Living wage will boost the economy, says John McDonnell

Shadow chancellor John McDonnell has dismissed suggestions that making employers pay a living wage could harm business, insisting it will boost the economy and lift people out of poverty.

Some critics have warned that forcing employers to pay higher wages too quickly could backfire.

Outgoing CBI director general John Cridland said that if politicians push up wages too quickly some businesses may replace people with cheaper machines.

But Mr McDonnell said a higher living wage would create jobs and increase growth.

He told the Press Association: "The same argument was used by the CBI with the introduction of the minimum wage, and interestingly we know now that not only did it not cost jobs, it actually created jobs in the boost in the demand for the economy nationally.

"So Mr Cridland, I think, has got it wrong this time. We are working really closely with the employers and I'll be meeting with the CBI to talk through how we can campaign together for a living wage.

"I think a number of the CBI members are already committed to a living wage.

"What we are trying to do now is demonstrate not only that it is effective in terms of tackling poverty wages, but in addition to that it benefits those companies and it benefits the economy overall.

"I think, just as we won the argument on the minimum wage, we will win it on the living wage as well."

He said he thought the CBI would become "allies" in the campaign for a living wage.

Mr McDonnell has announced that a Labour government would introduce a £10-an-hour national minimum wage.

He made his latest comments as he met community bus drivers in Croydon, south London, who are now being paid the London living wage since their service was brought back in-house by the Labour-controlled council.

Mr McDonnell said Croydon is a "shining example" and insisted that despite cuts to council budgets, a living wage "has to be" the goal.

He added: "We can't have local public services run on the basis of poverty wages, it is not acceptable.

"But the onus is on the Government now to look again at its policies towards local councils - you can't keep on cutting back on the support they give to councils and at the same time loading them with additional responsibilities.

"It's unjust, it's unfair. It will mean local services will be impacted."

The living wage is voluntary and is set to rise to £9.40 in London next year and £8.25 outside the capital.

The current minimum wage is £6.70 an hour, but in his Budget Chancellor George Osborne announced that he will replace the minimum wage with a new "national living wage" of £7.20 an hour next year, rising to £9 an hour in 2020.

Labour say this is not high enough and lags behind the current living wage.

Mr McDonnell said Corbynomics - which has been named one of the top 10 words of the year by Collins English Dictionary - had introduced a "breath of fresh air" into British politics.

He said: "What Corbyn's campaign did is introduce a new type of politics, which I think is a more open, more democratic, kinder type of politics.

"We encourage people to have a debate and alongside that we are introducing a new economics as well.

"So alongside new politics it's new economics. Whether we call them Corbynomics or not we will see in the long term. But I think it is a breath of fresh air."