Are wages too low, or is the cost of living too high? Or both?

130722sentamulivingwage

How pleasing it is to see the Archbishop of York agrees with the view, long-held by Vox Political, that British workers should be paid a living wage, and that the taxpayer should not be subsidising big business!

Archbishop John Sentamu is to chair a year-long commission investigating the need for a living wage. In The Observer, he wrote: “The holes in millions of paycheques are being plugged by in-work support to the tune of £4 billion a year. But why aren’t those who are profiting from their workers paying up? Why is government having to subsidise businesses who don’t pay their employees enough to live on? It is a question we need to answer and act on – fast. The cost of living is rising but wages are not. In the rush for profit, and for high pay at the top, too many companies have forgotten the basic moral imperative that employees be paid enough to live on.”

This is a sentiment that Vox Political wholly supports.

Needless to say, there are also detractors. A commenter known as ‘neilcon’ pointed out: “The high cost of running a small business in this country is one of the main reasons why the hourly rates are so low. If you employ someone at £8 you then have to pay a further 13 per cent to the government in employer’s National Insurance contributions for the privilege of employing someone; you have to supply that person with suitable equipment for their work.” The commenter reeled off a few other business-related expenses before going on to “the issue of the banks utterly refusing to lend to small businesses, the high cost of renting office premises, business rates on your office premises to the government, the high cost of VAT, together with clients trying to squeeze the final price as much as possible and the very late payments by bigger companies.

“The real cost to an employer of an £8 per hour wage is calculated at about £15 to the business.”

I can sympathise with this sentiment. It doesn’t let off the bosses of larger companies, who have huge salaries and no excuse (FT 350 companies, for example) but they might have a reasonable excuse for not raising pay, if smaller companies say they’ll go out of business if the higher cost is forced on them.

But the simple fact is that the cost of living is too high and – if they had to rely on wages alone – millions of working people, up and down the country, would be unable to pay their bills…

… leading us to a recent blog article by our old friend Michael Meacher MP. He points out that our privatised utility companies are forcing every one of us to pay – through the nose – for substandard services.

He wrote: “More than £100 a year of an average household [water] bill, that is about 30 per cent, goes on profit, compared with 9 per cent in the energy sector which is itself known for egregious profiteering.

“In the last 10 years, water bills have risen by a massive 64 per cent, compared with an increase of just 28 per cent in average earnings. In the last three years alone, average earnings have fallen by 7 per cent while water bills have continued to rise remorselessly. There is no competition in the water industry and the only potential constraint is the industry regulator, but he has chosen to succumb to corporate lobbying in allowing water bills to continue to shoot upwards to feed fancy executive bonuses and big dividend handouts.”

The last sentence tellingly brings us back to the huge profits taken by executives. It seems that a few things are going on:

1. The privatisation of the national utilities – water, electricity, gas (and, some would say, telecommunications) – has failed in its stated aims, which were to democratise capitalism by making it possible for everybody to be a shareholder, to keep bills low, and to end government subsidies for these organisations. Instead, shares have been drawn into the hands of a very few rich investors, bills have risen far beyond wages, and government subsidies have either increased massively (rail) or companies have used the tax system to avoid paying the amount due on their profits (Thames Water and its ‘super sewer’).

2. Company bosses, keen to drive up their share prices in order to create larger dividends for their shareholders and higher salaries for themselves, have successfully held wages down in order to achieve this. As ‘neilcon’ pointed out, lower wages mean less spending on National Insurance, meaning that keeping the employee payout down by pennies per person leads to many pounds in increased revenue.

3. The government is unwilling to do anything about this because it wants to keep wages depressed as much as possible. This is the reason it has cracked down so hard on benefit payments – not because of fraud (which is minimal) but in order to create an urgent need among the unemployed to find work, and terror in those who have jobs that they could be replaced if they complain about the increasingly meagre pittance on which they are being told to survive.

There are many subtle sub-consequences as well. You may wish to raise some of them in the ‘comments’ column.

What’s the answer?

This may come as a surprise, but the best place to start might be with the private utility companies. An ultimatum to put their houses in order and charge a reasonable amount, rather than extorting money out of a captive clientele, might produce results – especially if the alternative is re-nationalisation.

This might take the pressure off the smaller private companies by actually reducing the amount calculated as the living wage; with lower utility bills, the amount of money needed for a working person’s survival will also drop.

If the government and the utility companies got their sums right, this could mean the need to subsidise working people’s pay would be wiped out, meaning a large saving on the tax bill. Feed this through to working people in the form of a tax cut and, again, smaller private companies would benefit (along with everybody else, of course). An alternative of using the money to help pay off the deficit would be unhelpful – we need more, and healthier, businesses in this country, employing more people. Get that sorted and the deficit will come down in any case.

On a completely different tack, what about Landlord Subsidy (otherwise known as Housing Benefit)? Why not put a cap on rents, thereby ensuring that the government is not subsidising the rapidly-increasing pace of (some) landlords’ greed?

Unfortunately, this is not likely to happen under the current Conservative/Liberal Democrat Coalition government – and it seems the Parliamentary Labour Party is to keen to become the Plastic Tory Party to take a stand; it will be up to its backbenchers and the party’s grassroots members to force a policy change.

At the end of the day, wages might still have to rise, due to matters unforeseen in this article.

But a plan that acknowledges the mistakes of the past and aims to redress the shocking way that the supply of money has overbalanced to favour a tiny minority – to the detriment of the vast majority – would constitute the first steps on the way to a nation that can not only provide Archbishop Sentamu’s living wage, but also help our struggling small businesses.

(The first Vox Political collection, Strong Words and Hard Times, is now available and may be ordered from this website)

12 thoughts on “Are wages too low, or is the cost of living too high? Or both?

  1. Whistler

    Wages have been withering on the vine for decades, enabled by the abundance of credit. Look where that’s got us. We have the taxpayer subsidising companies who pay their employees starvation wages. Many of those companies are government outsourcers.

  2. Big Bill

    “This may come as a surprise, but the best place to start might be with the private utility companies.” Of course, and this applies especially to the banks who have privatised money creation and charge huge interest on goods (money) they never had in the first place. If you’re going to go after the utilities, why mess about with the small ones? Go after the big fish and that’s the banks.

  3. None of the Above

    There’s a group called Link4Growth, one of their ideas is the concept of enough. If better off people and companies were prepared to accept enough, rather than always looking for more, those at the bottom could have more.

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  6. workshyscrounger

    There is a cap on private rents in all but a name: the LHA only covers the most derelict, energy-inefficient, bug-infested poky places that nobody should be expected to live in. A nation-wide cap (even council-specific) would never be passed as it would be deemed interventionist.

    1. shirleynott

      Disallowing unemployed people enough benefit to cover the cost of rent/council taxes – is this interventionist? (I’m not entirely sure what ‘interventionist’ means in this context but all of the so-called ‘welfare reforms’ and ‘policies’ to introduce ‘fairness into the system’ have disrupted the status quo – such as it was – to an impassible extent).

      1. workshyscrounger

        I meant it as the state making private landlords lower their potential income going against the supply/demand and free market principles. You wouldn’t go to Tesco and say a basic weekly shop allowing you three square meals a day should cost less than eg £15 per person. Don’t get me wrong – I hate the buy-to-let scheme and landlords in general (or rather lack of standards for rented housing).

        The status quo was disrupted so that the government can say that it’s doing something. It doesn’t matter that not only it does not save money but also causes unimaginable human misery.

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