Boiling blood and living wages

A guest post by Baroness Tyler.

The living standard is, I believe, perhaps the most pressing issue facing this country. Despite the recent and, of course, very welcome signs of economic recovery, real anxiety over the cost of living is the day-to-day reality of many British families, particularly people on low incomes.

The stark fact is that living standards have been stagnating for the past four years and households are spending an increased share of their incomes on ‘essentials’ such as food, fuel and housing.

The Which? Quarterly Consumer Report for October 2013 found that just 24% of people surveyed believed they were able to live comfortably on their earnings, and 52% in the lowest income group are still cutting back on essential spending.

The Social Mobility and Child Poverty Commission has done important work in bringing to our attention the growing problem of in-work poverty, and in highlighting more generally the changing face of British poverty.

It is now the case that two-thirds of our poor children live in households where at least one adult works, forcing us to abandon for good the long-held prejudice that poverty is the preserve of the work-shy.

I want to recognise that the coalition government has a genuine commitment to easing the burden on low and middle earners and acknowledge the very welcome measures already taken, particularly the raising of the tax-free allowance to £10,000, the freezing of council tax and fuel duty, expanded free childcare and increasing the state pension.

These efforts to ease the pressure on household budgets are laudable, but more needs to be done – and quickly – if we are to tackle the looming cost-of-living crisis.

In common with most people in this country, the ever-rising price of energy – way above the rise in wholesale prices – makes my blood boil. It simply feels as if we are being held to ransom for a basic essential of life.

The antics of the Big Six energy companies – which as far as I can tell seem to operate as a price-fixing cartel – tell me that privatisation has created an energy market that is simply not working in the public interest. Otherwise why would prices be going up so sharply when wholesale prices – by far the biggest element of costs – are relatively stable? Anything that could feasibly and realistically bring down prices – and quickly – deserves further investigation to test its workability and impact. I hope that this doesn’t simply turn into political football – the stakes are simply too high with the winter approaching.

I strongly support shifting some of the cost of green levies from individual energy bills to general taxation, which is more progressive in nature. In simple terms, it prevents the cost of vitally important energy efficiency measures, such as insulation and new boilers for households in fuel poverty, from falling disproportionately on poor households.

Money is tight, but if the choice is between doing something to reduce energy bills and introducing tax breaks for married couples, it’s the former that gets my vote and I suspect the same could be said for many up and down the country.

Turning to low pay, the Living Wage has a valuable role to play in the fight to raise living standards. Encouraging employers to pay a wage that allows workers to attain an acceptable standard of living without recourse to benefits is not just about fairness, it also makes sound economic sense.

According to figures from the Resolution Foundation, savings of up to £3.6bn could be made by the Treasury if employers paid the Living Wage, ending the current situation whereby tax credits to low earners are used to top up wages – effectively subsiding some employers who could afford to pay better wages.

It seems a much more empowering and liberal approach if people could maintain or improve their standard of life through earning their own money, rather than through complicated tax credits whose take-up rate is only around 65%.

There will be those who will argue that this will lead to a loss of jobs; similar concerns were raised when the National Minimum Wage was introduced and simply didn’t materialise.

We must also tackle the costs and availability of childcare. Lack of access to affordable and good quality childcare is preventing many women from returning to work following childbirth, denying their skills and potential tax take to the economy, and is proving a major squeeze on household budgets of those that do. Indeed, the Institute of Fiscal Studies has shown female employment to be the key driver for increased income among low to middle income families in the last 50 years.

However, the cost of additional hours of care above the free entitlement has been rising rapidly and squeezing the living standards of working parents. That is why I am so pleased that Liberal Democrat party policy is to extend the number of free childcare hours on a stepped basis. In addition, measures to provide more flexible childcare arrangements that recognise that not all parents work the standard 9-5 day would help better meet the needs of many.