The Office for Budget responsibility has suggested that the introduction of a living wage could cause the loss of 60,000 jobs due to the increased costs for businesses.
The OBR, an independent body, released a report on the state of the UK economy to coincide with the summer budget, where the Chancellor announced moves to increase wages, were six million people will see their pay rise.
In the report, the increase in the wages will cause businesses to cut hours available for workers by 0.4 per cent – resulting in 60,000 lost jobs. Those cuts will affect people in lower paid jobs the most.
The reduction in total hours worked per week in the report will be four million in the UK, due to employers unable to pay the increase of living wages.
The chancellor’s announcement was met with scepticism by the Living Wage Foundation, which currently sets its own living wage at £7.85 an hour in the UK with £9.15 per hour in London.
The change with the living wage is connected to the Chancellor’s policies in welfare cuts, according to a Professor of Economic Policy at the University of Oxford.
Simon Wren-Lewis said: “The Chancellor gave the need to move to budget surplus as a key motivation for cutting tax credits, and those cuts undoubtedly inspired his surprise increase in the minimum wage which the OBR think will cost 60,000 jobs.”
The Institute of Directors has said that businesses have accepted the changes.
The Director General of the Institute of Directors, said that although introducing a national living wage at a significantly higher level than the minimum wage was a dramatic announcement, in return companies have been provided with a cut to corporation tax and an increase in the employment allowance.
“We should not understate the boldness of this move, and many businesses will have been taken by surprise, but the IoD accepts that after several years of slow wage rises, now is the time for companies to increase pay,” Simon Walker said.