Miliband promises tax break to firms that raise wages

4^th November 2013

Simon Wyatt

Simon Wyatt

4 November 2013

Ed Miliband, leader of the Labour party, has pledged a 12-month tax break to companies that agree to pay the “living wage” if Labour win the next election.

The promise comes after a recent study revealed that those earning less than the living wage increased by 8% over the past year.

The living wage is an informal standard calculated to reflect the amount an individual needs to earn to cover the basic costs of living.  Currently the wage is calculated at £8.55 an hour in London and £7.45 an hour outside the capital.

The living wage is significantly higher than the national minimum wage which is £6.31 an hour for adults and £5.03 for those aged 18 to 21.

Miliband’s plans would give private firms the opportunity to reclaim about one-third of the cost of raising their staff members’ wages to the living wage.

It is estimated that businesses would receive about £445 a year per worker, although there is potential for it to reach £1,000 per worker.

Labour justify the tax break by saying it will save money because benefit bills would be reduced and tax revenues would increase.

Nevertheless, signing up would increase costs to businesses and those businesses would only be able to claim money back for one year.

The announcement comes ahead of a speech on Tuesday in which the Labour leader is expected to say that tackling low wages is central to raising living standards.

“For ordinary families to keep up, we don’t need average wages to just creep higher than prices…. We need the kind of strong increases in wages that will genuinely make people all across Britain better off,” he will say.

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.

Rhys Moore, director of The Living Wage Foundation, which encourages companies to set wages which reflect the cost of living, said that with increasing poverty “paying a living wage is becoming a must for every responsible employer”.

An updated living wage for the UK will be announced on Monday by the Bishop of Nottingham whilst mayor of London Boris Johnson will set out the London rate.

Simon Wyatt