How the Living Wage would save the taxpayer money

The taxpayer would save a significant sum of money if low paid employees were paid the Living Wage.

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Many people in Britain are poor not because they can’t find work but because they can’t find a job that pays them a sufficient amount to live on.

They are the ‘strivers’ referred to by George Osborne – they get up early, pull back the curtans and go to work – but still they end up being demonised as ‘scroungers’ in the media due to the fact that they are forced to rely on the state to top up their wages.

This is why Ed Miliband’s pledge to give a tax rebate to employers who pay the living wage is welcome – it provides another incentive for firms to pay their staff properly (other incentives already include better staff retention rates).

Importantly, it also recognises that it would be incredibly difficult to introduce a mandatory living wage across the country.

For a start because many small businesses could not afford to pay all of their staff a living wage, and forcing them to do so would result in them going to the wall or laying off members of staff. As Daniel Elton has also noted on Labour List, committing something to law doesn’t make it so. Minimum wage compliance is already a serious problem, and may involve as many as 2 million workers according to the TUC. Legislation alone won’t ensure that everyone receives a decent wage.

This is why Living Wage campaigners must also bring about a fundamental shift in the attitudes of employers and taxpayers so they they not only recognise that paying poverty wages is wrong, but also that doing so costs more over the long term.

A good start would be to draw attention to the fact that the Excheque would save a significant sum of money if low paid employees were paid the Living Wage. As Howard Reed of Landman Economics concludes in research for IPPR, for every low-paid worker moved on to the living wage the government would save an average of £677.

This is due to the fact that the government spends vastly more on benefits and tax credits for those in work than it does on unemployed families. As Landman’s number crunching shows, for every extra pound employers pay up to the living wage the government saves 49p on lower tax credits and benefits and higher tax revenues.

Two reasons, then, why the Living Wage is so important: it raises the living standards of the lowest paid, but it also helps to reduce a significant social security cost which falls on the taxpayer – that of topping up the wages of the ‘striving’ poor.

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8 Responses to “How the Living Wage would save the taxpayer money”

  1. Danny F.

    So wouldn’t it make more sense then to establish a basic income payment policy to create a floor payment for all?

  2. George

    Does this site pay the living wage or does it still rely on interns working for nowt ?

  3. Joff

    What about those people who lose their jobs because of increased business costs? What happens when inflation rises as business passes on these increased costs to the consumers? Why don’t we simply reduce the tax of the low paid so they keep more of their own money instead of giving it to the govt to squander. Just a thought

  4. OldLb

    So lets see.

    Force up wage costs, and companies are forced to pass it on

    Force up wage costs, and companies go bust

    Force up wage costs, and jobs get off shored.

    Force up wages for the poor so you can extract more in taxes.

    ….

    Yep, its all about the state and how people like you can extract more money from people.

    Here’s a very simple solution to helping the poor. Stop f***ing taxing them.

  5. OldLb

    Only works if the employees generate more profit (or savings – think cuts) than the cost of employing them.

  6. OldLb

    Not an issue for the left. All those people on min wage are still taxed to pay for the benefits and perks.

  7. Philld

    Until we realise that it’s the owners of low wage companies who are the real benefit scrounges the better. Companies who need taxpayer subsidy are bust and should fail. The same people who berate nationalised industry for needing subsidy are the people who win companies that take benefits!

  8. GO

    “Why don’t we simply reduce the tax of the low paid so they keep more of their own money instead of giving it to the govt to squander”

    Do the sums. A wage increase from the minimum wage to the living wage is worth around £45 a week to a full-time worker – a little over £30 after income tax and NI. Taking them out of income tax entirely would save them maybe £10 a week. (Raise the personal allowance from £9,000 to the ‘minimum wage’ level of £12,000 and someone on that income saves 20% of £3,000 = £500 a year.)

    Then there’s the fact that while the former option might save the government £3bn or so a year, the latter would cost it maybe £12bn.

    Oh, and the fact that many low earners are employed part-time and so already pay no income tax. The best way to reduce the net tax burden on low earners, like it or not, is to use a system – like tax credits – that enables you to return to them some or all of whatever tax they *actually pay*, whether that’s income tax, VAT, fuel duty, NI or whatever. We already do that, but – again – it costs a lot of money.

    That’s not to invalidate concerns about job losses etc., but let’s not kid ourselves that there’s a simpler and better option staring us in the face.

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