If you want to increase the incomes of the working poor then stop taxing them so bloody much

Timmy in The Times this morning:

The latest bright-shining idea being pushed by the Brothers Miliband is the “living wage”. Yesterday, the Labour leader said recalcitrant companies would be “named and shamed” into paying £7.45 an hour so that no full-time worker has to live in poverty. While the aim is admirable — who would applaud poverty? — there is a much simpler way of doing this: stop taxing the low paid.
The problem is that the minimum wage is £6.19 an hour, poverty wages by this standard. So companies must be cajoled into paying more, argue the Milibands. But this approach ignores the vile stupidity of the way we tax the working poor. It is perverse that a care worker on the minimum wage pays income tax and national insurance to fund the salaries of diversity officers.
We should go farther. The link between the full-year minimum wage and the personal allowance for tax and NI should be made explicit. Change one and the government of the day must change the other. If the minimum wage is the minimum moral amount that someone’s labour is worth, then that is what they should get, not the amount after Denis MacShane’s European wanderings have been paid for.

Which leaves us with two competing visions of how everyone can be free of poverty pay. The Living Wage Campaign’s vision is to shout at every employer in the country until they give in. The Worstall Way is to increase the incomes of the working poor by stopping taxing them.

All Hail The Worstall Way say I.

15 thoughts on “If you want to increase the incomes of the working poor then stop taxing them so bloody much”

  1. This idea needs to be shouted about as much as possible.

    It makes the low paid self sufficient, which is why the Millibands will not consider it.

  2. Is this not ideologically based though? By that I mean raising the personal allowance would reduce government revenues. Whereas the LW would obviously cost businesses.

    So it’s hardly surprising that under the influence of the likes of In the Black labour and hostility from much of the MSM promulgating the Tory line that Labour spent irresponsibly etc. That Miliband & co would want to implement measures that wouldn’t cost government in order to appear fiscally responsible. LW wouldn’t by and large. Raising personal allowance would, substantially..

  3. KJ

    The cost of LW (if you enforce it) is unemployment, or at least less employment.

    LW hits the unskilled hardest (our current biggest worry) because in today’s climate they may not be worth it.(they do not add value to the amount of their cost).

    If I run a bar, I can’t pay the Spanish minimum wage to a glass collector, table and bog cleaner. But if I am able to pay less it may be worth my while.

    Where I live, the minimum wage in the hospitality industry is high, with long rest periods and longer holidays. Everybody from the town council (heavy rates on outdoor terraces), Health & Safety and the tax authority have a good bite out of the sales.

    Result. Small bars go black economy.

    Tim’s idea can be collection neutral (you adjust tax further up the chain).
    Encourages self-reliance
    Removes benefit (and sense of entitlement)
    Rewards taking work even when the money ain’t great.

  4. Thanks BB for your explanation. But isn’t the whole point of the LW that it is voluntary? Therefore it shouldn’t, theoretically at least, have a significant negative effect on employment.. and could actually boost Treasury coffers due to consequent reductions of in-work benefits/increased income tax revenues.

  5. kj,

    If its voluntary then what is the point? People on low wages should be paid more so the government can take it off them?

    The whole LW thing makes no sense, if they want to up the min. wage why not just chase that instead of rebranding it.

  6. Ah, but you are missing the point Tim.
    If the employers pay more then the money obviously comes from the huge piles of gold that evil capitalists sit on while cackling evilly.
    Whereas if taxes are cut then we are unreasonably and unfairly limiting the power of our infallible, morally impeccable and all-knowing lords and masters in Westminster.

  7. Didn’t Card & Krueger’s findings show that wage floor effects of the increase on employment have been negligible or even positive, or is that just crap?..

    Given New Labour’s almost pathological resistance to increasing income tax rates for the rich (apart from the temporary post-crash 50p rate).. plus their reticence to suggest policy measure that would increases public spending.. isn’t this there only politically feasible option to help low earners?..

  8. Raising the personal allowance to ensure no-one on a living wage paid any income tax or NI would mean lower revenue or £30bn – £50bn, e.g. equivalent to scrapping defence spending.

    Or you get very high marginal rates as you clawback this personal allowance (as has happened with the falling higher rate threshold or as happens at £100,000).

    Either might be more desirable, but I think some of the advocates of raising the personal allowance rather minimise these drawbacks.

  9. But Matthew, we are shuttling the low paid into a money-go-round where they are getting some or all of their tax/NI back in benefits, and in order to do that, keeping an army of civil servants employed in the public sector. It is costing us money to have one squad of ‘crats take money from the low-paid and put it in a shoebox, and another squad of ‘crats to interview claimants and fill forms in, to justify taking that money out of the shoebox and return it to them.

  10. What has that got to do with losing £30bn to £50bn of tax revenue and having to have much higher marginal rates? The admin cost of that (especially the tax side) will be a small fraction of that.

  11. KJ,

    It’s bollocks.

    such that no one working full-time on the minimum wage was required to pay income tax – would cost £24 billion in lost revenue. … And it would be very poorly targeted, with two-thirds of the financial gain going to households in the top half of the income distribution.

    Much as most here would like to see a reduction in the overall tax take and a simplification of the system, most of the sensible proposals for removing (payroll) taxation on the full-time minimum wage are based on making it revenue neutral.

    Pearce is taking the standard politician / wonk route of assuming your desired answer and then working back to arguments for it. I’ll note, however, that his top-end estimate of the loss is significantly less than the bottom end of Matthew’s above.

  12. Surreptitious Evil

    Thanks for your response, that makes sense.

    My leftist instincts told me a LW would be a step in the right direction in terms of increasing incomes of the low paid.. but I was never happy with the voluntary aspect. Raising the personal allowance would ensure that all low paid benefit rather than just those who are lucky enough to be employed by firms that sign up to the LW (I’m not convinced lots will)

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