Future Labour Government could encourage introduction of living wage

A future Labour Government could encourage the introduction of a living wage much higher than the national minimum wage, Ed Miliband suggested today.

The Labour leader praised the growing grassroots campaign for an £8.30 an hour living wage in London and £7.20 an hour outside the capital to reflect the real cost of living. The figures are significantly higher than the legally-binding £6.08 an hour minimum wage.

His comments could pave the way for the Labour’s manifesto at the 2015 election to say that private companies winning government contracts would be forced to pay the higher rate if the party won power.

Some Labour councils have already introduced such a rule and a living wage has also been championed by the London Mayor Boris Johnson.

Senior Labour sources said tonight that no decision had been taken and stressed that a living wage would not be imposed on all companies by legislation. The party’s decision would depend on the state of the economy in 2015 and the impact on firms would be taken into account. “We are not going to make promises that we can’t keep,” said one Labour official.

Business leaders will be worried about the imposition of higher wage costs, especially if the economy is not growing. But Labour politicians point out that warnings about millions of job losses before the minimum wage was introduced in 1999 were proved wrong.

The living wage could form part of a shift in Labour’s anti-poverty strategy from old-style redistribution through tax credits and state benefits to “predistribution”. The aim would be to boost wage packets by improving education, skills training and urging companies to pay more.

The last Labour Government spent an estimated £150bn on Gordon Brown’s flagship tax credits, topping up the wages of those on low incomes. Labour insists they lifted one million children out of poverty but some analysts believe the money could have been better spent.

In a speech today, Mr Miliband admitted: “The redistribution of the last Labour government relied on revenue which the next Labour government will not enjoy. The option of simply increasing tax credits in the way we did before will not be open to us.” He added: “Predistribution is about saying we cannot allow ourselves to be stuck with permanently being a low-wage economy.”

At a conference staged by the Policy Network think tank, the Labour leader described the living wage campaign as “very important.” He said: “There is a distinction between a legislated-for minimum wage and a living wage that we can find different ways of promoting. You are going to have a legislated minimum and then you are going to have a living wage above that.”

Today, the Paris-based Organisation for Economic Co-operation and Development (OECD) predicted the UK economy would shrink by 0.7 per cent this year, a sharp downward revision from the 0.5 per cent growth it forecast in May. But David Cameron said: “If there was a button you could push in Whitehall that just said ‘growth comes’, I would have pushed it long ago. There isn’t.”

George Osborne’s deficit-reduction strategy came under attack from Larry Summers, the former US Treasury Secretary and ex-Barack Obama adviser. Speaking at the same conference, he warned that Britain still faced the threat of a 1930s-style depression.

Calling for “excessive slashing of public budgets” to be abandoned, Mr Summers said: “We have avoided the prospect of a 1930s-like experience in the United States. I cannot say the same with respect to Great Britain. The downturn in British output is more sustained than at any point in the twentieth century.“

He added: “In such an environment, to radically slash public investment is, I would suggest, to violate the Hippocratic Oath – first, do no harm. It compromises jobs, it compromises the future, it ultimately raises the debt burdens that are passed on to children.”

Mr Summers argued that no one should dismiss the objective of restoring rapid economic growth as a short-term stimulus. “It’s the most importance inducement to necessary long-term investment,” he said.