Here's why we must raise the minimum wage

When the taxpayer is forced to step in to support a worker's basic standard of living, something is seriously wrong. Raising the minimum wage is the only realistic solution.

Every now and then, a blog post really gets your attention. When they do, they are almost always about tax dodging or house prices. Sometimes gold does it too. But that's about it. Good news, then, that we have a new subject that everyone wants to have a say on:welfare to workers.

I first wrote on this several years ago, but I picked it up again late last week as the issue of the £22bn-odd of benefits we pay to people in work came up again. My suggestion (see below)of an increase in the minimum wage as one way to deal with the problem (the higher the wages, the fewer benefits have to be paid out) hasn't been 100% popular.

The idea is "socialist nonsense". I have missed the point that it is the market that sets wages any government action is unnecessary interference. Any rise in wages will cause mass unemployment. A higher minimum wage will just mean large corporations classifying workers as part-time or freelance, and encourage our nation's "idle bourgeois parasites" to move their businesses overseas. Small businesses couldn't cope, etc, etc.

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A lot of these arguments are perfectly good, as is the one about the problem not beingwages but ratherhouse prices. There is a view that it isn't wages that have to go up but the cost of living that has to come down. House prices are a flashpoint for a lot of you (as they are for us).

If only the government would let house prices fall, you say, someone on the minimum wage might not need regular state top ups to his salary to support himself. The same goes for the prices of utilities, which we in the UK seem to always end up paying more for than the Europeans and Americans.

But whatever you think about the gap between basic pay and the cost of a basic standard of living in the UK, the key point is that we admit there is a problem.

It might be because our government focuses on almost nothing but keeping house prices up. It might be because our crappy currency means that we constantly import inflation. It might be because our tax system is all wrong (see my postson the location tax). It might be because the incentive schemes our big corporate managers work under push them to cut wages and staff before anything else (see my post onAndrew Smithers' view). Or it might just be a symptom of the fact that Western living standards are beginning a long and nasty fall.

But either way, the key point is that our economy is not able to produce jobs that pay wages that support families without the taxpayer stepping into help. That is surely telling us that something in the UK is very, very wrong.

It seems to me that whatever is causing the problem, the net effect is that the taxpayer (or the non-subsidised tax payer at least) is being forced to pay a good part of what should be the payroll costs of the world's big corporations. We can deal with this in a few ways.

We can force companies to raise wages by cutting all benefits to workers right away. That would make it pretty hard for them to get any workers (unemployment benefits would be better), but even if they could get them, I think it would force up wages pretty quickly: would you shop in Tesco if it was clear that every shelf-stacker was slowly starving to death or spending every night sleeping in a tent in the carpark? Me neither.

Still, as short and sharp a solution as abolishing welfare in work in one go might be, I can't see it happening (nor would I wish the social consequences on anyone).

I also can't see what Ferdinand Mount in the Evening Standard suggests happening. He gets the arguments for a rising national minimum wage, but isn't so sure we need to enforce it via the state. Instead, he calls for a "gradual cultural shift" in which "companies work out the solution between their accountants and their consciences", and in which the general public shows their preferences by shopping at stores "well known for paying a living wage".Pipedream.

What else? We could lobby the government to let house prices fall or to support rather than force down the pound. But we know they won't. We can try and force companies to change the way they pay their management. But that's very hard and just as much a fiddle with the free market as anything else. So that takes us to our usual end point.

We've pointed out and eliminated all the impossible (politically or otherwise) solutions to this problem. And we are left with the possible. As far as I can see, that's a rise in the minimum wage. I don't much like it either. But there it is.

Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.