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Budget 2015: Living wage a ‘big gamble’, says CBI

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Chancellor George Osborne’s summer budget has been described as a “double-edged budget for business” by the CBI, which called the announcement of a £9 an hour compulsory living wage by 2020 a “big gamble”.

CBI director-general John Cridland said: “Firms will welcome measures to balance the books and boost investment, but they will be concerned by legislating for wage increases they may not be able to deliver.

“The CBI supports a higher skilled, higher wage economy, but legislating for a living wage does not reflect businesses’ ability to pay. This is taking a big gamble that the labour market can absorb year-on-year increases of an average of 6%.”

Osborne also announced plans to cut corporation tax to 18% by 2020, which he claimed would help companies pay higher wages. Cridland said while the tax cut was “a welcome surprise”, “tax reductions for employers don’t appear to match the businesses most affected by a rise to £7.20 in the national minimum wage next April – a 7% increase”.

Other employment experts expressed concern about how the living wage figure of £9 an hour was reached, with Eversheds partner Simon Rice-Birchall asking: “Where does the Low Pay Commission sit in all of this?”

“The LPC as an independent body conducts extensive research into the annual report it submits to government setting out its recommended level of national minimum wage, the last figure of which was £6.70 per hour,” he said. “While the chancellor made express reference to the LPC taking responsibility for rises in future, there was no such reference to its participation in the fixing of the new figure.”

Head of living wage at KPMG Mike Kelly welcomed the news, calling it a “brave move”. “For employers who are concerned at whether the increased payroll costs will be fully offset by reduced corporation tax and national insurance contributions, our experience has seen lower absence, increased productivity and a more engaged workforce,” he added.

For others the announcement does not go far enough. Graham Salisbury, head of HR at ActionAid UK, an accredited living wage employer, told HR magazine that while Osborne’s news was a step in the right direction he was concerned it would only benefit those aged over 25.

“The fact that this will only be paid to over-25s rather undermines any claim the government can make about being committed to workers – especially young people – receiving a living wage,” he said.

“Had the chancellor announced that the government was committed to paying £7.85 per hour [the figure used by the Living Wage Foundation] to all employees regardless of age that would have made things far less confusing.”

Salisbury also said the policy could bring a new level of complexity. “The terminology is now bewildering. We’ve got minimum wage, (official) living wage, (new) living wage, and London living wage. It’s hardly surprising that people are confused,” he pointed out.

The Living Wage Foundation, which campaigns for organisations to pay staff an independently calculated living wage of £7.85 an hour outside London and £9.15 in London, said the budget had highlighted some important questions.

Living Wage Foundation director Rhys Moore said: “Is this really a living wage? Without a change of remit for the Low Pay Commission, this is effectively a higher national minimum wage and not a living wage.”

He added: “What about London? These changes will not help the 586,000 people for whom even the 2020 rate announced today would not be enough to live on now.

“What about the two million under-25s who are not covered? And do the tax credit changes announced mean that the living wage needs to be higher to make sure people have enough?”