Does London Need its own Minimum Wage?

Offices of the Centre for London. Pic: John Wakefield

Offices of the Centre for London. Pic: John Wakefield

To misquote L. P. Hartley, ‘London is like a foreign country, they do things differently there’.

Analysis by the Office of National Statistics in 2012 demonstrated that the structure of the capital’s economy is substantially different from other regions, including those of the south-east.

The city is measured at 0.42 on the Krugman Index, a measure that determines how similar a region is to the overall industrial structure of Great Britain.

The higher the figure the more the area varies from the industrial structure of the whole country, with the North West scoring just 0.16 and the North East, which ranks second only to London, measured at 0.31 demonstrating a significant contrast with the capital.

This is because creative industries, financial services, information and communication, real estate and scientific and technical jobs make up a very high proportion of London’s employment. Very few jobs are focused in agriculture, construction or the manufacturing industries.

Yet despite these major differences, London’s workers are currently treated exactly the same way under The 1998 Minimum Wage Act as low paid workers elsewhere in the country.

As Abigail Malortie, Associate Director of The Centre for London (a politically independent, not-for-profit think tank) told us, there are two strong arguments for changing the current situation.

Firstly today’s nationwide minimum wage figure, which is regulated by the Low Pay Commission, is ‘inequitable for Londoners’ as somebody who is earning the minimum wage in London is not being paid as much, in real terms, for their work as someone on the minimum wage outside of the capital due to the economy’s structural differences.

The solution The Centre for London has proposed is the introduction of a London specific minimum wage at a level above the national figure.

The creation of such, she argues, could lead to a net benefit for the economy due to its capacity to ease the reliance on state benefits, which many currently earning the national minimum wage of £6.31 an hour, rely on.

This is based upon findings in their detailed report, ‘London Rising: The Case for a London Minimum Wage’. (You can hear our full interview with Abigail Malortie below).

The report states that were a rate of £6.75 to be introduced for the 2013-14 period it would lead to a reduction of around £61m worth of in-work benefits, and would increase the income for 175,000 London workers by up to £800 a year, crucially they argue, without jeopardising jobs in the capital with a possible later rise to 20% above the national figure.

These findings were reached by economist and former Labour MP Kitty Usher, using methodologies employed by the Low Pay Commission and applying them to the London economy in isolation.

City specific minimum wages are not a new phenomenon. Such systems have existed in the United States for a number of years with San Francisco being one of the first cities to raise its minimum wage above the federal level back in 2004, now set at $10.74 ($3.49 above the Federal rate).

Crucially, according to recent research it has had a positive impact on the economy with a report published in January, When Mandates Work: Raising Labor Standards at the Local Level, noting the city’s rise in employment where other bay area counties saw employment decline.

A comparison with San Francisco was part of the report commissioned by The Centre for London which showed that based on the US precedent, businesses would be unlikely to relocate from the capital if a London minimum wage were to be introduced, and that the impact of the policy would likely be positive even at the boundaries of its geographical enforcement.

With such findings it is understandable that politicians are actively looking into the report. In fact, on the 4th December 2013, the London Assembly backed a motion on the basis of the research, urging Boris Johnson to push for a mandatory London Minimum Wage while calling on the government to amend the 1998 legislation to allow the Low Pay Commission to look into implementing such a proposal.

This is also supported by political research. A recent survey by the Labour Party concluded that 9 out of 10 of the 2,200 London workers asked believed that the current minimum wage was not enough to survive on in the capital.

This has prompted Labour’s economy spokeswoman in the London Assembly, Fiona Twycross, who put forward the motion last year, to call for the mayor to lobby the government for a London minimum wage as ‘a stepping stone to a statutory living wage for all.’ (Guardian 9th March 2014).

The London living wage campaign, separate from the research conducted by The Centre for London, is subject to different calculations focussing on living costs rather than also considering the impact to the economy, and hopes that employers will pay London’s workers £8.80 an hour.

Yet Dan Silver, co-director of the Social Action & Research Foundation, has noted that while creating a London Minimum Wage would be a good thing in principle, it doesn’t help address the wider economic imbalance in the country.

He noted the problem of a London-centric economy telling me that ‘the whole living wage debate is as much about inequality as it is about poverty’. (You can hear our full interview with Dan Silver below).

This is a view that is also argued by the leader of Newcastle City Council, Nick Forbes, who noted in the Financial Times that dealing with the problems of an ‘overheating London’ should be higher on the agenda.

Abigail Malortie believes, however, that a London Minimum Wage is not something we’re going to see introduced in the very near future.

‘I think it will require a mind-set shift primarily in central government before this kind of initiative can happen’ she noted,  ‘I think there’s probably a number of years before this can happen but for Londoner’s who are on the minimum wage, or not far off it, they are suffering a detriment for the disparity’

You can read The Centre for London’s full report on their website.

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