It’s time for a living wage

Exactly four years ago I popped a short blogpost up on our website. In it I ran down some of the things we would do if, like George Osborne, we had just announced that halving the budget deficit was a non-negotiable part of government policy.

We said we would cap all public-sector salaries at £175,000; we would cut all non-means-tested benefits; and we would make our taxes flatter, less complicated and hence less avoidable.

None of that was particularly contrarian at the time. But our final point was: we said we would instantly raise the minimum wage by at least 30%.

The minimum wage has long failed to be a living wage; pretty much everyone on it has to have their income topped up by the taxpayer via the state (tax credits, housing benefit, child benefit, etc). This doesn’t make any sense.

Many of our big firms keep their profits high in large part by paying low wages, something they only get away with because the welfare state picks up the slack. The taxpayer effectively subsidises corporate profits by paying part of everyone’s wage bill. It then watches those profits go to the shareholders and hopes (often in vain, given the levels of corporate tax avoidance) to get some of them back in tax to cover the original cost. It was and is a ridiculous system.

Change it, we said, and we could give the long-term unemployed an incentive to take jobs, increase the country’s consumption (the poor spend more of their income than the rich) and, crucially, cut the benefits bill.

Not all of you agreed with this. It doesn’t make for a free market, you said. What about the firms that can’t afford to pay higher wages? How can we compete with foreign labour if we price ourselves too high?

I didn’t have much patience with any of that. We already can’t compete with foreign labour, and I’m far from convinced that working to have the cheapest labour in the world is a useful ambition for a developed country.

We’ve also long since abandoned the idea that free markets in labour are a good thing – and without entirely dismantling the welfare state, there’s no way back from that.

As for those who can’t afford higher wages? If you operate in a developed country, but can’t afford to pay your workers enough for them to live in a developed country, are you a business? Or a state-subsidised make-work scheme?


Now here’s the good news: it looks like Osborne has been catching up with the idea. According to Rachel Sylvester writing in The Times, not only has the government had analysis done that shows that even a 50p per hour rise would save £1bn a year in welfare, but they might soon announce just such a rise. That’s nice.

But if 50p saves £1bn, why not make it £1 an hour? Or £1.50? Please post your outraged comments below.

  • Realist65

    We live in a divided country with different minimum income levels needed in different areas.
    Yes…have an increased minimum wage for London and maybe some other prosperous parts but to expect employers in struggling service industries in the North & Scotland to find the means to pay increased wages is stupid and merely indicates how divided the country has become and why Scotland might indeed be better off independent.
    Obviously you have never employed people.If a small business cannot afford increased wages it CUTS JOBS!!This does not relieve pressure on the welfare state…doh!!!

  • Machiavellian monkey

    Subsidising wages through the tax system (via the tax payer) is folly, the way forward is to have a system of low taxes & small government, a free market which rewards people for working, some thing similar to Sir John Cowperthwaite’s Hong Kong economic miracle, which embraces the free market & a non interventionist policy, this has worked so well that Hong Kongers earn 1/3 more than us & most don’t pay tax.
    Ironically this was set up under British rule!
    When will our political leaders adopt a similar system?
    Wealth will percolate through all income scales & provide a living wage to all, with out the need for the tax payer to subsidise them.

  • Horse

    Could it be that the non-appearance of the anticipated Bulgarian and Romanian hoards on 1st January this year could be soley because the current low minimum wage is not attractive enough? I fear any increase will only promote more migrant workers to take up the unskilled jobs Brits are reluctant to do. Your thoughts?

  • Frenchy

    It was interesting to hear many of these arguments put (rather limply) to John Cherry of Federation of Small Businesses this morning’s R4 Today Programme #r4today. He said ‘many of our members pay more than the minimum wage, half of them pay at the living or above the living wage’. Presumably this ‘half’ of responsible businesses are not only attempting to pay their own staff properly, but subsidising their zombie competitors through tax.

    It would be interesting to hear what you make of the regionality and sector arguments that he touches on in the interview. Do these in you view have any relevance or are they just excuses for a systematic lowest-common-denominator wage structure in certain sectors and regions?