Businesses that sign up to paying the living wage will be given a 12 month tax break under plans unveiled by Ed Miliband. But one union leader called the plans a “cop out”.
Labour Leader Ed Miliband has pledged to introduce “make work pay” contracts to raise wages for millions of low-paid workers if he wins the general election.
For each low paid member of staff whose earnings are boosted, firms would receive a tax rebate worth around £445 on average although it could potentially reach £1,000.
The announcement comes ahead of a major speech when Mr Miliband is expected to say that tackling low wages is the key to solving the squeezed living standards. He will warn that Britain risks “an era of growth without prosperity” as wages stagnate while household costs continue to rise.
We’ve now got to the point where more of the people bringing up families in poverty are in work than out of work – Ed Miliband
“Last year there were 4.8 million people who earnt less than the living wage,” he is expected to say. “That is up 1.4 million in just the last four years. We’ve now got to the point where more of the people bringing up families in poverty are in work than out of work.”
The proposal follows the publication of a KPMG report which found that the number of people paid less than the living wage has risen by more than 400,000 to 5.2 million in one year, so that 21 per cent of employees are now being paid less than the living wage.
KPMG welcomed the proposal. Marianne Fallon, head of corporate affairs, said: “Low pay is a real problem in Britain, particularly at a time when the cost of living is rising at a faster rate than earnings.”
However RMT general secretary Bob Crow said: “Today’s living wage announcement is a cop out by the Labour Party.” He said the only solution to raising living standards was to increase the legal minimum wage to the higher rate of the current living wage, rather than trying to encourage companies to pay it.
The minimum wage for workers aged 21 and over is £6.31 an hour, and £5.03 an hour for 18 to 20-year-olds. The living wage is £8.55 in London and £7.45 in the rest of the UK although that will be updated on Monday.
Mr Crow said: “Offering employers a tax break to try and drag them into paying a decent rate just smacks of corporate welfare and will stick in the throats of millions of people who have had their benefits cuts and frozen.”
Under Labour’s plans, companies that sign up to the “make work pay” contracts in the first year after the election will receive back 12-months’ worth of the resulting increased tax and National Insurance revenues received by the government.
Any extra savings in lower tax credits and benefit payments, along with increased tax revenues in future years, would be used to cut social security bills and help pay down the deficit.
Conservative Party Chairman Grant Shapps said the policy would have to be paid for by more borrowing.
He said: “Labour got us into a mess with too much borrowing and too much debt. And now they’re calling for yet more borrowing and more debt.
“That would mean higher taxes and higher mortgage rates for hardworking people, hitting their living standards. It would make working Britain worse off, not better off – it’s the same old Labour.”