More of this living wage shit

David Miliband has joined forces with his party leader brother Ed behind Labour plans to deliver a \”living wage\” of well over £7.20 an hour – rising to more than £8.30 in London – for millions of workers in both the public and the private sectors.

The Miliband brothers, whose relationship has been tense since Ed narrowly defeated David in the 2010 leadership contest, are working closely together on how to make the living wage – as opposed to the lower minimum wage – the new norm and a core economic policy for Labour at the next election.

I\’m not averse to the working poor getting more money. Far from it, I think it\’s an excellent idea. However, two thoughts do occur:

Labour believes that, rather than imposing the living wage in both the private and public sector, employers should be encouraged to adopt the policy voluntarily after seeing the economic and employment benefits.

There\’s a certain logical problem here. Why do you have to bribe, cajole, force, persuade, people to undertake a course of action that is to their benefit? If it is to their benefit then they would already be doing it, no? Or if they\’re too stupid to know that it is then just explaining it will prompt them to do so.

All this construction of a grand plan for rolling the living wage out rather shows that the benefits are not obvious. If indeed there are any. Precisely because you need a grand plan rather than everyone doing it because it benefits them.

The second point is that:

a \”living wage\” of well over £7.20 an hour – rising to more than £8.30 in London – for millions of workers in both the public and the private sectors.

current minimum wage is £6.19 for people aged 21 and over and £4.98 for those aged to 18 to 20.

The difference between that £6.10 and the £7.20 is almost entirely the amount of tax and NI that is taken off the working poor. The £7.20 is a pre tax and NI number. If we wanted people to have the same amount of money in their pocket as that wage rate then we could do it by having that minimum wage of £6.19 which is not taxed and which does not pay NI. The numbers really are the same, to within a few pennies per hour.

That is, it\’s entirely within the government\’s power to create an effective living wage. Simply raise the tax and NI limits to some £12,000 a year. Indeed, make it part of the law. The personal allowance will be the full time full year minimum wage. Move one you\’ve got to move the other. Raise the minimum wage, you\’ve got to raise the personal allowance. Some idiot Chancellor wants to tax the poor more heavily? Lower the minimum wage. Make this a stark choice that has to be faced.

Now, are the Milipedes proposing anything like this? Nope, they\’re not. Thus they\’re not actually being serious either.

If you want to improve the incomes of the working poor the obvious answer is to stop taxing them so damn much.

12 comments on “More of this living wage shit

  1. Why do you have to bribe, cajole, force, persuade, people to undertake a course of action that is to their benefit? If it is to their benefit then they would already be doing it, no?

    It gets better than this Tim. The current thinking by local authorities is to lead by example; that is to say that a number of them plan to pay at least a living wage to all employees and eventually only do business with companies that do the same. The obvious flaw here is that it is the council tax payer who is going to get hit for the bill.

    If I can give you a real life example, Bristol City Council recently paid a one off “bonus” to bring staff up to the living wage. This cost around £1M. Now the Labour mayoral candidate who is the favourite to win has promised to bring this in permanently. He’s also promised to freeze council tax but there is a problem – on top of £10M worth of cuts already planned, a £15M black hole appeared and this is based on a 2.5% increase in council tax. When the council is cutting services and jobs, it seems a particularly bad time to start dishing out pay increases to staff, however low their current pay.

  2. Should think it’s fairly obvious why the Millipedes would want to do it their way. Raising the personal allowance is a loss of tax to the treasury. A move to a ‘living wage’ is an increase in taxable income. Although the public sector would have to bear the cost in increased wage bills, that’s more than made up for by the tax take from the private sector. Straight transfer of money from the private to public & very good electoral tactics.

  3. Surely the difference is obvious Tim.

    Raise the personal allowance, the government loses cash – introduce a living wage, employers lose cash.

    I suspect longterm the difference to gov revenues is much less as increasing the min wage reduces growth, ergo less tax take anyway, but I imagine Miliband is too stupid (or at least too dishonest) to admit this…

  4. The other big flaw in this is that without compulsion, employers won’t put up wages leaving just the public sector with a larger wage bill which we have to pay for. There’s no shortage of people who will work for minimum wage either – good news for Latvians and Poles who’ll be able to slum it for a couple of years and send even more money back home.

  5. Tim

    You’re forgetting Polly’s logic, which is that ‘paying taxes involves people in society’, which is obvious nonsense but the PCS and their lapdog your (and humanity’s) nemesis @RichardJMurphy would never stand for such a proposal from a Labour Leader…

  6. They think it’s a “no lose” scenario as all it does is reduce the excess profits channeled to billionaire shareholders in Monaco. They move in circles where employees are millionaires and entrepreneurs are billionaires or multi-millionaires, not those where entrepreneurs drive second-hand Rovers.
    Last week, the BBC’s Economics Editor commended the Resolution Foundation’s report which, inter alia, claimed academic backing for the idea that the minimum wage had no effect on employment – despite wiping out the British Textile industry. The so-called “living wage” will do that to more industries.

  7. And when industry doesn’t voluntarily implement this higher wage, labour can claim its rich people trying to keep money from employees.
    Its a pretty decent PR idea, pretty good campaign idea too. And won’t cost Labour much to implement as its others who will pay.
    While at the same time making bosses look bad in the media.

    Whether its the right idea to use at this time is perhaps a different matter. There is some support for this government despite cuts or lack of cuts.
    I daresay a few employers telling their staff it can be implemented only if the total wage bill stays the same and asking for volunteers to leave the company while everyone else takes on the work may cause some people to take a hard look at the potential cost….

    Hey, any economists out there able to say what it would do to inflation?

  8. Hey, any economists out there able to say what it would do to inflation?

    I wondered about that. When the low-paid in Nigeria get a mandated across-the-board pay rise, prices of the stuff they buy increase correspondingly.

  9. Oh thats all right then, not as if there are any people on fixed incomes in the UK to get annoyed if prices increase.

  10. “Hey, any economists out there able to say what it would do to inflation?”

    Inflation is the reason the minimum wage can never be a living wage by the JRF definition.

  11. Pingback: Misanthrope Girl » Blog Archive » National Minimum Wage v’s Living Wage

  12. How can it be ok for companies NOT to pay a ‘living’, or minimum wage, and have their business subsidised by the taxpayer in the form of working tax credit etc .. ?
    I would have thought that for a business to be classed as viable/profitable, it should first not be reliant upon state assistance..

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