The new year will start with a pay rise for civic employees after Wellington City Council became the first in the country to introduce the living wage for staff.

A council committee yesterday voted nine to five in favour of phasing in the living wage for employees from January 1.

But although many councillors supported the shift, others questioned whether the living wage was the best way to improve conditions for staff.

The Treasury has warned that the living wage will do little to ease poverty levels.

Councillors also agreed to add $750,000 to the 2014-15 draft budget to cover the extra wages from July 1.

They will continue debating the draft Annual Plan today before sending it out for consultation early next year.

The council has 450 staff earning less than the agreed living wage of $18.40 an hour, defined as the amount workers need to survive on while also participating in society.

But although direct employees of the council will benefit, contractors and employees of council-owned companies are not included after officers warned that there were many complicated issues still to work through, and that the cost of adding contractors could be more than $2.5 million.

Instead, councillors agreed that a plan for including those staff would be developed for inclusion in the 2015 long-term plan - a move supported by living-wage campaigners, who argued for a staged approach over the next three years.

"That is a tangible timeframe that gives these people hope," the Rev Brian Dawson told councillors.

Parking warden Esa Taniela told councillors his colleagues were excited to hear workers would receive the living wage - but were "crushed" when they found it was only for direct employees.

Councillors argued it was important to recognise the contribution of its lowest-paid workers, and the living wage was a way to reduce inequality.

Treasury published a study last month arguing that the living wage proposal would make little difference to the low-income families it aimed to help.

Study author Margaret Galt said most people earning under $18.40 an hour were single, young and childless.

"For families with children, most of the extra money goes to the Government through lower benefit payments and more tax."

Mrs Galt said that when businesses overseas introduced a living wage, the move was followed by cuts in jobs, hours and bonuses.

Wellington Chamber of Commerce chief executive Raewyn Bleakley said the council decision was a waste of public funds.

She doubted the living wage would increase staff morale or productivity.

"In fact, it risks infuriating other staff who lose their pay relativity.

"We implore the council to use ratepayers' funds to drive economic growth for our city so everyone can benefit from higher wages."

The only other council considering a living wage for workers is Auckland.

A Hamilton councillor's proposal was voted down in May.

The Wellington council committee's decision will go to the full council for signoff later this month.

THINGS THEY CAN AGREE ON

Other decisions made by councillors at yesterday's governance, finance and planning committee:

Agreed to a development contributions policy that will reduce development charges by up to 25 per cent, with 50 per cent off for environmentally friendly new builds.

The decision will be included in the draft Annual Plan when it goes out for consultation early next year.

Adopted a rates remission policy to help owners of earthquake-prone buildings to carry out strengthening work, and freeze rates on buildings that have completed work.

The decision will be included in the draft Annual Plan when it goes out for consultation early next year.

Agreed to bring council-controlled companies Wellington Waterfront and the Cable Car Company back in-house.

They also agreed to merge Positively Wellington Tourism and Positively Wellington Venues into one entity.

That decision will now go to a full council meeting later this month for final sign-off.

Debate on the draft Annual Plan resumes today.

HOW THEY VOTED

For: Celia Wade-Brown, Ray Ahipene-Mercer, Paul Eagle, Sarah Free, David Lee, Justin Lester, Iona Pannett, Mark Peck, Helene Ritchie



Against: Jo Coughlan, Simon Marsh, Malcolm Sparrow, Simon Woolf, Nicola Young



Absent: Andy Foster