Q&A: The living wage

Money The living wage is not the same as the minimum wage

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The living wage is based on the amount an individual needs to earn to cover the basic costs of living.

Because living costs vary in different parts of the country, there is a different rate for London and the rest of the UK.

It is promoted by the Living Wage Foundation.

It has received widespread political support, but limited endorsement by employers.

Prime Minister David Cameron has said he supports the idea in principle.

The Labour leader, Ed Miliband, favours making it part of his party's manifesto for the next general election.

Both London's former and current mayor, Ken Livingstone and Boris Johnson, are supporters.

The Greater London Authority (GLA) is among the organisations that pay the living wage to their employees.

What is the difference between the living wage and the national minimum wage?

The living wage is an informal benchmark, not a legally enforceable minimum level of pay, like the national minimum wage.

The national minimum wage is set by the chancellor of the exchequer each year on the advice of the Low Pay Commission. It is enforced by HM Revenue & Customs (HMRC).

The living wage is currently calculated by the Centre for Research in Social Policy at Loughborough University, while the London living wage has been calculated by the GLA since 2005.

The basic idea is that these are the minimum pay rates needed to let workers lead a decent life.

How much is it, exactly?

The living wage is now set at £8.55 an hour in London and £7.45 an hour in the rest of the UK.

By comparison, the national minimum wage is significantly lower. From 1st October, 2013 the national minimum wage will be £6.31 an hour for adults, and £5.03 for those aged 18 to 21.

How much do people actually earn?

The most authoritative data comes from the Annual Survey of Hours and Earnings 2012 compiled by the Office for National Statistics.

It shows that median weekly earnings before tax were £506 in the year to April 2012. Men earned £546 a week, while women earned £449.

Median annual earnings were £26,500.

However, there was substantial variation across the UK. The highest median weekly earnings were in London, at £653. The lowest were in Wales, at £453.

How many employers actually use it as a benchmark?

In all, 277 employers so far, which is very few. They include insurance giant Aviva and accountancy firm Deloitte.

Of course, some firms may have no need of such a benchmark, as they pay all their staff above that level anyway.

But plenty of employers pay less.

Accountancy firm KPMG (which supports the living wage idea) reported that 20% of all workers in the UK, nearly five million people, are paid below it. In September 2013, the left-leaning think tank the Resolution Foundation came up with a similar number, reporting that 4.8m people earn less than the living wage.

Have campaigners found it hard to bring in a living wage?

Yes, progress in raising the lowest levels of pay above the minimum wage level has been slow.

Some big local authorities have adopted it, such as Cardiff, Birmingham and Newcastle.

But other workers have found it a struggle.

Cleaners in the Houses of Parliament went on strike back in 2005 to demand pay rises that would bring them up to the living wage. They achieved their aim in 2006.

Some cleaners on the London Underground staged industrial action, including strikes, over two years before Transport for London (TFL) conceded a deal based on the living wage in 2010.

Why are people talking about it now?

Supporters of the living wage are currently stepping up their campaigning.

But the issue of low pay for employees has become even more pressing in the past few years.

Since 2008, the combined effect of the recession, high unemployment, stagnating wage levels and high inflation has depressed annual income per head by 13%, according to an analysis by the Office for National Statistics.

Some supporters of better pay for the low-paid also argue that employers who pay their staff too little are in effect benefiting from taxpayers, who subsidise the low wages of their staff by paying their employees top-up state benefits such as tax credits.

If basic pay levels were higher on average, so the argument goes, then the state would save a fortune in benefits.

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