Cut to the chase Ed – and raise the minimum wage to the living wage

November 4, 2013 10:26 am

Ed Miliband’s plan – announced this weekend – to try and “Make Work Pay” by incentivising businesses to pay the Living Wage is one that should be welcomed. Anything that has the potential to pull people away from poverty wages and help them receive a wage upon which they can have a decent standard of living should be pursued and encouraged. But if I’m completely honest, something about the plan leaves me cold – mostly because it’s not bold enough. As I wrote last year:

“If we accept that the National Minimum Wage still leaves people living in abject poverty – and it does – then why are we willing to accept that as a legal wage floor? If the Living Wage is the level at which people can be reasonably expected to live and support themselves, why don’t we demand that the NMW is set at that level? To do otherwise is to tacitly accept that some will still be employed on poverty wages. I find that difficult to stomach.”

The National Minimum Wage is the lowest amount that we as a society think is acceptable to pay people. But the Living Wage is widely accepted to be the lowest amount that someone can actually live on. That makes a mockery of the Minimum Wage – and all of those trapped in the grey area between the legal minimum and the reality of the cost of living. You want to see a crisis in the cost of living, those driven to payday lenders and food banks? Many of them are paid the minimum wage – a wage that we accept you can’t live on – in the world’s sixth largest economy.

That’s completely and utterly grotesque and – no matter how proud we all are in the labour movement that the minimum wage exists – not a single day goes by that we shouldn’t be disgusted with ourselves for that.

So what Ed Miliband should do – rather than trying to coax employers into slowly but surely adopting the Living Wage (which by his own thesis, some businesses – the predators – may never do) he should cut to the chase and raise the minimum wage to the Living Wage, thus ensuring that no-one in our society is paid a wage on which it is impossible to life. It could even be introduced over a five-year period as Andrew Lewin has suggested. 60% of the public – including 44% of Tory voters – say that they would back a far higher minimum wage even if it caused job losses.

Ah – but there’s the catch isn’t it? No government wants to advocate any hard and fast policy that could hike up unemployment at a time when the economy is only just beginning to heal (and even then, only really for those at the top). The Tory Party spent years scaremongering about the Minimum Wage doing just that, and many are already beginning to make the same arguments against fair pay today.

Except a report published this morning suggests that the overall result of having a statutory Living Wage could be to increase the number of jobs in the economy. Landman Economics – an organisation quoted on the Labour Party’s own press release to justify Miliband’s Make Work Pay plan yesterday – have released a report this morning that states:

“it is unlikely that the extension of the living wage to all UK employees would result in any substantial aggregate employment losses. In fact, it is quite plausible that adopting the living wage on a statutory basis could actually increase overall employment in the UK.”

Howard Reed – formerly of the IFS and IPPR – who wrote the report also argues:

“A statutory living wage would therefore result in an economic ‘win-win’ on a number of levels. It would boost demand and economic growth, reduce earnings inequality, increase the share of wages in national income, and reduce the extent to which the benefit and tax credit system has to prop up low wages to reduce in-work poverty. By insisting on a voluntary approach to extending coverage, current proponents of a living wage are being unnecessarily cautious.”

Cautious is right. Too cautious by far. And whilst some may argue that people organising and working together to obtain the Living Wage from their employers is empowering – and no doubt it is – that’s a luxury that few on minimum wage jobs can afford as they struggle to keep food on the table and put money on the card for the electricity meter. They need the money in their pockets now before the lights go out.

Miliband is moving in the right direction on low pay – and his long-term plan to reset not just the energy markets – but the economy as a whole – would gradually see Britain moving away from being a low wage economy (as opposed to Cameron, who relishes a low wage war with India and China). But if he wants to deal with poverty pay in the most effective way possible, he should announce that a priority for a new Labour government would be abolishing poverty pay, by making the minimum wage the minimum it’s possible to live on, not the minimum we’re willing to pay.

  • Mario Dunn

    A sure fire gift to the Tories and a likely election loser. Labour would be cast as totally irresponsible, mainlining more debt, the enemy of business and happy to increase unemployment.

    If there was ever a policy that David Cameron would pray Labour adopted – this is it.

    Let us know when you have returned from outer space so we can update you on what is happening on this planet.

    As I always think when I read this kind of stuff – “thank goodness the author is not allowed near any important buttons”

  • Hamish Dewar

    Well said, Mark. But the emphasis needs also to be on weekly wages not just rate per hour.

  • JoeDM

    Just raise the tax threshold so that all those on minimum wage are taken out of income tax and we will all be better off.

