A Living Wage for a minimum standard of living

The Minimum Income Standard for Britain (MIS) can be used to identify a Living Wage, based on what people need to earn to support themselves and their families at a minimum acceptable level.

 The living wage and MIS

The principle of a “living wage” is that pay rates should not be so low that families are unable to afford the essentials of life. This can be related to the Minimum Income Standards research on what incomes families need to achieve a minimum socially acceptable standard of living, as defined by members of the public.

What kind of family should a living wage support? The hourly wage that someone needs to support their family varies according to how many hours they work, the size of the family and whether other people in the family are working. However, helped by the tax credits system, which gives more to low-income families with higher needs, the minimum requirement is similar enough across most families for an “optimal” living wage to be identified. This is a wage that is high enough to cover the great majority of household types, but which could not cover many more families without being substantially higher. In January 2010, a roundtable discussion among people from around Britain with an interest in the living wage agreed on a basis for setting this figure nationally, with some room for local variation.

A £7.60 living wage covers all the most common working-aged family types (if they work full time): singles and couples without children, couples with one or two children and lone parents with one child. However, £7.60 is not enough to cover couples with more than two children or lone parents with more than one child, who all would need to earn over £9 an hour to reach a minimum standard. And many couples with two children would require significantly more than £7.60 where both partners were not working full time. A £7.60 living wage is therefore not perfect, but it has been selected as the single most suitable figure, which at least gives the opportunity for the great majority of families to reach a minimum standard.

The core figure of £7.60 is proposed as a “default” living wage level that can be used by local employers and campaigners as a guide to what people need to be paid as a minimum to reach an acceptable living standard. It does not seek to challenge or undermine figures that have already been worked out locally based on local conditions. In particular, the London Living Wage, currently £7.85, takes account of a range of costs unique to the capital, and has gained widespread recognition there.

Elsewhere, there is scope for adjusting the figure of £7.60 to reflect certain local costs. In order for the figure to remain compatible with the Minimum Income Standards methodology, these adjustments need to be limited to rent levels and council tax levels, which can impose very different costs from one part of the country to another. Other cost variations may be important, but cannot be readily built into a standardised calculation of the living wage as defined here. (See also discussion of childcare costs in Working Paper.)

The Minimum Income Standard starts by assuming a low rent, based on an example of the cost of a council house in the Midlands. The rent used for the £7.60 calculation was £71.18 for a three bedroom terraced house. This was deemed to be suitable for a couple with two children, the family type whose wage requirement, at £7.60, is the highest of those covered by this living wage level. The living wage level can be adjusted by identifying the rent on an equivalent property in a local area.

To be consistent with the rest of the Minimum Income Standard research, the rent assumption for a local area should aim to find an example of a low rent available locally (not the average rent). Specifically, this can be identified by selecting a rent which:

• Is in the lowest price category level available in social housing for a three bedroom terraced house or suitable equivalent for a family with two children
• Is not, however, low for reasons that make it exceptional – for example it only applies to a very small number of atypical properties or applies only to “hard to let” properties.

Judgement of what is a “suitable equivalent” depends on local circumstances. Participants in the research said that families with children should have the choice of living in a house rather than a flat. In some places however, this may not be the norm – for example, in the city of Glasgow, most social housing properties are in “tenement” properties rather than separate houses, and families with children may expect to live in such properties.

The following are examples of the living wage required in different local areas according to the rent charged on a property fitting the above description.

For more precise calculations, or for calculations outside this range, this simple calculator can be used.

Specifying a local council tax variation A local adjustment can also be made, if desired, to change the assumption about council tax that feeds into the living wage calculation. This is that a couple with two children pays £21.66 a week, derived from the amount charged for a Band B property in Loughborough. To correct this to the equivalent applicable in another local authority, select the annual charge for the appropriate band (payable in properties occupied by more than one adult), and divide by 52. The appropriate band will be the one that is likely to be charged for a low rent three bedroomed terraced house or equivalent in the social rented sector. The resulting figure can then be fed into the living wage calculator alongside any adjustments in rent.

Uprating Every year, these calculations are being updated on this website. This is based on price trends and on further research about what people consider to be essentials in Britain today. In this way, the living wage figures is being kept in line with changing social norms, and also with changes in the tax and benefit system.

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