Tag Archives: national minimum wage

Why Zoe Williams’ tale of Tesco subsidies only tells half the story

Zoe Williams makes a good point in the Guardian when she questions why the taxpayer effectively subsidises companies like Tesco by paying out tax credits which would be unnecessary if they paid decent wages, whilst executives reward themselves massive bonuses from the profits they make as a consequence. There is clearly something wrong here.

But she only tells half of the story.

Yes, allowing highly “profitable” companies pay low wages is a scandal, but so is artificially increasing those wages by imposing income taxes on low incomes. This is effectively a dead weight cost on labour; neither the employer or employee benefits from it. It artificially raises the minimum wage which, in turn, strengthens the hand of those who would have you believe that the national minimum wage is an unacceptable burden on employers. And it undermines Zoe’s argument; that subsidy she alleges is at least in part coming out of the very low wages she is so critical of.

For this reason, it is absolutely crucial that personal allowance is raised to ensure that, eventually, no one on a living wage should be paying income tax. The coalition government has already made a start on this, and should be encouraged to move as swiftly as possible.

It would be nice to think that such a policy measure would be entirely uncontroversial; sadly it is not. In 2010, Left Foot Forward teamed up with the Fabian Society to produce a series of articles designed to prove that such a policy was one of the least fair and most regressive policies ever devised. On the narrow point about higher income earners gaining more from the policy than lower income earners, they had a point – although their manufactured outrage rings hollow in light of the new Labour orthodoxy about sticking up for the “squeezed middle”. In any case, this could e easily solved merely by lowering the higher tax rate bracket by the same amount as the personal allowance increase, which is indeed what George Osborne has done.

But it represents a wider failure of imagination on the part of Labour thinkers; that is to restrict their definition of fairness to purely one of income distribution. I strongly agree this is an important factor, but it would be a profound mistake to make this the only fairness test in public policy. Any tax policy which has the effect of making it more affordable for employers to pay people a decent wage should be championed; the public purse should indeed be used as a safety net, but it is simply madness to create a system such as the one built by Gordon Brown in which money unduly paid out on low incomes is recycled to top up the pay of people on low incomes. This is Alice in Wonderland economics – and that is even before you consider the billions in unclaimed benefits that this shockingly complex system effectively deprives people of each year. Surely even the most staunch statist cannot rationally argue against the inland revenue butting out at this point?

In short, we have a right to expect corporations like Tesco to pay decent wages to their employees – but Tesco have a right to expect the state not to have policies in place which actively discourage them from doing so. Both the government and corporate sector need to take action here, while Labour needs to decide which side they are really on.

The 10p rate “compromise” stinks to me

Since I’ve been blogging light in recent weeks, I’ve not commented on the ongoing mess that Labour have got themselves into over the scrapping of the 10p rate of income tax. There isn’t much I can add that hasn’t been said a thousand times before. It is of course ludicrous that the Labour backbenchers have suddenly woken from their slumber on this issue, a year after we warned them what the implications of this reform would be. That the BBC have given the rebels such an easy ride for their johnny-come-lately rebellion is just par for the course.

But they do appear to have been bought off remarkably easily. The main measures for helping those hurt by scrapping the 10p rate seem like a total crock.

Let’s start with the retrospective raising of the winter fuel allowance. This is going to apply to all pensioners between 60 and 64, including my partner’s mother who is already roughly £50 a week month* better off due to her enjoying the full impact of cutting the basic rate from 22p to 20p. This is just throwing money around at random in the hope that some of it will stick.

And then there is the pledge to raise the national minimum wage for younger workers. First of all, this will only help those earning the absolute minimum wage for 18-21s. Someone working full time on the London “living wage” (£7.20 an hour) will still be whacked by the tax rise and yet only earns £13,000 a year. Secondly, it should be pointed out that any such an increase will mean that at least some of the cost of raising the winter fuel allowance is going to be paid out of increased tax revenue generated from young earners. The very lowest earners are going to be subsidising a benefits rise that will help many of the wealthiest (and yes, I do accept that the winter fuel allowance helps poor people as well, but still).

I’m all for raising the NMW for young people so it is comparable to the NMW for older workers, but this rise is happening for all the wrong reasons: getting the government out of a fix rather than doing what is right in the first place.

Surely it is unacceptable to have people on minimum wage paying income tax anyway? It is just a deadweight cost to the economy. The government should be working to narrow the gap between personal allowance and the NMW, not widen it. What possible economic reason is there to make employment even more expensive and wages even more inflationary?

But my greatest fear is that if the Labour rebels really are so easily bought off, they will capitulate over 42 days quite easily as well. They really are a useless shower. Give them a totemic act of class warfare like fox hunting to get self-righteous about and they will push the government to the limit. But helping poor people? Defending civil liberties and the rule of law? What is the bloody point of them?

* Oops! Good job I corrected that before anyone else spotted it.