    • charles.ward

      And as Tim Worstall points out this would effectively increase the minimum wage to the living wage.

      • trotters1957

        Raising tax thresholds helps 40% taxpayers more than the poor.

        • JoeDM

          And what is wrong with that ?

          • trotters1957

            This policy is designed to increase the take home pay of the poor not Wayne Rooney.

          • JoeDM

            40% tax now hits many more people in jobs that are not considered high paid – teachers for example (my wife, a teacher for 25 years has now been pushed above the 40% threshold)

          • trotters1957

            I’ll repeat it because you don’t seem to understand. This policy is designed to increase the take home pay of the poor not Wayne Rooney.

          • trotters1957

            Guess who said this “He backed the living wage because it was “pure economic common sense”, adding: “I don’t think it will succeed if it is compulsory – but this is growing every year. It is the right thing for our city and our people.”

          • PaulHalsall

            She she is paying for the investment in her degree and training at a time when she can afford it. What is wrong with that?

          • trotters1957

            I’ll tell you since you haven’t answered, it is that well known Marxist rabble rouser, the Mayor of London.

          • trotters1957

            People like me, a hard working business man, paying to keep feckless state employees in gold plated pensions.

          • Brumanuensis

            The 40% rate comes in at around £32,000. At that sort of money, you’re only fractionally below being in the 7th income decile – using original income figures from the ONS for 2011/12. And that figure is an average, which means it’s skewed up by higher figures in the 9-10th deciles. In other words, you’re hardly an average earner if you’re paying the 40% rate.

          • Brumanuensis

            Ah, so you are a redistributionist Joe? Welcome aboard.

        • charles.ward

          You could always adjust the 40% and 45% thresholds to compensate.

          • trotters1957

            You could but the taxpayer ends up picking up the tab for poor pay through tax credits and housing benefit.

          • ColinAdkins

            Sorry to digress but I think the 40%/45% thresholds is an interesting area of policy. At the time the Coalition was reducing the 50% rate they took more people into the 40% rate by reducing the threshold. However, the parties are in to a restricted debate about increasing the tax threshold for everyone -v-the return of the 50%. I think Labour should hoist the Coalition by its own petard by not seeking a return to 50% but by reducing the threshold at which 45% was paid and ploughing that back on a tax neutral basis to increasing the point at which 40% is paid (I declare an interest I pay 40% on a very small part of my salary). Call it bribery if you like but this is real swing voter territory and we can set the relelatively affluent middle-class against the relatively wealthy in doing so.

          • BillFrancisOConnor

            I disagree. Raising the top rate of tax back up to 50% for those earning more than £150,000 must be enacted by an incoming Labour Government, not least because such a move is pivotal for social cohesion as well as economic justice. After repealing the bedroom tax, and renationalising the Health Service it should be a priority.

          • ColinAdkins

            Bill but why not then 50% at a lower threshold? Indeed my proposal of reducing the point at which 45% is paid may raise more revenue than 50% at 150k.

          • BillFrancisOConnor

            No problem with that- £100,000k? I am against reducing the threshold at which people start paying 40%- £32k pa is not a fortune in today’s world.
            I am no Leninist but this mob have proven beyond doubt that he was completely right when he said: ‘The capitalist class will bail itself out of any crisis providing it is the workers who pay for it’.

          • ColinAdkins

            Bill we are not communicating very well. I am in favour of increasing the threshold where 40% is paid. Read my original posting.

          • Brumanuensis

            Yes, but even when adjustments are made the effect is still disproportionately beneficial to higher-income households.

        • Steve Stubbs

          A look at the last five years shows this is not the case, as the starting points for higher rate tax has been bought down each time to more than discount the theoretical tax reduction, so that more and more people pay higher tax now and do not benefit from the basic threshold rise

      • Brumanuensis

        Worstall’s analysis is a classic example of seeing the trees and missing the forest. First, he ignores the reality – as I point out above – that low-income workers pay far more in indirect taxes than they do in direct taxes. This makes his harrumphing about ‘tax poverty’ sound a bit hollow. Second, fiddling with the threshold is a highly inefficient way of helping low-income households – and for balance, Labour’s pledge to restore the 10p tax rate suffers from exactly the same flaw. Third, he ignores the fact that public spending on goods and services, as well as income transfers financed out of taxation, are disproportionately beneficial to low-income households. Cutting already progressive forms of taxation not only does very little for the poor, but leads to cuts in public spending, which are invariably regressive in their impact.

        And then there is the political problem, illustrated in last year’s US election, that if you take large numbers of people out of income tax, the remaining payees become resentful and hostile which poisons the political well and leads to more punitive rhetoric against the poor (cf universalism in the benefits system).

