

But RMT union leader Bob Crow said: "Poverty pay should not be an option and the only solution is to raise the statutory minimum wage to the current living wage rate."

Updated living wage rates are due to be announced on Monday. The UK rate will be announced by Bishop of Nottingham Paul Butler, while the London rate will be set out by London Mayor Boris Johnson.

It comes as it emerged the number of people paid less than the living wage grew from 4.8 million to 5.2 million in the last 12 months, according to the consultants, KPMG.

And the number of children living in households earning less than the living wage has increased from 1.82 million to 1.96 million, according to research by Save the Children.

 

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  • rate this
    -6

    Comment number 466.

    Maybe the lowest paid in the UK but compared to the rest of the world they are the highest paid and that's the problem. We have got to understand we are competing with the world.

    Have we not learned our lesson with the loss of manufacturing in this country. While the likes of tesco and banks can afford to pay high taxes and wages the small and independent business can't.

  • rate this
    +55

    Comment number 289.

    Unfortunately unscrupulous employers will exploit any loophole in the system. Many workers who are supposedly on min wage are actually paid less than that. Workers given start and finish times are not paid for those hours, tea breaks deducted, preparing work place, machine cleaning etc. all deducted from attendance hrs. Many on piece work are given rates such that no one can reach min. wage.

  • rate this
    +45

    Comment number 267.

    People are naturally cynical about politics these days, and much of the time this is fair enough. But this policy is, in my opinion, right. Why should firms be given tax incentives to operate in the UK and make bigger and bigger profits? The economy is for everyone, not just the rich. We all produce wealth.

  • rate this
    +33

    Comment number 129.

    Better wages should reduce the welfare bill, the saving in the welfare bill should be passed on to business in the form of tax breaks. Lower taxation should encourage more business and investment. Higher wages will enable people to spend more, thus encouraging more business growth, the increase in wages will also increase income tax. It's looks like a win, win situation to me.

  • rate this
    +10

    Comment number 115.

    I'm not a Labour supporter by any means but this seems quite a good idea. It should help cut the benefits bill and tax bills of companies.

    I would point out that 'living' wage means different things to different people depending on their circumstances.

    Also, I earn just over £21k doing a fairly complicated job. If the cleaner is earning almost as much as I am that might seem unfair?

 

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