Research finds that the public subsidy to low wage employees was over 10.9bn in 2014

20 April 2015

Research published by Citizens UK has found that in 2014, the total Public Subsidy paid to low-wage employees was over £10.9bn. 

The study used the Labour Force Survey (LFS) data to determine how many hours were worked (full and part time) and household types with low-wage employment (e.g. whether there were dependent children or not), which they then combined with the estimated hourly wage rate of £6.70 an hour, and independent research that calculated that there were 5.24 million low wage employers in the economy as a whole. The benefits calculator software then estimated the public subsidy for each of these low wage households.

Public subsidy refers to the government money spent topping up low wage employees household incomes through benefits and tax credits so that they can “meet their basic needs.”

As reported in the Guardian, the four big supermarkets (Tesco, Asda, Sainsburys and Morrisons) are costing just under £1bn a year alone in tax credits and extra benefits payments . The example given in the research was that the public subsidy paid to low wage Tesco employees, of which there were 209,000 in 2014 (across ten different household types), was £364 million.

Citizens UK have therefore argued that “huge savings could be made to the public purse if companies paid a Living Wage to employees.” They again use the example of Tesco, who alone could save  the taxpayer £92 million a year, according to their calcualtions, which were made by comparing the benefits, tax credits and employee and employer tax paid at low-wage rate with the Living Wage rate (£7.85 an hour). 

The research and more information about the modelling assumptions and parameters can be found here.