A COMPULSORY National Living Wage was announced by the Chancellor, George Osborne, this week, in the first purely Conservative budget for 19 years.
“Britain deserves a pay rise, and Britain is getting a pay rise,” George Osborne said on Wednesday, before unveiling a compulsory National Living Wage set to reach £9 an hour by 2020, for all workers aged 25 and over.
It will start next April, at a rate of £7.20. Those currently on the minimum wage will see their pay rise by over a third this Parliament, he said: a cash increase for a full-time worker of more than £5000.
The Work and Pensions Secretary, Iain Duncan Smith, could be seen punching the air and shouting “fantastic” as the policy was announced.
The current Living Wage as calculated by the Living Wage Foundation is £7.85 an hour and £9.15 in London. The National Minimum Wage is currently set at £6.50 by the Low Pay Commission, which generally recommends an increase every year.
“The Chancellor has announced an increase in the National Minimum Wage coated in language pinched from the Living Wage campaign,” wrote Lewis Goodall, a BBC Newsnight producer, on Wednesday.
The Living Wage campaign began 15 years ago with churches in East London.
Canon Angus Ritchie, Director of the Centre for Theology and Community, who has campaigned since that time, said: “Any move towards a genuine Living Wage is welcome. But the rate of the Living Wage is set independently for a reason. It’s assessed on what it actually costs to live. We, as churches in alliance with Citizens UK will keep campaigning for that level of Living Wage to be paid as widely as possible.”
The Leader of the Opposition, Harriet Harman, accused the Government of “playing politics with this Budget. . . Without tax credits, even the Living Wage is not enough for a family to live on.”
The Chancellor also announced that working-age benefits, including tax credits, will be frozen for four years, excluding maternity pay and disability benefits.
The Institute for Fiscal Studies (IFS) estimates that this will affect 13 million families, who will lose an average of £260 a year. The level of earnings at which tax credits and Universal Credit (UC) start to be withdrawn will be lowered, and families will not receive additional amounts for more than two children. Three million families will lose an average of £1000 a year from the change to the amount a claimant can earn before UC is withdrawn, the IFS estimates. The equivalent changes to tax credits will have a similar effect, it argues.
Paul Johnson, director of the IFS, said on Thursday that: "The policy the government has chosen will protect those on the lowest incomes, mostly those not in work, at the expense of low earners. . .
"Many of the gainers from the higher wage are single childless or married to someone on higher earnings. They are outside the tax credit system altogether. . . The key fact is that the increase in the minimum wage simply cannot provide full compensation for the majority of losses that will be experienced by tax credit recipients."
Other measures announced by the Chancellor, who has pledged to reduce spending on welfare by £12 billion by 2019-20, include a reduction in the benefits cap from £26,000 to £23,000 in London, and £20,000 in the rest of the country. Maintenance grants for new students will be scrapped, and a new Youth Obligation for those aged 18 to 21 “that says they must either earn or learn” introduced.
Mr Johnson concluded that the changes were, overall, "regressive - taking much more from poorer households than richer ones."
“Today’s Budget is a disaster for low-income working families,” said Matthew Reed, chief executive of The Children’s Society, on Wednesday. “Without this vital safety net of tax credits, work won’t pay and children will suffer. This is also true under Universal Credit, where families will be trapped in poverty unless the Government agrees to a rise in the work allowance.
“Increasing income only, means a family moving to a higher minimum wage from next year will lose almost all gains as a result of losing some of the benefits they need.”
The British economy was “fundamentally stronger than it was five years ago”, the Chancellor said, pointing to the creation of two million jobs and faster growth than “any other major advanced economy . . .
“In the last five years we’ve taken the tough choices to drive down our borrowing, make our business taxes competitive and reform welfare. It’s because we’ve taken these difficult decisions, and overcome the opposition to them, that Britain is able to afford a pay rise.”
Converts to the Living Wage include a former adviser to David Cameron, Steve Hilton, and the Mayor of London, Boris Johnson, who argued in the Telegraph on Monday that it was “outrageous that multi-billion-pound companies are mainlining money from the welfare system and using it to subsidise low pay”.
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