The real Living Wage rates for 2019–20 explained
The new Living Wage rates for 2019–20 have been announced. The rates are overseen by the Living Wage Commission (which I Chair) and below is the foreword to a report on this year’s calculation. It is written by me in that capacity . The full report is available here: https://www.resolutionfoundation.org/app/uploads/2019/11/Living-wage-calculation.pdf
Each year the Living Wage Commission (LWC) is tasked with setting the new wage rates for the UK and London. In doing so it follows an established methodology to calculate the hourly wage rate required to enable households to reach a minimum acceptable living standard.
If the basic idea of earning enough to live on is a simple one, it’s fair to say the underlying calculation is a bit more complicated. Yet the fundamental premise of a real Living Wage — reflecting changes in the cost of living, and rooted in the public’s beliefs about the good and services that a household needs to get by — is both intuitive and powerful.
The LWC’s new rates for 2019–20 are £9.30 across the UK and £10.75 in London. The body of this report sets out the detail of the calculation. Let me just highlight a few noteworthy factors that have shaped this year’s rates.
First, there is the wider inflation context. This year’s overall inflation rate is lower than last year’s (CPIH inflation of 1.7 per cent compared to 2.2 per cent) which has had a slightly moderating effect on the rise in both the UK and London rates.
Second, there have been smaller increases in the cost of some important items in London compared to the rest of the UK. Housing costs which (weighted across family types) rose by 0.9 per cent in London compared to 2.4 per cent outside it. This is the single most significant factor explaining the smaller rise in London compared to the rest of the UK. It marks a reversal of last year’s situation when rents went up by 2.9 per cent in London versus 1.8 per cent outside it. We also see a similar pattern in relation to childcare costs where this year’s increase was, again, smaller in London, serving to dampen the rise in the London rate relative to the UK one.
Third, several policy choices continue to shape this year’s uplifts. As with previous years the freeze in working age benefits creates upward pressure on the Living Wage rates whereas the rise in the personal tax allowance has the opposite effect (with the former outweighing the latter creating net upward pressure). Meanwhile, the ongoing transition from the old tax credit system to Universal Credit continues to play out. Our calculation tracks the relative share of recipients on the ‘old’ and ‘new’ systems meaning that each year more weight is given to Universal Credit (as its caseload grows). In some respects Universal Credit is more generous than the legacy system, particularly in relation to childcare costs, meaning that the net effect of its rollout is a downward pressure on the Living Wage rates, particularly in London.
If these are some of the factors that have determined this year’s increases, we should also mention some things that haven’t been relevant. There have been no changes in the nature of the basket of goods and services used in our calculation: 2019–20 is a ‘fallow’ year and the contents of the basket will be reviewed again next year. It is also worth recalling that during the period 2016–19 the London rate was transitioning to a new methodology (to align it with the UK approach), which resulted in a period of sustained upward pressure. That transitional period is now over as the UK and London approaches are fully aligned.
Stepping back from the detail of the calculation, it is encouraging to see the public debate on low pay, and what to do about it, becoming ever more mainstream. This remains an urgent challenge. For all the success of the real Living Wage campaign, which has seen record numbers of employers signing up this year, it is still the case that 5 million workers get paid less than it.
Against this backdrop the issue of low pay is likely to feature in the current General Election campaign. To help inform these and other discussions — as well as shape underlying pay norms in our society — it is vital that there is a credible ‘fair pay’ benchmark that is respected by workers, employers and civil society alike. Overseeing this benchmark — and ensuring that it remains fit for purpose in the years ahead — is the central task of the Living Wage Commission.
