Paying the living wage would mean a £262 million boost to public finances from the East Midlands

Big savings – £262m – could be made by the public purse if the East Midlands’ 388,000 low-paid workers received a pay rise and were paid the living wage, according to research published by the Midlands TUC today (Friday) to mark the end of Living Wage Week.

Economic modelling carried out for the national TUC by Howard Reed of Landman Economics suggests that the Treasury would receive an extra £169m from the increased tax and national insurance contributions (NIC) resulting from an East Midlands wide living wage boost.

Similarly, if low earners across the East Midlands were to see their wages rise to current living wage rates – currently £7.45 outside of London – the research says that the Treasury would pay out £92m less in means-tested benefits and tax credits across the region.

Commenting on the research, Midlands TUC Regional Secretary Rob Johnston said: “Almost 400,000 workers across the East Midlands are being paid less than the living wage, and with in-work poverty growing, it’s not hard to see why so many families are struggling to make household budgets stretch to cover the cost of everyday essentials.

“The UK is in the midst of a living standards crisis, and while the economy is slowly starting to recover, ordinary people are a long way from feeling any benefit. Money is so tight that any unforeseen expenses – like a winter coat for the children or repairing a broken cooker – are forcing families to borrow just to keep their heads above water.

“Of course not every employer can afford to pay their staff the living wage, but many more can. Increasing the number of people across the East Midlands who are paid at least the living wage would mean huge savings for the public purse in extra taxes paid and fewer benefits claimed.

“Britain is crying out for a pay rise – and there are real benefits that would come from a nationwide pay boost for the UK’s lowest paid workers.”

Lifting workers across the UK out of poverty pay and onto the living wage would see £2.1bn raised through extra taxes and national insurance contributions, and £1.1bn less paid out in benefits and tax credits. This would see a net benefit to the Treasury of £3.2bn.

Exchequer benefits of increasing coverage of the living wage

Regions and nations	Tax and NICs (millions)	Means-tested benefits and tax credits (millions)	Total (millions)
North East	92.4	46.2	138.6
North West	223.3	123.2	346.5
Yorkshire & the Humber	184.8	115.5	300.3
East Midlands	169.4	92.4	261.8
West Midlands	169.4	84.7	254.1
East of England	177.1	84.7	261.8
London	408.1	200.2	608.3
South West	184.8	100.1	284.9
South East	207.9	100.1	308.0
England	1817.1	947.1	2764.2
Wales	100.1	53.9	154.0
Scotland	161.7	84.7	246.4
Northern Ireland	53.9	30,8	84.7
UK	2132.8	1116.5	3249.3

Proportion of workers paid below the living wage by region

Regions and nations	Number of workers paid less than the living wage	% of the workforce paid less than the living wage
Wales	252,000	23
East Midlands	388,000	22
Yorkshire & the Humber	456,000	22
West Midlands	473,000	22
North East	213,000	22
North West	571,000	21
South West	452,000	21
East of England	466,000	20
Scotland	416,000	19
South East	530,000	16
London	572,000	16

- The figures have been calculated using existing living wage rates – £8.55 an hour in London and £7.45 elsewhere in the UK. It was announced this week that the living wage is to increase to £8.80 and £7.65 in April 2014.

- The figures for the number of UK workers paid below the living wage are from a Resolution Foundation study published earlier this year.

- Living Wage Week is promoted by the Living Wage Foundation and runs from 3-9 November www.livingwage.org.uk/living-wage-week-2013

- The analysis uses the Landman Economics/IPPR tax benefit model to calculate the changes in income tax and national insurance contributions, and the amount saved in tax credits and means-tested benefits if everybody paid below the living wage were moved onto it.

Because the dataset used for the analysis (the UK Family Resources Survey) overestimates the number of people in the UK, the results were adjusted so that the number of people affected by the introduction of a living wage corresponds to existing estimates of the number of people on low wages from Resolution Foundation research.