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Labour unveils living wage tax break plan for businesses

04 Nov 2013

Businesses that agree to pay their staff the living wage will be eligible for a tax break worth up to £1,000 per worker, under plans unveiled by the Labour leader Ed Miliband.

If Labour wins the next general election, Mr Miliband has promised to give private firms a tax rebate worth around a third of the cost of raising a worker’s pay to the living wage.

For the majority of businesses the tax break would equate to around £445 per worker, although it has the potential to be worth up to £1,000 in some cases.

The living wage is an informal benchmark based on the amount an individual needs to earn to cover the basic costs of living.

Living wage rates were recently uprated and are now set at an hourly rate of £8.55 in London and £7.65 in the rest of the UK. However, the current national minimum wage for adults aged 21 and over is £6.31 an hour.

While business leaders have largely welcomed the proposals, some experts have warned that many firms will still be unable to afford the increase in wages.

Commenting, Katja Hall, CBI chief policy director, said: ‘This scheme may help some firms pay more, but many companies simply can't afford it. The best way to boost wage growth in the longer term is to build a sustainable recovery and invest in the productivity growth that will boost wages.’

The Federation of Small Businesses described the plan as an ‘interesting proposition’, but it added that the new national employment allowance, which is set to come into force next year, would help companies to increase pay much earlier.