What would you do if you were the Chancellor and you'd just announced that halving the UK's annual budget deficit was "non-negotiable"? There are a few things I think we'd all get sorted in a hurry. We'd cap all public sector salaries at, say, £175,000. We'd cut all benefits to the middle classes. We'd try and make the tax system flatter and less complicated (how hard can it be?). And we'd ban management consultants.
But then what? Here's an idea. How about we increase the minimum wage by 30% or so, making one hour of basic work worth £7.50 and a year's work on the minimum wage (assuming a 40 hour week andfour weeks paid holiday) worth £15,600, rather than the current £11,856.
It might sound mad at first, but it does make some sense. The current minimum wage is not a living wage. Pretty much everyone on it has to have their income topped up by the state (via tax credits and so on). That means the taxpayer has to subsidise the bottom-of-the-pay-rung employees at our supermarkets and fast-food outlets. And that, in turn, means we are subsidising our supermarkets and fast-food outlets. They keep their profits high, in part, by paying low wages. That's something they can only get away with because the welfare state picks up the slack. The profits then go to their shareholders and the taxpayer gets left to top up the wages.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Doesn't sound quite right does it? So why not make the companies pay living wages, stop the state subsidies and cut the benefits bill in the process? Raising the minimum wage might also finally provide some incentive for the long-term unemployed to get back into work. I wouldn't give up my housing allowance and benefits to take an unsecure job on £5.80 an hour. But I might for £7.50 an hour.
Long-term unemployment is very expensive (think drugs, crime and the social impact of multi-generational workless families) so reducing it can only be good for the deficit (to say nothing of the long-term unemployed).
Finally, it is well documented that the poor spend a higher proportion of their income than the rich. So pretty much everything that we might make, say, a supermarketpay its employees would end up being spent probably in that same supermarket. That's good for the economy too.
The objections to this are obvious. It isn't very free market. Firms forced to pay high wages might go bust. It'll make it hard for us to compete with foreign labour. But I'm not sure any of these arguments are good enough. Our labour market isn't free anyway (it is distorted by our benefits system). Firms that can't afford to pay living wages or that depend on cheap labour probably shouldn't be in business anyway. If you operate in a developed country but can't afford to pay your workers enough to allow them to live in a developed country, are you a proper business or a state-subsidised job creation programme? And we shouldn't be competing globally on the cost of labour in the first place it's far too late for that.
Right now I'm very glad I'm not the Chancellor and very glad I never will be. But if I were, I think I'd at least run the numbers on the minimum wage.
-
Will the Bitcoin price hit $100,000?With Bitcoin prices trading just below $100,000, we explore whether the cryptocurrency can hit the milestone.
-
Inheritance tax receipts jump 11% even before Autumn Budget overhaulOfficial figures show inheritance tax receipts are rising even before the chancellor’s changes to reliefs
-
Beating inflation takes more luck than skill – but are we about to get lucky?Opinion The US Federal Reserve managed to beat inflation in the 1980s. But much of that was down to pure luck. Thankfully, says Merryn Somerset Webb, the Bank of England may be about to get lucky.
-
Rishi Sunak can’t fix all our problems – so why try?Opinion Rishi Sunak’s Spring Statement is an attempt to plaster over problems the chancellor can’t fix. So should he even bother trying, asks Merryn Somerset Webb?
-
Young people are becoming a scarce resource – we should value them more highlyOpinion In the last two years adults have been bizarrely unkind to children and young people. That doesn’t bode well for the future, says Merryn Somerset Webb.
-
Ask for a pay rise – everyone else isOpinion As inflation bites and the labour market remains tight, many of the nation's employees are asking for a pay rise. Merryn Somerset Webb explains why you should do that too.
-
Why central banks should stick to controlling inflationOpinion The world’s central bankers are stepping out of their traditional roles and becoming much more political. That’s a mistake, says Merryn Somerset Webb.
-
How St Ives became St Tropez as the recovery drives prices sky highOpinion Merryn Somerset Webb finds herself at the epicentre of Britain’s V-shaped recovery as pent-up demand flows straight into Cornwall’s restaurants and beaches.
-
The real problem of Universal Basic Income (UBI)Merryn's Blog April employment numbers showed 75 per cent fewer people in the US returned to employment compared to expectations. Merryn Somerset-Webb explains how excessive government support is causing a shortage of labour.
-
Why an ageing population is not necessarily the disaster many people think it isOpinion We’ve got used to the idea that an ageing population is a bad thing. But that’s not necessarily true, says Merryn Somerset Webb.
