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Coffee House

A living wage misses the point of poverty

29 October 2012

11:50 AM

29 October 2012

11:50 AM

We all want there to be some new quick fix for tackling poverty and a ‘living wage’ is the latest fad in this area of simplistic marketing slogans. The reality is far more complex.

It is great that KPMG and many other companies are doing well enough that they can afford to pay their employees well. But some companies are barely surviving. In industries such as electronics manufacturing there are huge success stories, but there are also plenty of tiny family run factories that have struggled to survive offshoring –for companies like this paying their staff more simply isn’t an option.

The living wage idea is a reasonable one –it’s good to encourage companies to think about the well-being of their staff and if they can afford to do so to pay them more–but this does somewhat miss the point that this only benefits employees of these companies. What about those working for the companies that can’t afford to increase wages?

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According to today’s report from KPMG there are now close to five million people living across Britain who earn less than the living wage. The big problem with this figure is that it fails to take into account vastly different regional disparities in the cost of living. It does have a separate rate for London, but not for Bradford or Bournemouth. Leaving aside for a moment the question of whether the rate is appropriate, what should be obvious is that the most effective way of reducing this number, is to dramatically ease the cost of living.

recent report by the Institute of Economic Affairs showed how:

‘House prices have doubled in real terms since the mid-1990s alone, from an already very high level. No other developed country except Australia has experienced a price explosion of such a magnitude. Not even Spain, with its notorious house price bubble, has quite paralleled the British experience. In nominal terms, house prices in the UK have increased by a factor of nearly forty over the last forty years.’

We have one of the worst housing affordability problems in the world. Our energy prices are shooting up with the government’s own estimates suggesting that the impact of climate changes policies will be to add around 26 per cent to domestic electricity prices and 10 per cent to domestic gas prices by 2015, and goodness knows how much more we pay for food in the UK because of the distorting effect of the Common Agricultural Policy.

Helping reducing the number of people living in poverty is one of the most noble things a government can do. This is a complex challenge that requires a complex solution. But the government could do worse than start by gathering accurate regional information by area on the cost of living and developing a strategy for reducing it.

Ruth Porter is communications director at the Institute of Economic Affairs.

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