Cover of MoneyWeek magazine issue no 634

Superhuman profits

5 April 2013 / Issue 634

The rise of the bionic man

PLUS:

  • Where Jim Rogers is investing now
  • Protect your cash by avoiding the banks
  • 'Stay at home' mums get a good deal

Excerpt

Merryn Somerset WebbEDITOR'S LETTER

Merryn Somerset Webb

The cost of false security

A few years ago, we suggested that a good way to cut the benefits bill would be to raise the minimum wage. Why? Because it creates “welfare to workers”: no one can live on the minimum wage in Britain, so the state ends up topping up the incomes of all those being paid it.

The net result is that the taxpayer makes up the wages of Britain’s big companies, and so hugely subsidises their profits. If wages were higher, profits might be lower, but at the same time, thousands of people would be taken out of the benefits system. That’s better for them and, as taxpayers at least, it is better for the rest of us too.

You can see more details on the argument on our blog. The good news is that almost everyone is coming around to agreeing with us (we like it when this happens). When it was suggested earlier this week that the coalition might cut the minimum wage, the protest was universal. Typical was Jeremy Warner writing in The Daily Telegraph.

He notes, as we have, that it is odd to see large firms accumulating as much cash as they are at the moment, even as wages as a proportion of GDP hit a post-war low; that it is “totally absurd” for British taxpayers to subsidise low-paid work via means-tested tax credits; and that the dangers to employment of a rise in wages are “massively overestimated”.

• Read the full editor’s letter here: The cost of false security.