What’s the problem?
In his 2015 Budget the Chancellor George Osborne proposed an increased statutory minimum wage rate with a new name, the ‘national living wage’ . Unlike the real Living Wage, his minimum wage rate does not relate to what households need to live decently. The national living wage is a misuse of the idea and name of the real Living Wage; Mr Osborne has stolen the brand name of an established idea known in policy circles for many years. Public discussion of ‘living wages’ shows confusion between Mr Osborne’s minimum wage rate which is not calculated as enough to live on decently, and the real Living Wage which is.
How are minimum wage rates set?
The government’s Low Pay Commission discusses with employers and employees what pay rates they think business can afford. It then makes recommendations to government which sets the minimum rates employers must pay. Evidence about people’s minimum decent living standards or needs is not part of this process.
How is the real Living Wage set?
The real Living Wage is based on what ‘Living’ means. ‘Living’ means freedom to choose the real, socially inclusive life which the public in the UK, not politicians, think is needed for a minimum acceptable standard of living for everybody. That includes not only warm clothing, shoes, adequate bedding and a healthy diet but also spending on things like sports and presents for children as well as normal shopping and other bills. Groups of ordinary people discuss what the minimum standard is with each other and with experts in fields like nutrition, housing and heating until they arrive at agreement. The costs of this minimum acceptable living standard are then calculated for various household types and published as the minimum income standard.
Household incomes needed to pay for this minimum acceptable standard don’t only come from earnings. They also come from the mixture of tax allowances, child benefits and social security benefits for which households may be eligible. So if government reduces the value of allowances and benefits, then earnings levels have to rise to compensate. In principle, if government raised the levels of allowances and benefits, then the part of household income needed to reach the minimum acceptable standard which comes from earnings could fall, but this hasn’t yet happened.
The Living Wage is calculated as the hourly rate of earnings which the majority of workers need to earn for a week’s work to reach the minimum income standard or equivalent level in London or in the rest of the UK, taking account of their households’ other income from personal or household allowances and benefits. Because it is part of households’ total income which is needed to afford the minimum acceptable standard agreed by the public for everybody, it is thus completely different from the government’s national living wage which has no connection with minimum living standards.
Should there be a target?
Government proposes the national living wage should rise to 60 percent of over-25s’ median hourly earnings. That says nothing about what earnings are needed to reach real Living Wage levels for most households, because it takes no account of other government sources of household income. It risks confusion with the official ‘poverty line’, 60 percent of median household incomes. Both percentages measure income inequalities, not how much is enough. In reality, empirical poverty research in the UK 2008-15 shows that 60 percent of median household incomes continues to be too low to cover the public’s minimum acceptable living standards for families. Similarly, there is no evidence that 60 percent of median hourly earnings would be high enough to meet them, even with other current income from government sources. At best, statistical indicators of this kind are mileposts but not goalposts, good for showing how far we have got but not for where we need to get to.