City Deals should tackle low pay, say think-tanks

21 Jan 13
The current round of financial ‘City Deals’ between the government and major cities should be boosted to tackle low pay, a joint report by two think-tanks said today.
By Vivienne Russell | 21 January 2013

The current round of financial ‘City Deals’ between the government and major cities should be boosted to tackle low pay, a joint report by two think-tanks said today.

Cities or regions that pay the living wage to public sector staff should be given extra Whitehall cash to work with local businesses to improve pay rates, according to the Resolution Foundation and the Institute for Public Policy Research.

Their report, Beyond the bottom line, said that the vast majority (84%) of the 4 million UK workers paid below the living wage are in the private sector.

IPPR director Nick Pearce said: ‘The risk is that the living wage gets trapped in public sector ghettoes, when the vast majority of those who would benefit from it work in the private sector.

‘The Treasury should support small and medium-sized enterprises to improve productivity and pay higher wages by committing future tax dividends from a living wage to skills training and business support. Including SMEs in City Deals is the best way to do this, creating “living wage cities” across the country.’

Gavin Kelly, chief executive of the Resolution Foundation, added that using exchequer funds with cities would be an ‘innovative’ way of tackling low pay.

‘Given plummeting wages and escalating levels of working poverty it is crucial that across the political spectrum there is a will to tackle this issue,’ he said.

The report suggested a number of ways local authorities could work with businesses to address low pay, including offering financial support or paying for staff training and expert advice on how to open up more profitable markets in higher-skill, higher-value industries.

While action in the private sector was essential to make progress, the public sector should continue to lead the way, the report said. All Whitehall departments and London boroughs should pay directly employed staff the London living wage rate of £8.55 an hour by 2015. Public sector organisations should also be ‘completely transparent about how many of their staff are paid below the living wage, which is £7.45 an hour outside London.

The report estimates that if all workers were paid the living wage there would be a £2.2bn gain for the Treasury in reduced benefit payments and higher tax revenues.

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