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It’s tough down south – Is it time to revive London weighting?

July 20, 2016

When I started my working life in London in the 1980s, there was some concept that London Weighting was a standard entitlement at a standard level that broadly reflected the additional cost of living in the capital city.

Today, it’s become a patchy entitlement at all sorts of levels, but generally not coming close to reflecting additional costs. You only have to compare how London supplements and London house prices have moved in the past quarter-century.  At the end of the 1980s, a standard London weighting was about £1500 and banks were paying around £3000.  Today, London weightings are generally £3-4000, with a very few employers paying up to £6,000 – so roughly double what it used to be.  Meanwhile, transport costs in London have quadrupled and house prices quintupled, with the gap with the rest of the country rising even more.

My paper for Trust for London on this subject suggests that it’s worth considering a more consistent approach to the London weighting, but this needs to be carefully thought out.

To a large extent, what remains of London weighting is a selective market mechanism designed to attract adequate labour where there would otherwise be a shortage. This leaves out many workers, and the idea of a system that truly reflects additional costs, tried in the 1960s and 1970s, has been long since abandoned.

There are reasons to be wary of any pure cost-based system. The risk is that you make higher costs self-perpetuating, by putting more money into workers’ hands only to bid up house prices further.

That would certainly be a risk in a London supplement based on a percentage wage premium, putting even more money into the hands of the highest-paid London workers.

But what my paper suggests instead is that middle to low earners should be guaranteed at least a flat-rate premium, based on the minimum additional costs calculated in ourMinimum Income Standard research.  This includes paying a modest rent, at a level that would help workers to keep up with the housing market, not drive it forward.

My calculations also differ from those made in the 1960s and 1970s, which broke down partly because they looked at differences in spending patterns, and therefore there was indeed a circularity in the sense that the more Londoners earned, the more the spending surveys showed that living in London was more “expensive” because they spent more. Basing the new calculations on what Londoners identify as the minimum they need to spend, rather than on actual spending, we can largely avoid this problem.

The magic number is £6,200. This is actually based on additional costs in Outer London, on the basis that people can in principle commute from there to jobs in Inner London.  An equivalent Inner London calculation is £7,700.

This may not be the best moment to ask London employers to give a substantial pay rise. But having as a benchmark the minimum that living in London actually costs, compared to elsewhere, can’t do any harm.  And the idea’s already been noticed by a man with some influence: Sadiq Khan’s manifesto stated as one of his objectives:

“Promote the uplift of London weighting, which over the years has fallen behind…”

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