Increasing the number of employees paid the real Living Wage could significantly boost local economies, according to a new report.

The report, The Local Living Wage Dividend, which was commissioned by the Living Wage Foundation and conducted by the Smith Institute, found that if the salaries of a quarter of low paid workers was raised to match the real Living Wage, half a million workers would secure an average annual pay rise of over £1,700.

What is the real Living Wage?

The real Living Wage is calculated based on the amount of money employees and their families need to live, taking into account the cost of rent, household bills and groceries. Calculated independently by the Living Wage Foundation, is currently set at £10.20 for those living in London, and £8.75 for the rest of the UK.

Currently, it is mandatory for employers to pay the national minimum wage for workers under 25, and the higher national living wage for those over 25. However, the Living Wage Foundation does not believe either is high enough to adequately cover the cost of living.

Although employment levels are high, wage stagnation and soaring rent prices mean that in-work poverty is a very real issue.

What the report found

As well as benefitting individual workers, the report sets out potential scenarios for what an increased Living Wage uptake would mean in ten major city regions geographically spread across the country. It found that London would have the largest economic benefit at £295m, and at £22m, Sheffield City region would have the smallest.

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Overall, the report found that UK city regions would benefit from a £560m boost.

Taking into account wider economic benefits such as increased local spending by low paid workers, increased tax receipts and benefit savings for the Treasury, the foundation estimates that the total benefit across the ten regions could be up to £1bn.

Deputy Director of the Smith Institute Paul Hunter believes that by adopting the real Living Wage, employers can put more money back into their local communities:

“Big employers often like to talk about the positive role they play in their local community. One way that they can go beyond the warm words is to pay their staff the Living Wage and demand their suppliers do the same. This is not just about good corporate citizenship. Evidence shows workers paid fairly are more productive. And, as our research shows, the Living Wage can also provide a boost for the local economy on which established employers are dependent.”

 The report calls for universities, hospitals, football clubs and city airports to become “anchor institutions” to set a precedent and drive uptake of the real living wage.

Director of the Living Wage Foundation Tess Lanning believes that the real Living Wage goes some way to combat the problem of in-work poverty:

“By championing the real Living Wage based on what people need to get by, leading mayors and local authorities can build successful, dynamic local economies – and most importantly ensure that the proceeds from growth are fairly shared. With over 5.5 million people still paid too little to live on, the real Living Wage is a key plank of any strategy seeking to tackle the UK’s problems of in-work poverty, regional inequality, and weak productivity.”