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The Conservative Case for the Living Wage

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MPs are incredibly lucky. We have a job that we love.

Most people are not so lucky. Many would love to work but don't have a job and many more do the right thing and take a job that doesn't pay very well and which they don't enjoy to make ends meet. These are the people whose side this Government must be on. We must continue with the work of healing our economy so that it creates jobs for those who need them and we must make work pay for those who do the right thing and take low-paid jobs - jobs that, if we are honest, we wouldn't want to do.

So how do we make work pay?

First, by reforming our welfare system. Most people on out-of-work benefits are desperate for a job and most people on sickness benefits are genuinely unwell, but some abuse the system while working in the black market or sitting at home and we have to put a stop to that. And under Labour, increasing numbers found themselves paid more by the government not to work than they could earn if they took a job. These people aren't scroungers - the blame lies not with them, but with Gordon Brown and his key advisers (anyone remember who they were?) for trapping them on benefits. Not only was this bad for the individuals concerned (there's clear evidence for example that not working is bad for your health), it sent an appalling message to those who took low-paid jobs and then found themselves worse off than neighbours who were not working. That's why we've introduced a cap on the total amount of benefits an out-of-work family can receive and why we're introducing Universal Credit to ensure that work always pays. And there's more we can do to ensure that no-one gets something for nothing, that people are asked to give something back to their community in return for support when they need it.

Second, by ending the scandal of those on very low incomes paying a significant proportion of the money they earn in income tax. When we came to power, an adult working a 35 hour week for the national minimum wage would have earned just under £11,000 a year and paid nearly £1,000 in income tax. From April next year, they would earn just under £11,500 and pay just under £300 in income tax. We will have cut their income tax bill by 70%. Remember that next time Labour try to portray themselves as the party of the less well-off. Again, there is more that we can do as and when the public finances allow.

But there is a third piece to the jigsaw and that is increasing how much people are paid for their hard work. Conservatives are rightly wary of too much regulation of the labour market, but we have accepted that Labour were right to introduce a minimum wage to end the scandal of poverty pay. It's understandable that this is a national policy - no politician wants to tell someone in Cornwall or Cumbria that their hard work is worth less than that of someone in London - but the result is that it is significantly less generous in those parts of the country, like the area I represent, where both average wages and the cost of living are significantly higher than the national average.

The reality is that in many parts of the country someone working full time for the national minimum wage (£6.31 an hour from 1st October, which is £11,484 a year for someone working a 35-hour week) simply cannot afford to live without support from the government in the form of tax credits and in-work benefits like Housing Benefit. The Greater London Authority says the London living wage is £8.55 an hour (£15,561 a year); the Centre for Research in Social Policy at Loughborough University says that in the rest of the country it;s £7.45 an hour (£13,559 a year). KPMG say that 20% of all workers in the UK are paid less than the living wage. The result is that between 1997/8 and 2010/11, the cost of tax credits increased from nearly £5 billion to £28.5 billion, an increase of 297% after allowing for inflation. The taxpayer is subsidising low pay on a massive scale.

As Conservatives, that is something we should be very concerned about - but we should be equally concerned that if we simply make a step change in the national minimum wage it could price some people out of the labour market and/or make some British businesses less competitive.

What then should we do? First, we should continue to reduce tax on the low paid, allowing them to keep more of the money they earn. Why should someone working for the minimum wage pay income tax at all? But we should also look at increasing the national minimum wage without increasing costs for business by making changes to the tax system (which would be funded by the savings in tax credits and in-work benefits). The Chancellor has shown the way in his last Budget, introducing a £2,000 Employment Allowance to make it cheaper for businesses to employ people. That could be extended so that businesses could pay their low-paid staff more without it costing them more.

The next Election will be decided by which party has the policies to make life better for people who work hard to make ends meet - but equally importantly shows that it understands what life is like for such people. On dealing with our debts, on creating jobs, on making sure people are better off in work than on benefits and on cutting taxes for the low-paid, we have a great story to tell. The last piece of the jigsaw is to make sure that those who care for our elderly, who clean our offices, who stack the shelves of our supermarkets get a fair return for their hard work and share the benefits of the stronger economy we are building.

A Conservative Party that believes in a living wage but also understands the need not to impose extra costs on business; that believes in lower taxes for the low paid but also understands that it is self-defeating to penalise wealth-creators; and that believes in helping people when they fall sick or lose their job but understands that the welfare system can't treat those out of work more generously than those who pay for the system will deserve to win in 2015.