Tackling the cost of living crisis with decent wages, helping business, cutting the cost of failure

Ed Miliband MP, Leader of the Labour Party, is today announcing plans to introduce Make Work Pay contracts which will help businesses raise wages for millions of low-paid workers - and help the next Labour government cut social security bills for the taxpayer.

Firms which sign up to paying the Living Wage at the start of the Parliament will benefit from a 12-month tax rebate of up to £1,000 – and an average of £445 – for every low paid worker who get a pay rise.

The measure will be entirely funded from the increased tax and National Insurance revenue received by the Treasury when employees receive higher wages. Additional savings in lower tax credits and benefit payments, as well as increased tax revenues in future years, will cut social security bills and help pay down the deficit.

Mr Miliband is unveiling his plan at the start of Living Wage week in which he will be making a major speech setting out the next steps in Labour’s agenda to tackle the cost of living crisis for Britain’s families.

More than 400 employers, including 21 Labour local authorities, are now fully accredited by the Living Wage Foundation, but Mr Miliband will say many other private sector firms would benefit from the increased staff retention, improved productivity, and reputational benefits that come from lifting their staff out of in-work poverty.

Employers will be able to use this transitional funding for capital investment and training so that they raise productivity and higher wages are sustainable through the course of the next Parliament.

On entering office, the new Labour government will launch a national campaign to agree Make Work Pay Contracts with British businesses. These contracts will mean that in return for becoming accredited Living Wage employers within the first year of a Labour government, businesses will receive back 12-months’ worth of the resulting increased tax and National Insurance revenues received by the Government.

For every extra pound employers pay to raise workers from the Minimum Wage to the Living Wage, the Treasury saves 49p in the form of lower social security payments and higher tax revenues. Labour’s Make Work Pay contracts would mean that employers could claim back the entire increase in tax revenue – 32p in the pound - for the first year.

Although the bulk of the money in the first year would be paid back to employers, the Government would still see a net saving through lower social security and tax credit payments, and increased tax revenues in future years.

Mr Miliband has asked Alan Buckle, deputy chairman of KPMG international, to consult with businesses and other employers, on the detailed implementation of this scheme as part of his Review on Low Pay. The Buckle Review is also examining other measures to strengthen the National Minimum wage and encourage the adoption of the Living Wage.

In his speech on Tuesday, Mr Miliband is expected to say:

“We risk an era of growth without prosperity. Wages are going up slower than prices month after month after month – for 39 out of 40 of the months David Cameron has been Prime Minister.

“As a result, average wages are over £1,500 lower than they were at the last election.

“And even these averages, bad though they are, don’t get at the scale of the problem. Ordinary families are doing much worse than the averages would suggest. Because people at the top continue to enjoy faster wage rises than everyone else.

“For ordinary families to keep up, we don’t need average wages to just creep higher than prices. That will still leave millions of people worse off. We need the kind of strong increases in wages that will genuinely make people all across Britain better off.

“Wages for millions of families have been stagnant or in decline for far too long now.

“Last year there were 4.8 million people who earnt less than the living wage. That is up 1.4 million in just the last four years. We’ve now got to the point where more of the people bringing up families in poverty are in work than out of work.

“And low wages aren’t just bad for working people and their families. They are driving up the social security bill too, as the country has to subsidise more and more low paid jobs with tax credits and benefits. This government pays more out on support for people in work than it does for unemployed people.

“So to those who say we can’t afford to do anything about wages in our country today: I say we can’t afford not to. The Tories are indifferent to millions of families being locked into a permanent cycle of low wages and poverty.

“I say Britain can do better than this. I say Britain – British business, British workers and British governments too - can break that cycle.

“Britain can do better than these low expectations. That’s why we’ve said we would strengthen the minimum wage. And we would go further than that too.

“For every extra pound employers pay up to living wage, the government saves almost 50p on lower tax credits and benefits and higher tax revenues.

“That is why the next Labour government in our first year in office, will offer Make Work Pay contracts to employers.

“If employers agree to move to paying the living wage to their workforce, we will provide them with an incentive, offering them in the first year the money that government would receive in higher tax revenues.

“The result: working people get higher wages, employers get support to help to make the transition to a living wage, government cuts the cost of social security for the long term.

“And we make a clear statement about the future of our country and our economy: Under a Labour government: work will pay. And that together, we can tackle the cost of living crisis.”