What is George Osborne’s Living Wage? Is it a ploy to shift cost from the taxpayer to the employer by reducing in-work benefit claims; or a sop to Tory MPs who were bombarded with angry questions about earnings inequality during the election, as well as a neat way of turning one of Labour’s few effective lines of attack? Or is it a principled act of fairness, acknowledging that the lowest earners bore the brunt of the recent recession? Knowing how the Chancellor operates, it is probably all of the above except the last: he is, as Sir Samuel Brittan once remarked, ‘one of those people who do the right things without knowing why’.
Either way, new research from the Resolution Foundation indicates that the cost of the Living Wage — £7.20 an hour for over-25s from next April, aiming for £9 by 2020 — will be relatively insignificant in the big picture: a 0.6 per cent increase in national wage bills. The Office for Budget Responsibility says the impact on employment will also be marginal: 60,000 jobs lost, against a sustained tide of new ones created. So protests from the CBI and large employers such as the retail group Next and Whitbread, which owns the Costa coffee chain, have gained little traction.
But what’s also clear is that the higher minimum wage will fall hardest on many of those who least deserve an additional state-imposed slice of cost. The impact will be two-and-a-half times bigger for businesses employing fewer than ten people than for the private sector in aggregate.
The Living Wage will barely touch the financial sector, which of course needs no encouragement to pay more. It will hit the hospitality sector most — and while we may not weep for Costa, we should worry about the diversity of local eateries and watering holes.
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