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Paying the living wage would mean a £3.2 billion boost to public finances

Big savings – £3.2bn – could be made by the public purse if the UK’s 4.8 million low-paid workers received a pay rise and were paid the living wage, according to research published by the TUC today (Friday) to mark the end of Living Wage Week.

Economic modelling carried out for the TUC by Howard Reed of Landman Economics suggests that the Treasury would receive an extra £2.1bn from the increased tax and national insurance contributions (NIC) resulting from a UK-wide living wage boost.

Similarly, if low earners across the UK were to see their wages rise to living wage rates – currently £8.55 an hour in London and £7.45 elsewhere in the UK – the research says that the Treasury would pay out £1.1bn less in means-tested benefits and tax credits.

The research also includes estimates on how much the UK Treasury could save based on tax and benefits figures for the UK’s four nations, as well as England’s nine regions.

In the capital, for example, lifting Londoners out of poverty pay and onto the living wage (due to rise to £8.80 an hour next year), would see £408m raised through extra taxes and national insurance contributions, and £200m less paid out in benefits and tax credits. This would see a net benefit to the Treasury of £608m.

Similarly, if hourly pay rates in the South West – where it’s estimated 452,000 people (a fifth of the workforce) currently earn less than the living wage – were to rise to £7.45 an hour, the public purse would gain £185m in extra taxes. The Exchequer would also save £100m in benefits and tax credits – giving a net saving of £285m from across the region.

Increasing coverage of the living wage across the North East would see low-paid workers paying an additional £92.4m in taxes. Here, where 213,000 workers (22 per cent of the region’s workforce) currently earn less than the living wage, there would be a £46m benefit and tax credits saving – giving a total net saving of £139m across the North East.

Commenting on the research, TUC General Secretary Frances O’Grady said: “Almost five million workers across the UK are being paid less than the living wage, and with in-work poverty growing, it’s not hard to see why so many families are struggling to make household budgets stretch to cover the cost of everyday essentials.

“The UK is in the midst of a living standards crisis, and while the economy is slowly starting to recover, ordinary people are a long way from feeling any benefit. Money is so tight that any unforeseen expenses – like a winter coat for the children or repairing a broken cooker – are forcing families to borrow just to keep their heads above water.

“Of course not every employer can afford to pay their staff the living wage, but many more can. Increasing the number of people across the UK who are paid at least the living wage would mean huge savings for the public purse in extra taxes paid and fewer benefits claimed.

“Britain is crying out for a pay rise – and there are real benefits that would come from a nationwide pay boost for the UK’s lowest paid workers.”

NOTES TO EDITORS:

Exchequer benefits of increasing coverage of the living wage

Regions and nations

Tax and NICs (millions)

Means-tested benefits and tax credits (millions)

Total

(millions)

North East

92.4

46.2

138.6

North West

223.3

123.2

346.5

Yorkshire & the Humber

184.8

115.5

300.3

East Midlands

169.4

92.4

261.8

West Midlands

169.4

84.7

254.1

East of England

177.1

84.7

261.8

London

408.1

200.2

608.3

South West

184.8

100.1

284.9

South East

207.9

100.1

308.0

England

1817.1

947.1

2764.2

Wales

100.1

53.9

154.0

Scotland

161.7

84.7

246.4

Northern Ireland

53.9

30.8

84.7

UK

2132.8

1116.5

3249.3

Proportion of workers paid below the living wage by region

Regions and nations

Number of workers paid less than the living wage

% of the workforce paid less than the living wage

Wales

252,000

23

East Midlands

388,000

22

Yorkshire & the Humber

456,000

22

West Midlands

473,000

22

North East

213,000

22

North West

571,000

21

South West

452,000

21

East of England

466,000

20

Scotland

416,000

19

South East

530,000

16

London

572,000

16

- The figures have been calculated using existing living wage rates – £8.55 an hour in London and £7.45 elsewhere in the UK. It was announced this week that the living wage is to increase to £8.80 and £7.65 in April 2014.

- The figures for the number of UK workers paid below the living wage are from a Resolution Foundation study published earlier this year.

- Living Wage Week is promoted by the Living Wage Foundation and runs from 3-9 November www.livingwage.org.uk/living-wage-week-2013

- The analysis uses the Landman Economics/IPPR tax benefit model to calculate the changes in income tax and national insurance contributions, and the amount saved in tax credits and means-tested benefits if everybody paid below the living wage were moved onto it.

Because the dataset used for the analysis (the UK Family Resources Survey) overestimates the number of people in the UK, the results were adjusted so that the number of people affected by the introduction of a living wage corresponds to existing estimates of the number of people on low wages from Resolution Foundation research.

- The full data is available from the press office.

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