        • Graham Duke

          So – I think you’re saying that someone on minimum wage is better off paying more income tax on their income than less?

          • Brumanuensis

            No, I’m saying that focusing on reducing direct taxes does little to help low-income households and in the long-run may prove harmful if it undermines the fiscal sustainability of other public services and spending areas. The average household tax rate has changed very little in the past 35 years, but the balance between direct and indirect taxes has shifted significantly ( http://www.jrf.org.uk/sites/files/jrf/comparing-taxes-benefits-summary.pdf ).

          • Graham Duke

            But – you are saying that ‘in the long run etc’ they are better paying more income tax than less, as other things will make their position worse? Surely that only applies if you have control over all expenditure and income items?

          • Brumanuensis

            No, you’re overreading my comment. My point is that reducing taxation on lower-income households is not necessarily beneficial to them if a consequence is deteriorating provision of public goods. If a 10% cut in income tax necessitates a 10% cut in services that overwhelmingly benefits lower-income groups, then the benefit of the tax cut is minimal. And to restate my point, if you want to use the tax system to redistribute resources to lower-income households, focusing on direct taxes is an odd priority.

            Most redistribution though comes from transfers, not taxes. As Lane Kenworthy pointed out a while back, the most egalitarian countries in terms of the Gini coefficient often have quite regressive tax systems ( http://lanekenworthy.net/2008/02/10/taxes-and-inequality-lessons-from-abroad/ ). The OECD make the same point in this paper ( http://www.oecd.org/eco/public-finance/49417295.pdf ) – note p.8 on varieties of taxation. This is also true of many other European countries – with some interesting caveats ( http://www.economist.com/blogs/democracyinamerica/2011/12/inequality-and-taxes ).

            I’m not making an argument in favour of regressive taxes, but I am making the point that it is spending that does most of the heavy work in reducing inequality and poverty. Fiddling around with tax rates is comparatively inefficient. Progressive taxes are a good insofar as they ensure the cost of public services is met by those with the greatest means, but we shouldn’t overstate the importance of tax rates in assisting the very poor, especially when the type of tax doesn’t fall predominantly on them.

    • Brumanuensis

      That presumes they’re earning enough in the first place, which is far from given. Most of the lowest-income households were already exempt from income tax, even before the government started increasing the threshold. Changes in direct taxes are fairly incidental anyway, because lower-income households pay a much greater share of their income in indirect taxes, not direct ones.

  • ColinAdkins

    Whilst I agree in principle why do we have to incentivise companies to do what they should be doing and surely the incentives will also go to those who already do this?

  • David Battley

    While the principle is laudable, the concept doesn’t quite match up with pragmatic reality: as I understand the living wage is designed to consider the costs of living and raising a family, including paying for reasonable costs like days out with children: all very fair, and I support the principle.

    However, we must recognise too that not all people have these circumstances and so to apply a living wage to all is neither a fair test for business, nor allowing an opportunity for those who do not have the same financial obligations to offer their skills at a more competitive rate (which is a consideration, albeit one we may not want to encourage admittedly, at every interview I’ve ever participated in). It may also have adverse consequences for small businesses who want to take on young, inexperienced workers: forcing a small business to pay a higher salary will either reduce the number of such jobs available, or increase their risk aversion towards such potential workers (if you had two workers: one with experience and one without, and no differential in salary due to this change which would you choose?), with catastrophic consequences.

    Finally, the concept of a living wage is, to me, slightly circular: if everyone currently on minimum wage was paid a living wage, surely the cost of living would rise (farming salaries, supermarket wages, mechanic fees etc. all rising) and create a circumstance where such a living wage is still not enough, but meanwhile decreasing our global competitiveness and sounding the death knell for any export-led industry? Decreasing executive salary might slightly alleviate this, but not by much: the pyramidal nature of our society means that many more people are affected by these changes at the base than tinkering at the top. This is why the average wage in the uk is always so close to the minimum wage…

    I appreciate this is all very “neo-liberal” economics: but this is the reality of the world we live in – and short of closing our borders (does anyone really want that?!?) I can’t see anyway this problem can be avoided, except through continuous generational upskilling through education – which is no short term fix – and even then you will always need a certain proportion of unskilled labour.

    • Danny

      I don’t want to repeat a debate we had a couple of weeks back, but it is far from a given that the cost of living and inflation would rise as a consequence of an increase in the minimum wage.

