Rampant idiocy about the living wage again

Yet another loon over at Liberal Conspiracy.

My response to him:

\”A single rate for the rest of the country is currently £7.20 per hour. The National Minimum Wage is £5.93 per hour (rising to £6.08 in October).\”

As I never tire of pointing out, the difference between that living wage and the minimum wage is entirely the tax and national insurance that is charged to the poor.

£7.20 an hour, 37.5 hours a week, 52 weeks in the year. £14,040.

Personal allowance, £7475. Thus you pay 20% income tax on 6565, or £1,313.

Lower earnings limit for (employees) NI is £97 a week. x 52 is 5044. So, on 14,040 minus 5044, or 8996, you pay 11%. £989.

So, your post tax income from your full time work on the living wage is £11,738.

Divide by 52 and 37.5 to give us your hourly post tax rate.


So, raise the personal allowance and NI limit to full time full year minimum wage and, hey presto, everyone who works full time is now on the living wage.

There, wasn\’t that simple? It always surprises me that the living wage campaigners don\’t argue for this more forcefully……

Another way of putting it: the best way to help the working poor is to stop taxing them so bloody much.

19 thoughts on “Rampant idiocy about the living wage again”

  1. The Pedant-General

    I know it’s not in the headline numbers, but it’s still a tax on the employment.

  2. Employee NI is 12% now, which is almost another 5p/hour, which takes the hourly rate needed down to £5.97 – just 4p/hour above the current minimum wage.

  3. Agree with your prescription in principle – raising the income tax and NI thresholds (preferably in a way that aligns the two systems prior to eventual merger) is an effective way to help the low-paid – certainly much better than substantially raising the cost of employment as proponents of the ‘living wage’ advocate.

    However you don’t need to be a fiscal hawk to see that the revenue cost to the Exchequer of raising both these thresholds to £14K (more than doubling them on average) would be massive – maybe £40bn per year if done straight away at today’s values.

    In the longer run we’d expect a positive effect on work incentives and labour supply to boost revenues and offset some of the up-front cost, but in all likelihood this would only affect a minority of those benefiting from the tax change; for the rest already in full-time employment it would be a windfall gain with no major behavioural effects.

    Nothing wrong with that, but it has to be paid for. I’m not sure Britain’s current fiscal position is so rosy that the markets would be prepared to take a leap of faith on the revenues materialising quickly enough.

    And no, cutting means-tested benefits would not go far in making up the difference, since the reason raising income tax and NI allowances is so ‘costly’ in revenue terms is that the benefits are spread across such a large group of people.

    You could of course cut other spending, but given the wreckage of our public finances most savings will probably have to go into deficit reduction for the foreseeable future.

  4. All citizens should pay tax – if you earn anything you should contribute.

    Rates and thresholds should indeed minimise the tax burden of the poorly paid, but all citizens should pay some.

    And another thing, there’s nothing like seeing the deduction on your payslip for making you feel that you have stake. Payslips and the financial independence they bespeak are an important of part of growing up, so too the numbers in the deductions column.

  5. johnny bonk: bollocks

    You love the political/bureaucratic scum so much you can pay my “share” as well.

    I am no citizen of anywhere. The state has a lot of monkey-suited (and plain-clothes) thugs. That is all they have. They have NO “moral” authority whatsoever.

  6. @JohnnyBonk: everyone, even the poorest person pays ‘some’ tax – every time they put petrol in their car, buy a pint, buy fags (if they dont buy hooky ones of course!), buy anything with VAT on it. Thats enough of a tax contribution IMO, without taking some tax off their take home pay as well.

  7. Johnny Bonk seems to have described the principle of the community charge – every adult should contribute to the upkeep of the local community.

    Can we assume he will be campaigning for it to be reintroduced? After all, there’s nothing like knowing that you’ve paid into the salary pot for all those diversity co-ordinators and expensive layers of management.

  8. Mr Ecks, well yes, they are scum and should be shot, but they’ve got bailiffs and police and we haven’t.

    “I am no citizen of anywhere.” … I permit you time to withdraw that when you realise how silly it sounds.

    Jim – yes, we’re taxed through our teeth in every direction, much lower tax rates would be good, but yes even the lowest earners should pay something – perhaps there should be more direct taxation so that citizens can easily how much they contribute.

  9. Dick, what on Earth gave you the impression that I am in favour of high tax rates or localism?

    I merely made the fairly trivial point that all citizens should pay tax and then pointed out that seeing tax deductions paid in one’s payslip is a growing up experience.

    I didn’t say anything about tax rates, though if you care to search through this blog you will find that I don’t like tax and I don’t like government and I don’t like lefties and I don’t like greenies.

    But, we are all citizens, it is a right, honour and duty to pay tax, all citizens should do so.

  10. “Nothing wrong with that, but it has to be paid for.”

    I reject the idea utterly that a tax cut has to be “paid for”. That betrays an ideology where all money is the state’s and the state merely decides who shall have some.

    You wouldn’t say that escaping a mugging had to be “paid for” by more mugging elsewhere?

    Rather than assume as a given a certain level of spending, we should ask the question whether we would rather have the state do the things it currently does. Instead of “paying for” the reduction in tax on the poor by a tax rise on others, perhaps we could take the radical approach of not spunking billions up the wall on political projects – and ask the people who pay the tax to make the clear choice between the two approaches.

  11. “But, we are all citizens, it is a right, honour and duty to pay tax, all citizens should do so.”

