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Low Pay

Key points

  • 21% of people living in London are paid below the London Living Wage (or low-paid). 18% of jobs in London are low-paid. This is lower than the proportion of employees because many people commute into London to work, particularly for higher paid positions.
  • In 2016, the number of low-paid jobs in London stopped increasing for the first time since 2009 to 720,000 (18%). There was a fall in the proportion of part-time jobs that are low paid, and no change in the proportion of full-time jobs that are low paid.
  • In 2016, the biggest group among the low paid were female part-time employees, with 220,000 or 31% of the total. This proportion is unchanged since 2014.
  • In 2016, the five boroughs with the highest proportion of jobs paid below the London Living Wage are all in Outer London. The five boroughs with the lowest proportion of jobs paid below the London Living Wage are in Inner London. The Outer London rate (27%) is nearly double the Inner London rate (14%).
  • Of the five boroughs with the highest proportion of low-paid residents in 2016, four are in Outer London, with three in the Outer East & Northeast. The borough with the highest proportion of low paid residents is Newham, in Inner London and the lowest is Richmond.
  • Low pay rates are higher for younger age groups: around three-quarters of 16-20 year olds and 40% of 21-24 year olds are paid below the London Living Wage. For older age groups, the figure is around 20%.
  • 27% of low-paid jobs are in the retail, wholesale and transport sector, and 21% of low-paid jobs were in hotels and restaurants.
  • 64% of jobs in the hotel and restaurant sector were low paid, and 29% of jobs in retail and wholesale were low paid.
  • Around 34% of disabled people in London are low-paid, a much higher rate than non-disabled people. This is true regardless of whether an individual is working full-time or part-time or at the same level of education.

How is low pay defined?

We measure low pay in this report using the London Living Wage as set by the Greater London Authority. This is an hourly rate of pay that takes into account the costs of living in London and 60% of the median wage. It is designed to provide someone and their family with enough income for essentials and a cushion against unforeseen events. In 2016, it is £9.75 per hour, up from £6.70 when it was introduced in 2005 (its rise has largely been in-line with national measures of inflation). The UK Living Wage is £8.45 per hour. This compares to the national minimum wage which is £7.20 per hour. The Living Wage differs from the minimum wage as employers are not obliged to pay the former.

Commentary

The problem of low pay continues to gain prominence in the national policy debate, with the 2015 Summer Budget announcing a new 'national living wage' for those aged 25 and over. Although this will lead to a welcome boost for earnings in London, it will still be well below the level of the London Living Wage. The new 'national living wage' will be set at £7.20 from April 2016, rising to £9 an hour by 2020. Even this higher amount in 2020 is below the 2014 London Living Wage of £9.15.

Alongside this was the announcement of substantial reductions in spending on tax credits, some of which is also taking effect from April 2016. The amount a family can earn before tax credits start to get withdrawn is being reduced, and the speed at which they are being withdrawn increased. This specifically hits families in work. This poses two problems. The first is that the calculation of the London Living Wage takes into account that tax credits are able to top up an individual's income. So even if costs did not increase, cuts in tax credits would still mean that the London Living Wage would increase, meaning the gap between the 'national living wage' and the London Living Wage would grow.

The second is that, regardless of family size, there is only one London Living Wage rate. The idea behind this is that tax credits cover some of the additional costs of having children employers do not generally pay an individual more if they have more children. Cutting tax credits puts more strain on an individual's earnings.

Many working families in London will be worse off following the tax credit cuts, even after the 'national living wage' is introduced. Additionally, around a quarter of those paid below the London Living Wage are under 25, and so will not immediately benefit from the 'national living wage' increase. So while it is welcome that pay at the bottom end of the scale in London will improve - and research suggests that London can bear a higher minimum wage without job losses better than the rest of the country - there will be winners and losers once tax credits are factored in. This and the likely growing gap between the London Living Wage and the new 'national living wage' means there will still be a role for organisations such as the Living Wage Foundation to push for better pay in the capital.

Indicator last updated: 4 November 2016