    • BillFrancisOConnor

      ‘forcing a small business to pay a higher salary will either reduce the number of such jobs available, or increase their risk aversion towards such potential workers’

      This argument was used by opponents of the introduction of the minimum wage…….it turned out to be a load of old pony.

    • AdamN

      Agreed. Absolutely the idea that Mark outlines is a laudable one, but to implement a living wage across the board takes away the ability of employees to make themselves more desirable in the job market.

      Where the Labour policy is sensible is that by not making the scheme compulsory it defuses the arguments the Right would make, about leading to increased unemployment, playing fast and loose with a tentative economic recovery. In addition it puts the pressure back on the companies, in particular the bigger ones whose ‘corporate social responsibility’ mandates are important to their brands.

  • Steve Stubbs

    Do both. Minimum wage up to living wage (regionally adjusted), combine tax and NI into one and set payment threshold to minimum wage (regionally adjusted), using local income taxes instead of national figures that apply from Mayfair to Unst in the Shetlands, regardless of ability to pay.

    • JoeDM

      Why should the retired pay NI ? Remember that many people on pensions pay income tax – particularly if they worked all their career in the Public Sector and have ended up with a gold-plated final salary scheme.

      • Steve Stubbs

        You could argue that anyone who has already paid their 30 years contributions and is still working should also not pay NI. But NI is not only pensions. It is the great Ponzie scheme that funds theoretically the welfare state.

        • Steve Stubbs

          And for what it is worth, I am both retired and pay income tax.

          • BillFrancisOConnor

            Yeah – you’re also a raging Tory.

          • Steve Stubbs

            Well I guess as the Tories think I am a Socialist, and you seem to think I am a Tory, maybe I am getting things just right. But just to tug on your rope a bit, I am also an immigrant (India). But thank you for the gratuitous insult. Havn’t had one for at least a week.

    • Hamish Dewar

      Why regionally adjusted? It is more expensive to live in London because of all the attractions there. Flat rate would help even things out.

      • Steve Stubbs

        Try telling Bob Crow and the Civil Service unions that London Weighting should be scrapped in the interests of evening things out…..

  • treborc1

    Ed Miliband’s plans to encourage businesses to pay the living wage will
    “not significantly” tackle lower pay, members of his party warned him
    today.

    Labour’s economy spokesperson on the London Assembly said voluntary
    schemes would take hundreds of years to work and urged Miliband to make
    the living wage compulsory instead.

    “Voluntary measures alone may not significantly improve the number of
    people earning a living wage,” Labour assembly member Fiona Twycross
    said.

    “At the current rate of progress it will take 450 years for all workers to be paid a living wage in London,” she added.

    If Labour people can see the cheap shot of trying to make out the living wage is going to make us all better off then why not move the min wage up.

    Promise a lot give the people nothing.

    • Jon Burke

      Because the minimum wage is calculated using a different method.

      By definition, the minimum wage provides enough to cover the cost of subsistence. If you uprate to cover additional costs, such a leisure activities, as the Living Wage does, it would no longer be a *minimum* wage; it’d be a Living Wage.

  • Dan

    Excellent article. I wish these people would get out of their New Labour mindset, which says they need to water down their policies to within an inch of their life (or “triangulate” or “nuance”, which are basically just synonyms for muddying the waters); not only is that ethically bad, it’s also terrible strategy.

    The reason the energy prize freeze was such a big success is that it was very simple and unequivocal: all prices would be frozen, no matter what (not some BS about “tax breaks for energy companies to incentivise them to freeze their prices”). This on the other hand is just so indecisive and cloudy that noone is going to buy it. Just imagine in the debates: when Ed mentions this policy, Cameron and Clegg will be able to say “well of course we WANT everyone to pay the living wage, but how are you going to MAKE them pay it?” and Miliband will have nothing to say to that. People at home will just think “ah, typical politician, enough caveats so he can wriggle out of it if he gets in”. A total wasted opportunity.

    Saying a living wage would be mandatory might alienate some people, but atleast it would also appeal to some people too, whereas this weak half-heated mess isn’t going to inspire anyone.

  • uglyfatbloke

    Raising tax thresholds will help people on better salaries, but it would help low-wage workers more in practical terms and it’s cheap to administer, Nobody paying 40& should have a beef about it; it’s only 40% of what you get beyond a certain limit and that limit is already much more than most people ever get.

  • Robin Wilde

    Easy does it. I agree, we could be more radical but at least it’s something.

  • Brumanuensis

    If the minimum wage was to be increased in this way, it would have to be done incrementally and over a relatively long period of time. I’m also slightly sceptical of Landman’s conclusions, given that most economic studies show no statistically significant impacts, positive or negative, from the minimum wage on employment levels.