    Says you. But *I* think that it is a right and duty to avoid paying tax – to denude the means by which politicians make mischief.

  12. “All citizens should pay tax-if you earn anything you should contribute” and then “But, we are all citizens, it is a right, honour and duty to pay tax, all citizens should do so”

    This is that ‘social contract’ that people keep banging on about is it? Where in said contract does it say that when the state takes too much money we shall give it back in the form of tax credits? It seems that if folks are earning, yet so hard up that the government has to give back tax money taken from them, all you’re doing is wasting part of that pound you have to give back. Someone is employed after all to make that decision, on over the minimum wage no less.

    A small business like mine that’s been struggling since the credit crunch would loose three staff overnight if required to increase wages by upwards of two pounds an hour. Take those folks out of the tax system entirely and everybody wins.

    And you can’t tell me that low paid employees won’t spend their hard earned cash on extra ‘stuff’, whatever it may be.

  13. johnny bonk thinks that all citizens, even those who have no income should still pay tax so he presumably is in favour of those with no income stealing in order to get the money to pay the tax?
    I disagree – taxation should be related to the ability to pay and should not exceed disposable income otherwise you get the maximum of hissing with the minimum of feathers.
    Since an extra £10 matters more to someone just scraping by than an extra £100 does to a wealthy man, it makes sense to have progressive taxation but to avoid setting the maximum rates at level that will actively deter people from working or encourage them to spend ridiculous sums on tax advice.
    No-one can put up an intelligent argument against any of the above.
    However the next bit is going to be unpopular – we all (the readers of Tim’s blog) will have to cough up more because Brown has dumped this country (and Soares has dumped Portugal) in a deep hole where he spent 14% of GDP that he did not collect and all the bank bonuses in history won’t fill that gap nor will taxing the rich at 60% (as Geoffrey Howe did so successfully) make up very much of the difference. After 13 years of New Labour the poor are poorer and most of them cannot pay more (while the richest 1% or 5% are a lot richer) so the middle (No, little Ed, that does not include your barrister girlfriend who is losing her Child Benefit as a higher rate taxpayer but it does include me) *will* get squeezed.
    Taking those earning less than £10k out of the tax net will cost a few tens or hundreds of £million but if it means that they are better off in work than on benefit it will save more than it costs (and reduce social problems by reducing the demand for cheap immigrant labour).

  14. @John77 – “have no income should still pay tax so” .. sorry, I thought it clearly implicit that only earnings are taxed – I should be more careful.

    @KayTie – “duty to avoid paying tax – to denude the means by which politicians” – libertarian anarchism – explain your ideas to the bailiffs and they might go away.

    @Steve – you are talking about the level of taxation, of which I said nothing. Bringing the lowest paid into the tax range might add 60p per hours to your costs, but the company and workforce get that back in less indirect tax.

  15. “Taking those earning less than” – removing people from tax takes from them the pride and honour of being a contributor. Low paid people suffer a high tax incidence due to indirect tax, so not only does the government take too much from them, but they don’t get to perceive how much they are contributing.

    Nobody likes paying tax, but we all do, and it should be clear what we are paying, so we can feel like we have stake and perhaps feels a bit smug that we are an important part of the whole.

  16. “But, we are all citizens, it is a right, honour and duty to pay tax, all citizens should do so.”

    It may be a right, but it is no honour. And I also see it as my duty to (legally) pay as little tax as possible. After all, according to the Friedman theory of spending, it is most efficient when I spend my own money on myself – and least efficient when someone else (ie cretinous politicos) spend other people’s money on other people.

  17. Johnny: “All citizens should pay tax – if you earn anything you should contribute.”
    State employees don’t contribute a single penny to the states coffers, should we remove their citizenship then?
    I have a legal obligation to pay tax, it’s not a right or an honour, and I begrudge every penny I’m forced to hand over.

  18. Kay Tie: ‘I reject the idea utterly that a tax cut has to be “paid for”. That betrays an ideology where all money is the state’s and the state merely decides who shall have some.’

    The proposition that all money belongs to the state is absolutely NOT my perspective.

    The question of the appropriate size of the state (eg public spending as a proportion of GDP) is quite separate from the question of whether it is financed honestly and soundly.

    It follows that tax cuts have to be “paid for” in some sense. I did not say they necessarily require tax rises elsewhere; of course you could cut spending instead, as I acknowledged and as I would generally favour.

    However, when you have a deficit of 10% of GDP and debt rising unsustainably, it seems to me that spending reductions should go towards sorting out the public finances.

    It is perfectly possible to believe that tax cuts are (a) desirable, but (b) don’t magically pay for themselves in fiscal terms, especially a tax cut of this nature which does not affect marginal rates for most of the working population.

    All I am saying is that if you are a Chancellor considering tax or spending changes you have to consider the revenue implications of your proposals. I was careful to talk about the “revenue cost” of raising allowances – which I was hoping was a sufficiently neutral term, ideologically speaking. I emphatically do not mean that a tax cut is a ‘cost’ in a philosophical sense.

    To pretend that the revenue implications of tax proposals simply don’t matter is an absurd fantasy that would lead this country to bankruptcy as surely as Gordon Brown’s profligate spending was doing.

    I used the term ‘paid for’ simply as a shorthand for what seems to almost every economist and policy-maker – including the most ardent believers in dynamic supply-side tax models – a self-evident truth.

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