London Living Wage should rise further to reflect higher cost of living in the capital

The London Living Wage should increase to reflect the increased cost of living in the capital, including the growth of households renting privately, the Resolution Foundation says today (Wednesday) in its review of the Living Wage.

The Resolution Foundation report to the Living Wage Commission highlights the success of the campaign for firms to voluntarily pay higher wages, with over 2,600 employers accredited by the Living Wage Foundation (including nearly 900 in London). The number of firms signing up has continued to grow despite the confusion caused by the announcement last summer of a National Living Wage (NLW) – a legal minimum wage for those aged 25 and over that is not based on the cost of living.

The report makes recommendations to improve and align how the UK and London rates of the Living Wage are set in order to strengthen their link to the cost of living. It calls for an improved method for calculating both of the Living Wage rates, which would result in the London rate rising to a higher level in future.

This higher rate is driven in part by an increased proportion of private renters in the Resolution Foundation’s recommended approach. Under its proposals, over two thirds of families included in the calculation will live in the private rented sector.  Private renters currently spend over a third (37 per cent) of their income on housing, compared to 28 per cent among mortgage owners.

The Resolution Foundation says the shift in housing tenure has had a dramatic shift in the cost of living that families face, particularly in London. The cost of private renting in the capital has increased more than twice as fast as the rest of the country over the last five years.

It notes as recently as 1997, households in London were three times more likely to own with a mortgage than rent privately, and social renters were far more common than private renters. However, the dramatic shift in housing tenure has led the proportion of private renters to overtake social renters in the mid-2000s, while today households in the capital are more likely to rent privately than own a home.

The trend is even more stark among young (aged 34 and under) households on modest incomes in London, who were also more likely to own than rent in 1997. Today just 13 per cent own a home compared to 70 per cent who rent privately.

The report makes clear that should a sizeable rise in the London Living Wage be required, the Living Wage Commission should consider how to phase the increase rather than requiring a one-off jump.

The report makes a number of other recommendations to ensure the robustness of the Living Wage including aligning the calculation methods for the London and UK rates, broadening the mix of family types in the calculation to reflect a more representative mix of family types, and more accurately accounting for how the cost of living changes for families with different ages of children.

Conor D’Arcy, Policy Analyst at the Resolution Foundation, said:

“The Living Wage has enjoyed remarkable success over the last decade. With the introduction of the ‘National Living Wage’, now is the perfect time to reflect on the current calculation and ensure the campaign has the best possible foundation going forward.

“The reason why people still want the real Living Wage is that it is firmly rooted in the cost of living that families experience. Strengthening this real world link should be a priority. For many Londoners in particular, that means the higher costs associated with living in private rented accommodation rather owning their own home.

“Our recommendations to the Living Wage Commission, who are responsible for taking this forward, are designed to ensure that the Living Wage in London and rest of the UK better captures the costs low-income families face today.”

Katherine Chapman, Director of the Living Wage Foundation, said:

“In these uncertain times, the Living Wage is a plank of stability for low paid workers and the stamp of a responsible employer that goes beyond the legal minimum. We welcome this valuable report that will help ensure the Living Wage remains the independent benchmark for a wage that provides a decent standard of living.”

Notes to Editors

• The Resolution Foundation was asked by the recently established Living Wage Commission to review the current methodologies and assumptions that currently underpin the Living Wage with the goal of aligning the methodologies underpinning the Living Wage rates. The Commission and the Mayor of London will review the findings and recommendation of the Resolution Foundation’s work and make decisions on the future of the Living Wage calculations in due course.
• The Living Wage Commission was set up in January 2016 by the Living Wage Foundation to oversee the calculation of the Living Wage rates in the UK. The Commission, drawn from leading Living Wage accredited employers, trade unions, civil society and independent experts, will support and promote the goals of the Living Wage as an attainable benchmark for employers committed to going above and beyond the statutory minimum. The Commission will publish its response to the review in September 2016.
• The work of the Commission is supported by the Joseph Rowntree Foundation, Aviva, the Trades Union Congress and the Resolution Trust.