Think tank finds that London’s economy will not suffer job losses as mandatory minimum wage rises to £7.20 and that the London economy can currently support a wage of up to £8.00 without impacting employment.
Research released today has shown that the Government’s new National Living Wage, announced by the Chancellor this summer, will not lead to job losses in London. The report is published by the independent think tank Centre for London, and is written by Kitty Ussher, a leading economist and former Treasury Minister in Gordon Brown’s Labour government.
In the past the national minimum wage has been set by the Low Pay Commission at a level that will not harm employment. Centre for London used the Commission’s modelling techniques to measure the workforce impact of the National Living Wage (which has been set relative to median wages rather than employment impact) on London’s unique economy. Despite many institutions including the CBI warning that the National Living Wage will lead to job losses nationally, the new report shows that London employment will not suffer.
The findings highlight the problems in applying a one-size-fits-all minimum wage across different regions. While London could support a higher minimum wage in the long term, setting a nationwide rate at a level suitable for London could have a negative impact on other parts of the UK. US cities such as Seattle and San Francisco have successfully introduced city-wide minimum wage levels to the benefit of the city and the surrounding area.
“Our research shows that there remains a case for a London minimum wage: even after the introduction of the national living wage for over-25s, low paid younger people in London can get a pay rise without jeopardising jobs,” said report author Kitty Ussher, “But on top of that, it is now becoming clear that the 60,000 people across the UK who are estimated to lose their jobs as a result of the introduction of a national living wage, are unlikely to live in London. It is time for the Chancellor to explain where these job losses are likely to come, and what his plans are to support those affected.”
Currently 5.6 million are employed in London, over one sixth of the entire UK workforce (31 million). The London economy accounts for 22 percent of UK GDP. Previous Centre for London research has shown that the since its introduction the minimum wage, currently £6.70, has had almost no ‘bite’ in London – with both a higher cost of living and higher wages, the London economy is quite distinct from the rest of the country.
Ben Rogers, a director at Centre for London, said, “There have been many warning that the new Living Wage will lead to job losses. This report shows that if jobs are lost they will not be in London – this could lead to an even wider economic gap between London and the rest of the UK. It is time for the Government to take a closer look at the regional minimum wages which have been a huge success is American cities.”
Chief executive of Trust for London, Bharat Mehta, believes that London could be viewed separately from the rest of the UK, saying, “It costs between 20 and 50 percent more for different households to reach a decent standard of living in London than in the rest of the country. With poorer Londoners only getting paid around 12 percent more than their counterparts outside of the capital, there is a clear case for London having its own higher minimum wage.”
Trust for London is the largest independent charitable foundation funding work which tackles poverty and inequality in the capital. Each year it provides around £7 million in grants and at any one point is supporting some 400 voluntary and community organisations.
The report only looks at the suitability of the National Living Wage to employment in London. The research uses the same methodology used to calculate the Minimum Wage (replaced recently by the new National Living Wage), and applies it to the London economy only, instead of the national economy. The methodology is used by the Low Pay Commission, the independent body which steers the statutory minimum wage.
James Marsh is an HR consultant and currently leads the editorial team at HRreview.
An avid HR blogger and tweeter on HR and management issues, James has worked as an HR manager, consultant, in-house recruiter and trainer and has expertise in both management strategy and HR policies and processes. He has a BA from the University of Nottingham in American Studies, a Masters in Human Resource Management from the University of Westminster and is a member of the Chartered Institute of Personnel and Development (CIPD).
James is also the regular chairperson of HRreview's series of webinars that discuss and debate the latest HR trends and issues, InsideHR.
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