  • jaime taurosangastre candelas

    The Living Wage concept is just basic fairness. The NMW should be set as a Living Wage.

    This is not to me a matter of politics – Governments including Ministers from all 3 parties have had every opportunity in the last decade to put this right. Politicians from all sides support it. Not doing it is – ethically – condemning those who do not currently receive it for their full time labour to some form of slavery. It is just wrong to ask that of our people.

    • Brumanuensis

      I complete agree with your sentiment, Jaime, but the most important question is timing. If potential negative employment impacts are to be avoided, then it will have to be phased in over a longer period of time.

    • Danny

      I can’t believe I’ve just upvoted a post from Jaime.

  • Daniel Speight

    Miliband is moving in the right direction on low pay – and his long-term
    plan to reset not just the energy markets – but the economy as a whole –
    would gradually see Britain moving away from being a low wage economy
    (as opposed to Cameron, who relishes a low wage war with India and
    China).

    Herein lies the problem of the Labour leadership releasing bits of policies without stating what their ‘big idea’ is. The New Labour years have made them so cautious of any hint of ideology that they will not just say we are fighting for a more equal society in Britain.

    The question that Mark poses with a reset of the economy as whole brings with it so many decisions that will need to be made. If we don’t want to compete with the likes of China or Bangladesh on low wages how do we protect our own industries and workers from competition from these countries. Surely what we have seen the last few years should convince us that the mantra of high tech, knowledge based jobs just will not keep all our people in work, let alone on a living wage.

    The whole move towards free trade needs to be looked at again, as does exactly what we want out of the EU and its rush for expansion since the 1980s. Most of the benefits of free trade seem to end up in the pockets of the multinationals. The EU needs to do more representing its own working class rather than these multinationals who pay their taxes in places like Switzerland or the Caymans. Of course we mustn’t turn our backs on third world workers but this can be done better with quotas and rules on employees’ conditions rather than the unregulated free-for-all we have now.

  • Pingback: Living Wage would cut welfare and reduce poverty. What’s not to like? | Ipswich Spy

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  • Ian

    There’s growing support for a “living wage”. It doesn’t go
    nearly far enough. Paying someone only what is needed to sustain life is tantamount
    to slavery.

    It’s wrong to focus on low pay. It’s income distribution
    that is wrong. Firms and the public sector can only afford to pay a few a lot
    by paying a lot very little. If low pay is a problem then so is high pay. The
    former can’t be changed without the latter being changed.

    There’s little point in just appealing to politicians to act
    to raise low pay. The only way to radically change the distribution of income
    is for those at the bottom to stop putting up with it. Over the last few
    decades the lowest paid have fallen behind. I don’t think it’s surprising that
    this has coincided with increased passivity among them. They don’t protest,
    they don’t join trades unions or political parties and they don’t vote in
    elections. They need to do all these things and more. Once in these
    organisations they must lobby for low pay to tackled. There are only 134,000
    members of the Conservative party. If all 5,000,000 people paid less than the
    “living wage” joined then they’d be able to completely take it over.
    The low paid need to make pay an issue that prospective MPs commit to doing
    something about. They represent a massive constituency that punches well below
    its weight. When MPs need to do something radical about low pay to keep their
    seats then that’s what they’ll do. Until then, nothing much will change. Individually,
    the low paid have negligible influence, united their influence could be
    massive.

    The passivity of the low pay can partly be explained by
    resignation. They think there’s nothing that can be done. They think the way
    income is distributed is inevitable, a natural state of affairs even. They need
    to be told that it isn’t. They need to be told that the huge number of them
    gives them enormous electoral power. They outnumber the high paid many times
    over.

    Can the country afford to pay the low paid more? Of course
    it can, if the average remains the same. Would the economy change? Yes, in a
    big way. There’d be a small market for Aston Martins and Jaguars but if the
    lowest paid were paid three times as much there’d be a huge new market there
    for businesses to serve. Yes, I’d like to see the minimum wage trebled. It
    would need to be phased in, perhaps over ten years, to give the economy time to
    adjust.

    I think all that’s needed is to open the eyes of the poor
    and low paid to what’s possible.

  • treborc

    The problem is as you know the min wage was never going to be a national wage sadly it ended up like that.

    Labour sadly made decision which was going to help a million to have a wage which could be classed as helping them a min wage sadly it ended up being taken up by firms as the national wage.

    I myself working in the building trade to protect my wages went self employed as my employer started to change people contracts to pay the lower min wages.

    But the living wage unless it like the min wage and made law will see firms refuse to pay it.

    we will see

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