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London should have £6.50 minimum wage

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01 September 2007

London needs a higher minimum wage so that pay for the lowest earners keeps pace with the average worker in the capital, according to a new report from the Institute for Public Policy Research (ippr) published in October. The report shows that the gap between the lowest paid workers and average wages in the capital is wider than anywhere else in the country.

A regional breakdown is at the end of this release.

The call comes ahead of the interim report from the London Child Poverty Commission, to be launched next week by London Mayor, Ken Livingstone and London Councils.

ippr recommends that the Government ask the Low Pay Commission to investigate an appropriate minimum wage level for London when it sets the National Minimum Wage in its 2008 report. ippr says that an effective minimum wage for London could be set at around £6.50 an hour, compared to the current £5.35 an hour, benefiting around 300,000 workers.

ippr argues that the Government should recognise the exceptional circumstances in London with a specific minimum wage rate for the capital but should reject a full scale regionalisation of the National Minimum Wage.

ippr’s research shows that a minimum wage worker in London earns just a third of the average wage of the capital. But the average UK worker on minimum wage earns more than half the national average pay. ippr’s report will argue that London’s strong and successful economy means a higher minimum wage could be achieved without damaging job creation.

The research also shows that nearly 20 per cent of working households in London are in poverty compared to the national average of less than 15 per cent. Almost half of all poor children in Britain live in households where someone is working. But the problem is particularly acute in London, which has the highest rate of child poverty in the country. More than four in ten London children (or over 650,000) are poor, compared to the national average of just under three in ten. Within Inner London, over half of children are poor.

Kate Stanley, ippr Head of Social Policy, said:

“In the last ten years the minimum wage has played a significant role in making Britain fairer with no evidence of any negative effect on jobs.

"But in London the minimum wage has struggled to keep up with average pay rises and is worth a lot less than in other parts of the country. The capital also has the largest proportion of households where someone is at work but that still live in poverty and the highest rates of child poverty in Britain.

“If the Government is serious about tackling the gap between rich and poor but reluctant to tax higher earners, a higher minimum wage in London – where average wages and living costs are significantly higher than across the rest of the country - must be part of the solution.”

ippr analysis shows that the ‘purchasing power’ of the minimum wage in London is weaker than anywhere else in the UK. ippr argues that a higher minimum wage would also make work more attractive to London’s unemployed.

Notes to Editors:

Working out of poverty: A study of the low paid and the ‘working poor’, by Graeme Cooke and Kayte Lawton will be published by ippr in October.

The National Minimum Wage (for workers aged 22 and over) increased on 1 October 2006 to £5.35 an hour from £5.05 an hour. From 1 October 2007 it will increase again to £5.52. Someone working 16 hours a week at the current rate of the NMW would earn £85.60 a week (£4,109 for 48 weeks a year). A full-time minimum wage worker working 35 hours a week earns £187.25 a week (£8,988 for 48 weeks a year).

The rate for 18-22 year olds increased last October to £4.45 an hour from £4.25 an hour and will increase again to £4.60 this October. The rate for 16-17 year old increased to £3.30 an hour from £3.00 an hour and will increase again to £3.40 an hour.

London has the highest rates of working poor households of all UK regions. Almost one in five (17 per cent) of all working households (where there is someone doing some work) in London are poor. The UK average is 13 per cent. Low pay is one among a range of factors affecting rates of household poverty.

Analysis by the Greater London Authority’s Living Wage Unit suggests that hourly pay of £6.25 is needed for various household types to avoid poverty in the capital, if all benefits and tax credits are also claimed. They estimate that one in seven employees in the capital earn below this level (nine per cent of full-time and 35 per cent of part-time workers).

The GLA estimates that just 20 per cent of working households earning the NMW (£5.35 an hour) can escape poverty in London. It suggests that a minimum wage set at £6.35 an hour would see this figure rise to 75 per cent. The London Living Wage is £7.20 an hour (set at 15 per cent above the GLA’s ‘poverty wage threshold’ of £6.25 an hour). GLA figures find that one in four London workers currently earns below this level.

In a recent paper for the ippr, Ioannis Kaplanis showed that London has seen by far the strongest employment polarisation over the last two decades, with strong growth in both high paid and low paid jobs:
http://www.ippr.org/publicationsandreports/publication.asp?id=553

	Value of the NMW in relation to average regional wages	Average wage per hour (median)	% of all working households that are in poverty
London	36.8%	£13.71	17.3%
South East	48.6%	£10.39	12.6%
East of England	52.4%	£9.63	12.1%
Scotland	53.0%	£9.53	11.7%
North West	54.2%	£9.32	14.9%
South West	54.5%	£9.27	14.3%
West Midlands	54.7%	£9.24	15.0%
East Midlands	55.4%	£9.11	13.1%
Northern Ireland	55.7%	£9.07	11.6%
Wales	55.9%	£9.03	14.8%
Yorkshire and The Humber	56.0%	£9.02	12.7%
North East	57.3%	£8.81	15.1%
*United Kingdom*	51.1%	£9.88	13.6%