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.

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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