George Osborne’s ‘living wage’ is not enough to live on

At first look, George Osborne's new 'compulsory living wage' is a welcome move.

Any increase in the amount low paid workers receive can only be a good thing. However, Osborne is wrong to label this new measure a 'living wage'.  In reality it is anything but.

Under Osborne's plans, a new living wage premium (LWP) for the over-25s would be introduced on top of the current minimum wage.

However, the size of this premium is far below what is required for people to live on, especially in London.

The current living wage is set at £7.85 an hour while the London living wage is set at £9.15 an hour. Under Osborne's proposals, the compulsory living wage would be initially set at just £7.20 in both London and elsewhere. This is not a living wage by any commonly understood definition.

There is also great uncertainty about what level the new living wage would rise to. The Office for Budget Responsibility (OBR) forecast that it will rise to around £9.35 by 2020, just 15p an hour more than the current London living wage.

However the OBR admit that they were "unable to discuss with the Low Pay Commission how they might approach setting out the precise trajectory ahead of its public announcement". It could well fall short.

Osborne's announcement also fails to take into account his own cuts to in-work benefits.

At the moment the living wage is set precisely by talking into account those benefits. If you reduce in-work benefits, you must increase the living wage.

In fact according to calculations by the Mayor of London's economic advisers:  "If means-tested benefits were not taken into account (that is, tax credits, housing benefits and council tax benefits) the [London] Living Wage would be approximately £11.65 per hour."

Osborne has deliberately avoided taking these cuts into account when setting his new compulsory living wage. When you do take them on board, Osborne's promise of £7.20 an hour looks especially paltry.

The principle of establishing a compulsory living wage is an excellent one and today's announcement is a definite step forwards in that aim.

But Osborne is wrong to label this a compulsory living wage, when he has refused to set it at a level which is enough for people to actually live on. Without that, this is a living wage in name only.