As the living wage rises from £7.20 to £7.45, Boris Johnson joins Labour in calling for more employers to boost low wages. But is it bad for business? Channel 4 News investigates.

Boris Johnson backs living wage rise (G)

The mayor of London backed calls by Labour over the weekend, for employers to opt to raise their workers' salaries to at least £7.45.

Boris Johnson announced that the living wage, which is calculated by assessing living costs, rose this year by 25p an hour to £7.45 outside London, and to £8.55 in London. That compares to the legal minimum wage of £6.19 for adults aged over 21, which is calculated in line with what employers can afford to pay.

A recent study by accountants KPMG suggests that one in five workers in the UK is paid less than the living wage.

More than 100 organisations currently pay the living wage in the public and private sectors, including KPMG, Birmingham City Council and Save the Children. Barclays has also paid the living wage in London since 2007, while 19 local authorities have been accredited as "living-wage employers".

At a time when you thought economic pressure on companies was great, moral pressure is also great. Donald Hirsch, CRSP director

Mr Johnson said: "By building motivated, dedicated workforces, the living wage helps businesses to boost the bottom line and ensures that hard-working people who contribute to London's success can enjoy a decent standard of living."

Despite the support of Conservative politicians in London, the living wage has not been adopted by any Conservative-controlled council, and the Greater London Authority (GLA) is only in the process of being accredited as a living wage employer.

The London mayor's announcement coincides with a speech by Labour leader Ed Miliband on Monday in which he pledged to address Britain's "living standards crisis" by encouraging more businesses to adopt the living wage. The proposal is a key part of Mr Miliband's "one nation" vision, and has the backing of his brother David, who came out in support of the policy in one of his first public appearances for Labour since losing the leadership contest to his brother in 2010.

As part of its policy review, Labour is looking at three ways of making the living wage the new norm, including naming and shaming listed companies who do not pay the living wage through corporate governance rules.

Read more on FactCheck: Minimum wage vs Living wage

Bad for business?

However, the living wage campaign has so far been focused on appealing to companies' social conscience rather than trying to make the living wage legally binding. Rhys Moore, director of the Living Wage Foundation, compared the living wage to the Fair Trade mark, in representing a "new standard" for responsible business.

The Institute for Economic of Economic Affairs (IEA) said on Monday that the proposals for a living wage were "misguided" and that they may "do more harm than good".The CBI also maintains its support for the national minimum wage, rather than living wage, pointing out that it is calculated by balancing income for low-wage employees with preserving jobs.

It can't be all bad for businesses, or no companies would agree to it. But those who have signed up so far tend to either be multinationals who can absorb costs, or those who have a small proportion of workers on the minimal wage. While small firms want to pay their employee more, not all can afford it, said John Walker, national chairman of the Federation of Small Businesses: "They are struggling to manage cash-flow in the midst of weak economic demand and increasing energy and fuel costs."

Retail and hospitality sectors tend to have a higher proportion of lower waged workers for example, so raising the minimum wage would significantly raise employer costs. Mr Johnson announced that InterContinental has become the first hotel chain to sign up to the living wage, but the sector is lagging behind others..

Read more: Cleaners demand living wage from government minister

Economics

But campaigners argue that there is a strong economic benefit for the government from a rise in the minimum wage. The Institute for Fiscal Studies estimates that for every person moved on to the living wage, the Treasury would save about £1,000 from less spending on tax credits and from increased tax revenue.

The government has already cut tax credits and benefits, however, which again puts the burden on employers to top up pay if the living wage standard is to be reached. This is why campaigners say the standard should be voluntary.

In response to the debate about the living wage, Iain Duncan Smith said on Sunday that changes to in-work benefits will increase low waged incomes and make it easier for firms to top up their pay to the living wage standard. The work and pensions secretary said new policies will make work more profitable than claiming benefits, such as a cap on unemployment payments and a universal credit.

In-work poverty

Since it was elected, the coalition has pledged to "make work pay" and tackle inequalities in the system which meant that those in work could be worse off than those on benefits. But research by Donald Hirsch, director of Loughborough University's centre for research in social policy (CRSP), found that the legal minimum wage fails to provide enough for a decent standard of living - even if they were working full-time.

Our research has shown that if you pay minimum wage, it won't lead to people having a good quality of life in most scenarios, and especially if you have children. Donald Hirsch, CRSP director

"Our research has shown that if you pay minimum wage, it won't lead to people having a good quality of life in most scenarios, and especially if you have children," he told Channel 4 News. "There is this combination of the labour market being tough, and inflation."

However there appears to be a growing acceptance by companies that they bear some responsibility for their workers' living standards, adds Mr Hirsch: "At a time when you thought economic pressure on companies were great, moral pressure is also great. It's an interesting phenomenon, and I've been amazed at how many local authorities have been taking it up, despite the fact that they're quite up against it."