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The Budget rabbit: A National Living Wage

8 July 2015

2:27 PM

8 July 2015

2:27 PM

The announcement that got the biggest roar of support in today’s Budget was that from 2020 workers over 25 will be paid £9 an hour in a National Living Wage. Tory MPs gasped and cheered, while Harriet Harman gave a response that had the distinct impression of being performed while having a rug pulled from under her feet.

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The Chancellor described it as a pay rise and part of the Budget theme of security, namely the ‘financial security of lower taxes and new National Living Wage’. But is that a pay rise?

Osborne said he was basing this new wage level on this report for the Resolution Foundation by Sir George Bain. But the living wage level is based on an assumption that the recipient is receiving the current levels of tax credits and other relevant benefits. George Osborne has just announced cuts to both, and therefore the living wage level would need to be much higher in order to compensate.

The Office for Budget responsibility says it expects the National Living Wage to boost average earnings by around 0.4 per cent by 2020. It says:

‘Although the NLW boosts individuals’ earnings towards the lower end of the individual income distribution, it is expected to have a more even effect on the distribution of household incomes, since many workers on the NLW will be households’ second earners. Indeed, around half the cash gains in household income may accrue to the top half of the household income distribution, in part because workers in higher income deciles that do gain from the measure will receive a larger average cash amount.’

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Harriet Harman made the point about wages not compensating for tax credit cuts briefly in her response to the Budget, but politically it is extremely difficult for Labour to respond to this Budget overall because of that final rabbit on the living wage, which steals the party’s clothes by making the Tories a party interested in giving people a pay rise.

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