Inflation could cause ‘mass exodus’ of low-paid workers from London to other cities, charity says

A charity has warned that record inflation rates could lead to a mass exodus of low-paid workers out of London to other cities.

The Office for National Statistics said that the cost of living rose to 4.2% in October, the highest increase in almost 10 years.

This is mainly due to higher fuel and energy prices, following Ofgem’s decision to lift the price cap on domestic gas and electricity last month.

The price of second-hand cars has also risen by 27.4% since April this year, due to a global microchip shortage which has slowed the production of new vehicles.

Hotel stays, transport, clothing, household goods and raw materials have also become more expensive.

The Bank of England expects inflation to rise further to around 5% in the spring of 2022, before falling back toward its 2% target by late 2023.

On Monday, the national living wage increase came into effect, meaning workers will now earn £9.90 an hour or £11.05 in London.

Joe Cole, from Advice for Renters, said that the rise in minimum wage will essentially be wiped out by the surge in inflation.

“Unfortunately the 6.6.% rise in minimum wage is essentially wiped out by the 4.5% inflation and 1.25% national insurance rise - a tax rise on the poorest,” Mr Cole told LondonWorld.

“There is a real risk of inflation getting out of control and fast.

“Raising the minimum wage is great, but that means businesses have extra costs, meaning price rises for consumers.

“Add on that widespread labour shortages, a hefty fuel price hike early next year and, on a fast approaching horizon, Brexit’s full custom’s implementation adding extra bureaucracy on January 1.

“It is already nearly impossible to live in London on a minimum wage, or live in London and have children, and without significant policy changes in multiple areas it is going to get a lot harder.

“We might even see a mass exodus of low paid workers to other cities and areas where the cost of living is substantially less but the pay is not massively different.

“If you are a minimum wage or low salary worker in London who could walk into a job in the West Midlands and instead of renting a room, rent a house, and have little to no commute…what is the incentive to stay in London?”

Jack Leslie, senior economist at the Resolution Foundation, said: “The global economic recovery has caused a rapid rise in inflation that families are feeling at the petrol pump, in their energy bills, and in their pay packets.

“With inflation forecast to hit 5% by next spring, we could be set for a sustained period of shrinking pay packets.

“While painful for households, the fact is that the global nature of these inflationary pressures mean that traditional tools such as raising interest rates are likely to have little effect.

“Instead, we need to focus on securing the as yet incomplete Covid recovery so that stronger growth creates more scope for higher pay rises.”