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One way to cut the debt - raise the minimum wage
Taxpayers are spending millions topping up the incomes of badly-paid workers. If the minimum wage were a living wage, says Merryn Somerset Webb, we wouldn’t have to.
Back in 2010 I suggested what must have sounded like a slightly odd idea. If we really want to cut the budget deficit and perhaps one day the national debt, I said, we must consider raising the minimum wage.
As I put it three years ago, "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.
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Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.
Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.
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. We effectively take on what should be their payroll costs.
Instead of allowing this to keep happening, I wondered, why don't we "make the companies pay living wages, stop the state subsidies and cut the benefits bill in the process"? I also wondered if raising the minimum wage might help us all out slightly by cutting long term unemployment: "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".
I thought this was all rather brilliant. However, as with most of the columns I write that I really like, it wasn't exactly picked up with enthusiasm by the political establishment. So I was pleased to see that the Sunday Times had a look at the issue of welfare workers in last weekend's edition.
As Nicholas Hellen points out, everyone is very keen to talk about what non-workers should or shouldn't get in benefits, but there is very little discussion about the fact that around seven million (yes, seven million) people the ones we describe as strivers are getting their wages heavily topped up by the taxpayer, thanks to the fact that " successive governments have concluded that our vast and willing workforce is simply not capable of earning enough money to support an acceptable standard of living".
So much so that it is possible to have your income "more than doubled" by various benefits even if you are in full time work. If you are, for example a single parent in London working full time on the minimum wage, you will have your income topped up from £941 a month to £1,924. And if you are a two parent family (one working 35 hours and one working 15) with three children, you will get it topped up from £1,345 to £2,100. Total cost to the taxpayer? £30bn-plus.
It is time to talk about this properly. Working people shouldn't have to be state supported. So either the state is paying out too much, or employers are paying much, much too little.
Which brings me back to my original point. Why don't we raise the minimum wage and make at least some of the problem go away?
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